Kwok W Wan, LONDON: Iraq wants to more than double refining capacity to meet rising domestic demand for products, as well as investing in export facilities, according to deputy oil minister Ahmed Al-Shamma. But securing the finance for these ambitious plans could prove difficult.
The five potential refinery projects could add 900,000 barrels a day (b/d) to the country’s throughput capacity at an estimated cost of $26.5 billion. According to Al-Shamma, this would more than double existing capacity of around 870,000 b/d, which is producing 540,000-600,000 b/d.
Soaring domestic demand
Opec puts Iraqi capacity at 812,000 b/d. It estimates refined products demand in 2010 was up by nearly 14% over 2008 volumes, at 566,000 b/d, with gasoline demand soaring by over 21.5% in the same period to 115,000 b/d. Although overall production is rising, by 13% since 2006, to 513,000 b/d last year, according to Opec, existing capacity cannot keep pace with rising demand.
Al-Shamma told the Iraq Mining conference in London this week: “[Our] refining industry is old and requires full renovation, complete upgrading, yet we don’t have the luxury of stopping any of the refineries because of continuously increasing demand.”
The newest Iraqi refinery project was proposed by the Egyptian private-equity firm Citadel Capital to process the heavy crude from the Qayarah and Najmah oilfields. Al-Shamma said the facility expected to produce 150,000 b/d, but that construction would not start until Citadel was sure of crude production volumes from the fields. He estimated the cost of building the refinery at a minimum of $5 billion.
Of the other planned projects, the most advanced is the $6.5 billion Karbala refinery in central Iraq. The ministry signed a memorandum of understanding with Italian investors in July to work on the facility. “The design is for 150,000 b/d, but the investors are thinking of increasing it to 200,000 b/d. We don’t mind, as long as it doesn’t delay the project,” Al-Shamma said, adding that all the plants refined products would be consumed domestically.
But, he said: “Even this [Karbala output] will not meet demand. That’s why we have to go ahead and try and sign a second refinery deal as soon as possible.”
A 150,000 b/d refinery at Maysan, in the south, has two groups of investors looking at it, but was “not yet at the same stage as Karbala”, Al-Shamma said; while a 150,000 b/d Kirkuk refinery project in the north was still looking for financing.
Infrastructure investment
The southern Nassiriya refinery, the largest, is last on the list. “Nassiriya is a bigger refinery, at 300,000 b/d, and on our list of priorities it comes last,” said Al-Shamma. Reasons for this included the lack of export facilities to ship refined products to global markets. New dedicated jetties would be needed at the Al-Faw port, in the southwest, but the oil ministry is in talks with the ministry of transport about constructing the necessary infrastructure, he said.
Most of Iraq’s oil products are produced from the three main refineries, Basrah, Daurah and Baiji. But all are running below capacity as a result of a lack of reliable crude deliveries stemming from leaky, war-battered and ageing pipelines, and underinvestment.
But securing the $26.5 billion needed for the refinery projects could be difficult, with investors at the conference citing corruption as the main reason to stay out of the war-torn country. Iraq has made significant progress in its upstream sector, but only by promising to guarantee the billions of dollars of investments by international oil companies.
Iraq wants to increase oil and gas production as it desperately needs the revenue to rebuild the country. Crude production is set to reach 3 million b/d by the end of the year; while the country’s fourth licensing round is looking to boost gas output with an eye on lucrative export markets in Europe.