Baghdad refining plans inch forward
Thursday, Feb 15, 2018
Baghdad signed a deal in late January with a consortium of Chinese investors to develop a world-scale refining and petrochemical complex in the south of the country.

The scheme is one of a plethora of refining projects unveiled by the Ministry of Oil (MoO) over the past year, under the stewardship of a new minister and against a backdrop of increasing oil revenues. Invitations to invest in three of these projects were said to be imminent.

Since the federal government’s recapture of territory in the north and west last year, the area has increasingly been the focus of efforts to improve downstream provision. The authorities also released more detail late last month on rehabilitation of the Baiji refinery in Salahuddin province, once the country’s largest.

On January 28, the MoO announced that two Chinese companies had been selected to develop a 300,000- bpd export refinery and petrochemicals complex on the Al-Fao peninsula in the far south of Basra province. Al-Fao is where a large portion of crude from the giant southern oilfields is currently sent for export.

As is typical of such announcements, initial details were scarce but when expressions of interest (EoI) were first invited in March last year, the ministry envisaged the refinery being developed on a build-own-operate (BOO) or build-operate-transfer (BOT) contract model. It said it would be constructed in such a way as to allow the addition of an integrated petrochemicals complex.

Baghdad has long aspired to develop a local petrochemicals sector based in Basra. Both Royal Dutch Shell and France’s Total signalled their interest earlier in the decade and Japan’s Toyo Engineering was reported late last year to be assessing such a project as part of a gas export deal with Kuwait.

When Shell confirmed withdrawal from the country’s oil sector in September, the firm reaffirmed commitment to the proposed Nebras Petrochemicals Project, without offering further updates on the seemingly-stalled scheme.

Chinese investors are prominent in Iraq’s upstream sector – with Beijing-owned PetroChina and China National Offshore Oil Co. (CNOOC) separately operating the main fields in Missan province. Meanwhile, the country’s various parastatals have also mooted interest in the various iterations of the long-delayed plan to develop a new refinery at Nasiriyah in Dhi Qar.

However, the MoO also has a history of announcing agreements with putative refinery investors which later fail to progress to project implementation.

In early January, the ministry issued a public ultimatum to Maysan International Refinery Co. – a joint venture between Swiss-based Satarem and China’s Wahan Co. to commence execution of a planned 150,000-bpd refinery in Missan within 30 days or face cancellation of the estimated US$6 billion deal.

Wahan had previously claimed the backing of Beijing-owned financial institutions.

Oil Minister Jabbar al-Luaibi has also developed an unenviable reputation for repeatedly announcing new refining projects to be offered to investors without subsequent evidence of progress. The Al-Fao investment is potentially shaping-up to be a welcome exception.

The statement regarding the Chinese deal was accompanied by a promise that companies would be invited ‘soon’ to invest in three other refineries. These are; the revised Nasiriyah scheme, now calling for a refinery with capacity of 150,000-bpd decoupled from proposed upstream development; a 150,000-bpd plant in Anbar province; and a 10,000-bpd facility at Qayarah in Nineveh governorate.

Both the latter two are situated in unsettled areas liberated from Islamic State (IS) last year, and moves to meet local energy needs are aimed partly at maintaining popular acceptance of federal rule. Angolan NOC Sonangol, which operates the Qayarah oilfield under a licence awarded in 2009, announced the resumption of upstream activities in early February on the back of eased security concerns.

Just days after the Al-Fao agreement, the MoO signed a pact with Kurdistan-based Ranya International to develop a 60,000-bpd refinery in Kirkuk – which was said to be designed mainly to serve the local market.
However, the Nasiriyah project has been on the drawing board since the turn of the decade while the status remains unknown of plans to develop greenfield refineries at Kut and Samawa – announced alongside the Kirkuk project shortly after Al-Luaibi’s accession in August 2016.

Meanwhile, reports emerged in late January that work had ceased on the only new refinery to have reached the execution stage as a result of the ministry’s failure to keep up payments to the contractor. The 140,000-bpd plant at Karbala was awarded to a consortium led by South Korea’s Hyundai Engineering & Construction in 2014 under an engineering, procurement and construction (EPC) contract.

Again aimed specifically at improving fuel supply in the north, Al-Luaibi revealed in December that the MoO had decided to proceed with partial rehabilitation of the Baiji refinery following the recapture of northern territory from Kurdistan Regional Government forces in October. The facility is situated on the Baghdad-Mosul road around 110 km from Kirkuk.

Formerly the country’s largest at 310,000 bpd, such was the damage inflicted by IS that the refinery was considered potentially beyond repair.

However, on January 29, Al-Luaibi announced details of the repair plan, which would focus on bringing the 70,000-bpd Salahuddin-2 unit back on stream by the end of the year in order to “cover a large part of the domestic need of petroleum derivatives as well as meet the needs of power plants”.

Plans had also been drawn up for the rehabilitation of the 70,000-bpd Salahuddin-1 unit “after the necessary funds are allocated”, he said.

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