The refining industry in the Middle East – more, more and more!

Since 1988 the Middle East is the world’s biggest oil producer. However, when it comes to oil refining the Middle East still remains behind Asia Pacific, North America and Europe. Indeed, despite the impressive growth of oil refining capacities in the region, the local refineries are capable of processing only around 30% of the crude oil produced here. The situation is now changing. As the global crude oil prices remain unstable, the oil producing companies are forced to seek deeper integration with refining. As a result, in the period from 2010 till 2016, the Middle East was the region with the fastest growing refining capacities (see Table 1).

Table 1 – Refining Capacities AAGR by Regions, %

Region	AAGR 2010-2016, %
Middle East	2.7%
CIS	1.8%
Asia Pacific	1.6%
Africa	1.4%
North America	0.7%
South & Central America	-0.2%
Europe	-1.5%

Source: BP Statistics

Following the refining capacity growth, the export of petroleum products from the Middle East also increased – if back in 2010 petroleum products export from the region amounted merely to around 150 million tons per annum (MMtpa), in 2016 it grew to more than 210 million tons (see Figure 2).

Figure 2 – Petroleum Products Export from the Middle East, million tons per annum

Most of the export increase is in diesel (from 20 MMtpa to 55 MMtpa) and naphtha and LPG (from 38 MMtpa to 50 MMtpa and from 40 MMtpa to 54 MMtpa, respectively). On the other hand, we see a decrease in the export of fuel oil (from 28 MMtpa to 19 MMtpa). It is tied to the increase in conversion rate of the regional refineries and fuel oil yield shrinking from 30% to 25%. Besides, it is related to the increasing demand for fuel oil to be used as bunker fuel since the maritime industry is growing in the region.

The Middle East continues to see the development of its refining industry for a number of reasons. One of them is feedstock availability. According to a forecast by BP, in the period running up to 2040 oil production in the Middle East will keep growing at a rate of 0.6% per annum and by the end of this period, it will amount to 37 million barrel per day (MMbpd), it is currently around 32 MMbpd.

Another critical factor is the region’s strategic location, meaning accessibility of the main export markets – Europe, Asia Pacific and Africa. While Europe is a mature market with a trend to shrinking consumption of petroleum products, Asia Pacific, as forecasts have it, is the market far from being saturated: demand here is expected to keep growing, albeit at a slower pace than before. As for Africa, many analysts believe that the region’s demand for petroleum products will keep growing in the long term and as a result, according to the BP’s forecast, petroleum product consumption in Africa will double as compared to the current value.

The final driver of the refining industry in the Middle East is, of course, the domestic demand growth. Apparently, the increase is not going to be as rapid as in 1990-2016, when petroleum product consumption in the region grew at a rate of 3.8% per annum, but up until 2040, according to the BP forecast, the rate will be at a solid 1.1% per annum.

Saudi Arabia

Saudi Arabia is the region’s largest oil refiner (see Figure 3), which is not surprising given the country's leading position in the oil production market.

Figure 3. Refining capacities in the Middle East, thousand bpd

According to data for 2017, the country's total refining capacities exceed 2.8 MMbpd, which is about 30% of the region’s capacities. And the Kingdom is not satisfied with what has already been achieved – a number of projects are being implemented in the country aimed at the refining scope increase and depth, strengthening the integration between refining and petrochemicals. Among such projects: Petro Rabigh Refinery & Petrochemical Complex Expansion – Phase 2, modernization and expansion of SASREF refinery, Saudi Aramco’s Jizan and Ras Tanura refineries, etc.

The announced projects are part of the Vision 2030 economic transformation program, the main goal of which is the creation of a world-leading downstream sector in Saudi Arabia, built on four key drivers: maximizing value from the Kingdom’s crude oil production via integration across the hydrocarbon chain; enabling the creation of conversion industries to produce semi-finished and finished goods to help diversify the economy; developing advanced technologies and innovation; and enabling sustainable development in alignment with the Kingdom’s National Transformation Program.

One of the most interesting projects is the crude oil to chemicals (COTC) complex, a joint project of Saudi Aramco and SABIC. It is expected that the complex capacity will be 400,000 bpd, and the associated product slate will include about 9 million tons/year of chemical products and base oils. Investment in the project is estimated at more than $ 20 billion, the expected start of operation is slated for 2025.

According to information of Saudi Aramco, the complex is expected to create an estimated 30,000 direct and indirect jobs, further stimulating the Kingdom’s economic diversification efforts. By 2030 the COTC complex is expected to have 1.5% impact on the Kingdom’s Gross Domestic Product.

In 2018, Wood and KBR were selected as the Project Management and Front End Engineering, Saudi Aramco and SABIC also announced in November 2018 that the COTC complex will be located in Yanbu on the west coast of the Arabian Peninsula.

Iran

The development of the chemical field is also relevant for Iran, which has one of the world's largest reserves of natural gas. Nevertheless, the country is one of the regional leaders in oil refining - according to data for 2017, the total refineries’ capacities were more than 2.1 MMbpd.

Naturally, given its position on the gas market, Iran places greater emphasis on the production of petrochemical products in its downstream development strategy – according to the National Petrochemical Company, 62 projects are being developed and implemented in the country, most of which are focused on gas processing (production of methanol, ammonia and their derivatives).

Nevertheless, refining development projects are also being implemented and announced, they include both the modernization of existing refineries (Tehran, Bandar Abbas, Isfahan, Tabriz and Abadan refineries) and the construction of new facilities (Anahita Oil Refinery, Siraf Refining Park, etc.).

The key problem for further development of Iranian oil refining is the current sanctions and the resulting financing issues (the modernization of existing refineries requires $14 billion), the availability of technology and qualified contractors. Thus, in June 2018 South Korea’s Daelim cancelled a $2 billion contract to modernize the Isfahan refinery. This cancellation was in response to the US’ decision to abrogate the Joint Comprehensive Plan of Action nuclear deal and reimpose economic sanctions on Iran.

UAE

If we talk about the diversification of the economy, the development of the UAE refining industry can be an excellent example – in comparison with 2010, the country has increased its oil refining capacities by more than 60%, becoming one of the three leaders in the region.

Future plans are no less ambitious. In May 2018 Abu Dhabi National Oil Company unveiled plans to invest $45 billion over the next five years to become a leading global downstream player. These plans relate to the expansion of Ruwais Industrial Complex and include the expansion of refining capacities by 600,000 bpd by 2025, as well as the development of the petrochemicals – construction of one of the world’s largest mixed feed crackers, which will increase production from 4.5 MMtpa in 2016 to 14.4 MMtpa by 2025.

The Florexx project is one of particular interest. There is an opinion that the Middle East, as a region possessing large fossil hydrocarbon reserves, is not interested in alternative technologies for fuel production, but in June 2018 an exclusive agreement was announced between Florexx International Investments LLC and Canada’s firm SNC-Lavalin for the extended basic engineering and subsequent design and delivery of an Advanced Topping Refinery in the UAE. It is planned that the capacity of the refinery will be 100,000 bpd and it will be located in Fujairah.

Iraq

In 2018, SNC-Lavalin was successful in oil refining projects in Iraq as well. In October, Iraq's Oil Ministry approved a preliminary agreement with Vancouver-based Pacific Future Energy to build a refinery in Nassiriya. Pacific is likely to work on the project in tandem with SNC-Lavalin that has a partnership with Pacific dating back to 2015.

Iraq is one of the region’s leaders in terms of announced grassroots refining projects – in addition to the mentioned refinery in Nassiriya with a capacity of 300,000 bpd, construction of three more refineries is also planned – in Maysan (150,000 bpd), Karbala (140,000 bpd) and Kirkuk (70,000 bpd).

Kuwait

Kuwait is the only country in the region that has reduced its refining capacities in comparison with 2010. This was the result of the Shuaiba refinery shutdown in March 2017.

In parallel with the closure of the Shuaiba refinery, Kuwait National Petroleum Company (KNPC) launched the Clean Fuels Project (CFP), to improve the quality of motor fuels produced at two other refineries of the company – Mina Abdulla и Mina Al-Ahmadi, as well as to increase their total capacity from 736,000 bpd up to 800,000 bpd. At the time of this writing, the completion of CFP was expected in early 2019.

Speaking about the refining of Kuwait, we cannot, of course, ignore the construction of a new multi-billion grassroot refinery in the Al-Zour area, 90 km south of Kuwait City. Known as the Al-Zour Refinery project (ZOR), it will be able to process 615,000 bpd of local crudes and produce Euro V motor fuels and such petrochemicals products as paraxylene and propylene. In January 2018, the Kuwait Integrated Petroleum Industries Company (KIPIC) confirmed that all five packages of the integrated complex are proceeding in line with the original schedule, with all packages due to be completed by yearend 2019 and initial refining units still on track for startup in May 2019.

Qatar

Qatar’s refining industry is represented by refineries in Mesaieed (137,000 bpd), Laffan Refinery 1 and Laffan Refinery 2 (292,000 bpd), which process condensate.

Recently, the national Qatar Petroleum has not announced plans for the development of refining capacities, however, like other Middle Eastern countries, it has declared its readiness to integrate into the production of petrochemical products. In May 2018, the company announced its plans to construct a new petrochemicals complex at Ras Laffan Industrial City, the core of which will be an ethane cracker with a capacity of more than 1.6 MMtpa of ethylene. The planned start-up of the complex, which will also include derivative plants, would be in 2025.

Oman

Unlike Qatar, Oman intends to radically expand its refining – in August 2017 the final investment decision (FID) on the construction of Duqm Refinery & Petrochemical Complex was made. Refinery capacity is 230,000 bpd, and its start-up, scheduled for the 4th quarter of 2020, will increase Oman refining capacity by 75%.

Duqm Refinery & Petrochemical Complex is a joint project of the Oman Oil Company and Kuwait Petroleum International, and, as most of the grassroot projects in the region, it involves integration with the petrochemical complex, the configuration of which has not yet been determined.

Israel

Israel’s refinery is based on two refineries – in Haifa (197,000 bpd) and Ashdot (100,400 bpd), the latest changes in production capacities of which were in 2013: the Haifa refinery commissioned hydrocracking unit and the refinery increased its capacity by 10,000 bpd.

Bahrain

Among its Persian Gulf neighbors, Bahrain has the smallest refining capacities, which does not prevent the Bahrain Petroleum Company (BAPCO) from active modernization of its only refinery in Sitra. The company launched the Bapco Modernization Programme (BMP), which includes a reduction in the output of fuel oil to 7% vol. from 15-16% vol. now due to the construction of a residue hydrocracking unit, as well as an increase in refinery capacity from 267,000 bpd to 380,000 bpd. The Sitra modernization project is scheduled to be completed in 2022.

Other Middle East countries

Syria, Yemen and Jordan can be attributed to other refining countries of the Middle East. The development of refining in Syria and Yemen is held back by ongoing armed conflicts in these countries, while Jordan is taking steps to modernize its only refinery.

In 2017 Jordan Petroleum Refining Company (JPRC) signed agreements with engineering companies on the the Zarqa refinery expansion project from 100,000 bpd to 120,000 bpd, which also includes refining configuration changes to increase refining ratio and product quality. Investment in the project is estimated at $ 1.6 billion.

Conclusions

Presently, the Middle East is one of the world's oil refining centers, and the implementation of the announced development projects can only further strengthen its position. Most countries in the region focus on monetization of hydrocarbon deposits, increasing the refining ratio and enhancing integration with petrochemical plants, which is in line with the development trends of the global refining industry.