October 2017

Regional Report

Diversification: The catalyst for the Middle East’s downstream transformation

Over the past several years, the Middle East has made substantial investments to increase its downstream processing capacity.

Nichols, Lee, Hydrocarbon Processing Staff

Over the past several years, the Middle East has made substantial investments to increase its downstream processing capacity. These investments will continue through the early 2020s. The region is making a deliberate move to diversify its products portfolio in the refining, petrochemical and gas processing/LNG sectors.

Hydrocarbon Processing’s Construction Boxscore Database is tracking nearly 400 active downstream construction projects in the Middle East. These projects equate to nearly $280 B in capital expenditures (CAPEX) through the early 2020s. More than 85% of the region’s active projects are in the refining and petrochemical sectors, and more than half of these active projects are in the preconstruction stages. A full breakdown of active projects in the Middle East by activity level is:

  • Engineering—16%
  • FEED—12%
  • Proposed/planning—21%
  • Study—6%
  • Under construction—45%.
FIG. 1. Market share analysis of active projects in the Middle East. Source: Hydrocarbon Processing’s Construction Boxscore Database.
FIG. 1. Market share analysis of active projects in the Middle East. Source: Hydrocarbon Processing’s Construction Boxscore Database.

Saudi Arabia continues to hold the greatest share of total active projects in the region (FIG. 1). According to BP’s Statistical Review of World Energy 2017, the Middle East’s oil consumption is greater than 9.4 MMbpd. Over the last decade, the region’s appetite for oil has increased by more than 2.7 MMbpd. In turn, the Middle East plans to expand its refining capacity by approximately 1.5 MMbpd by 2022.

Traditionally, Middle Eastern refineries have simple configurations and high fuel oil yields, partly due to high power generation requirements. However, this trend has seen a complete reversal in recent years, with the region building a new generation of highly complex plants. These facilities, combined with upgrades and expansions at existing plants, are radically changing the product mix. New unit configurations include hydrocracking, catalytic cracking and hydrotreating capacities designed to minimize fuel oil output and maximize production of middle distillates, diesel and gasoline.

The region’s major crude oil refining initiatives focus on refining and petrochemical integration and clean-fuels programs. The Middle East is building some of the largest and most complex refineries in the world. These high-capacity mega-facilities will enable the region to produce higher-quality refined products to diversify the region’s products portfolio away from crude oil exports.

According to the International Energy Agency (IEA), Middle East oil demand is forecast to increase from 8.5 MMbpd in 2016 to nearly 9.7 MMbpd by 2023. With the increase in regional oil consumption, some refined products destined for export may be diverted to domestic markets.

According to the Gulf Petrochemicals and Chemicals Association (GPCA), the region’s total petrochemical production capacity is 150 MMtpy. The region is slated to see a substantial increase in petrochemical production. Several nations are building, or plan to build, mixed-feed crackers, along with capacity for ethylene derivatives, ammonia/urea and other petrochemicals. The Boxscore Database is tracking nearly $90 B in petrochemical CAPEX in the region.

The Middle East has enjoyed a petrochemical feedstock advantage against the rest of the world, but is facing competition from cheap US shale gas. The Middle East is also starting to restrict the flow of ethane. Regional countries, such as Saudi Arabia, have even raised ethane prices to cut back on subsidies. The ethane price increase has forced some producers to utilize propane and naphtha feedstocks in their crackers. The Middle East still holds a price advantage, but the region’s competitiveness against other producers, such as the US, has dwindled.

Regardless, the Middle East will add a substantial amount of new petrochemical capacity through the early 2020s. The petrochemical investments are part of the region’s plans to diversify its products portfolio to include more refined fuels and petrochemicals.

The following sections contain detailed overviews of the major refining and petrochemical trends happening in the region.

Bahrain

The country’s state-owned oil and gas company, Bahrain Petroleum Co., is progressing with the Sitra refinery expansion project. The $5-B expansion will increase the refinery’s distillation capacity from 267 Mbpd to 360 Mbpd. The project, referred to as Bahrain’s “Refinery Master Plan Project,” will produce high-quality refined products, as well as increase the plant’s energy efficiency.

Iran

Over the past year, Iran has made great strides to develop its downstream processing infrastructure. However, the future of the country’s downstream buildout hinges on foreign investment, technology and construction expertise. These elements are also critical for expanding exploration and production operations in the country’s South Pars gas fields, as well as for expansion, upgrading and grassroots capacity buildouts in its refining, petrochemical and gas processing/LNG sectors. With the easing of Western sanctions, Iran is making a great effort to attract foreign investment and technology, and that effort is starting to see positive results.

Iran is investing heavily to raise its domestic refining capacity from 1.9 MMbpd in 2016 to 3.2 MMbpd by 2020. The increase in domestic refining capacity is part of the country’s 20-yr Outlook Plan between 2005 and 2025. Known as the Iran Project, the country’s goal is to increase its refining capacity to 3.4 MMbpd by 2025. The country hopes to accomplish this ambitious goal by constructing new refineries, as well as by expanding and upgrading those plants already in operation. The bulk of the country’s planned grassroots facilities focus on processing condensate from the country’s South Pars fields.

The country’s grassroots refinery buildout will cost more than $20 B. This program includes the construction of the Persian Gulf Star, Siraf, Siraz Gas Condensates, Bahman Geno Heavy Oil and Anahita refineries.

Iran is also seeking approximately $14 B in investments to upgrade its refining network to produce high-quality, low-sulfur fuels. This program focuses on upgrading the Esfahan, Tabriz, Tehran, Bandar Abbas and Abadan refineries.

The country is also seeking more than $30 B in foreign investment to nearly triple its domestic petrochemical capacity. The country seeks to monetize vast reserves of natural gas from its South Pars fields to produce petrochemicals.

According to Farnaz Alavi, Director of Planning and Development for Iran’s National Petrochemical Co., Iran will invest up to $60 B in more than 25 petrochemical projects to increase domestic petrochemical capacity from 60 MMtpy in 2017 to 160 MMtpy by 2025. This investment would include the construction of new ethylene and ethylene derivatives capacity, ammonia/urea projects, methanol-to-olefins (MTO) plants, methanol capacity, and others.

The new production capacity will not be possible without foreign investment and technology. With the easing of Western sanctions, the country is increasing its cooperation with more international firms.

One of the country’s most ambitious projects is the Mokran Petrochemical Complex in Chabahar. According to the Iran Project’s website, the facility will include two olefins plants, an aromatics plant, an MTO plant, a crystal melamine plant, four urea/ammonia plants, four methanol/ammonia plants and five methanol plants, along with utilities and terminal infrastructure. The three-phase construction plan could house up to 30 units, with a total production capacity of 25 MMtpy. Phase 1 is expected to be completed in 2020, with the remaining two phases to begin operations in 2022 and 2024, respectively. The total cost of the three phases is estimated at nearly $12 B.

Iraq

Within the last decade, the nation’s crude oil consumption has more than doubled to 4.5 MMbpd. Iraq’s crude oil production is more than adequate to meet demand; however, the nation’s refining network suffers from low utilization rates. This predicament hinders Iraq’s ability to satisfy domestic demand.

To mitigate refined product imports, the Iraqi government announced an ambitious plan to boost domestic refining capacity. The plan was dubbed the second National Development Plan (NDP) for 2013–2017, and detailed the construction of four grassroots refineries. These four facilities were envisioned with a collective price tag of approximately $20 B, and would have boosted the country’s domestic refining capacity by 740 Mbpd. However, due to in-country fighting with ISIS and continued economic and political instability, only a fraction of the planned refining capacity is expected to begin operations by the early 2020s.

The four refineries would have been located in Karbala, Kirkuk, Missan and Nassiriya. At the time of publication, only the $5-B, 140-Mbpd Karbala refinery has seen tangible progress.

Although the country is experiencing difficulty in building the projects, Iraq’s oil ministry has proposed the construction of five additional refineries. These facilities, which could add up to 610 Mbpd of new refining capacity, would be constructed in Anbar, Diwaniya, Fao, Kut and Samawa. These refineries would operate under a build-own-operate or build-own-transfer model. Each of the plants would be able to produce Euro 5-standard fuels. These projects are in the early planning stages. If they are greenlighted, operations are unlikely to begin until the early- to mid-2020s.

Kuwait

Domestic consumption has risen steadily due to increased petroleum-fired electricity generation. Rising demand and a failing infrastructure have prompted Kuwait to develop the Clean Fuels Project (CFP) and the New Refinery Project (NRP)—also known as the Al-Zour refinery project. These projects represent a collective CAPEX of approximately $33 B.

The $17-B CFP is designed to upgrade and integrate the Mina Abdullah and Mina Al-Ahmadi refineries. The project includes the installation of 39 units, the revamp of seven units, and the closure of seven units. With the completion of the CFP, Kuwait will be able to produce high-quality, low-sulfur transportation fuels. The sulfur content in gasoline will decrease from 500 ppm to less than 10 ppm. Benzene and aromatics concentrations will also decrease. Bunker fuel oil sulfur content will decrease from 4.5 ppm to 1 ppm, and the maximum sulfur content of full-range naphtha will drop from 700 ppm to 500 ppm.

Kuwait is also constructing the largest refinery in the Middle East. The $16-B grassroots Al-Zour project will process domestic heavy crude oil, supply power generation plants in the country with environmentally friendly fuel and provide alternatives to gas imports for heavy fuel use. The mega-project is under construction, with operations scheduled to begin in late 2019.

The Al-Zour refinery will also provide propane and naphtha feedstocks to the Olefins III-Aromatics II complex. The $8-B project will consist of a mixed-feed cracker to produce 940 Mtpy of polypropylene (PP), 1.4 MMtpy of paraxylene, 420 Mtpy of gasoline and 209 Mtpy of additional fuels. The complex will be integrated into the Al-Zour refinery, with operations scheduled to begin in 2Q 2022.

Oman

The country is investing more than $14 B in new downstream infrastructure. These investments will help diversify the nation’s products portfolio, which is a major focus of Oman’s Vision 2020 plan. The country plans to take advantage of its strategic location on the Arabian Peninsula to build additional refining, storage terminal and petrochemical capacity.

The nation is investing nearly $13 B in the Duqm Refinery and Petrochemicals and Liwa Plastics Industries complexes. The $6-B Duqm project consists of a 230-Mbpd refinery and petrochemicals complex. The refinery will produce diesel, jet fuel, naphtha and LPG. Operations are scheduled to begin in 2020.

Once completed, the complex will accomplish the major goal of developing the Duqm industrial area, which is a pillar of the nation’s Vision 2020 plan. The industrial zone’s strategic location will allow cargoes to travel in and out of Oman without having to traverse the Strait of Hormuz.

Oman Oil Refineries and Petroleum Industries Co. completed the $2-B, 60-Mbpd Sohar Refinery Improvement Project in 2017. The expansion of the Sohar refinery allows Oman to increase gasoline, diesel, jet fuel, naphtha and LPG production to meet increasing domestic demand, as well as to enhance the country’s refined fuel export offerings.

The facility will also provide most of the feedstock for the $6.5-B Liwa Plastics project. Located in Sohar, the new petrochemical complex will consist of an 800-Mtpy naphtha cracker, along with derivatives capacity. Also in Sohar, Oman International Petrochemical Industries Co. is developing a world-scale polyethylene terephthalate/purified terephthalic acid (PET/PTA) plant. The $680-MM facility will produce up to 1.1 MMtpy of PTA and 250 Mtpy of PET.

Saudi Arabia

Leading the way in downstream capacity investments in the Middle East, Saudi Arabia’s Transformation Program—also known as Vision 2030—calls for the Kingdom to diversify its economy away from a reliance on oil exports. This plan includes slashing subsidies, boosting renewable energy usage, developing a financial hub in the country, investing heavily in building out the country’s downstream refining, petrochemical and gas processing capacities, and other initiatives.

By 2020, Saudi Aramco plans to spend as much as $150 B to become the global leader in refined fuels and petrochemicals production. This plan includes increasing domestic refining and petrochemicals capacity, as well as boosting ownership stakes in downstream processing facilities internationally. The company’s goal is to increase its global refining capacity from 5.4 MMbpd to 8 MMbpd–10 MMbpd by 2025.

Saudi Arabia’s domestic refining capacity is set to grow from 2.9 MMbpd to 3.3 MMbpd by 2019. The additional 400 Mbpd of refining capacity will come from the startup of the $7-B Jazan refinery. The plant will provide refined products to the country’s western and southern regions, with excess refined products to be exported. The Jazan refinery will be the third mega-scale refinery to be completed in the Kingdom since 2014. Over the past 4 yr, Saudi Arabia has added 800 Mbpd of new refining capacity with the startup of the SATORP and YASREF refineries.

Saudi Aramco also plans to become a world leader in the production of clean fuels, and has established a program to achieve mandatory sulfur specifications for gasoline and diesel. The Kingdom is seeking to reduce sulfur content in diesel and gasoline to 10 ppm, and to lower benzene content in gasoline to 1%. Saudi Arabia has instituted multiple projects for the increased production of high-quality, ultra-low-sulfur transportation fuels at the Jazan, Ras Tanura, Riyadh, PetroRabigh and Yanbu facilities.

Saudi Arabia will be a leader in the region’s petrochemical capacity buildout. According to the GPCA, Saudi Arabia has a total petrochemical production capacity of nearly 100 MMtpy, and the country is investing billions of dollars to further expand domestic chemical production. Although the Kingdom enacted price reforms on ethane and methane in 2016, significant petrochemical capacity additions are underway.

Due to the severe drop in crude oil prices in 2014 and 2015, the Saudi Arabian government enacted new reforms to reduce costs. One of the most significant reforms was the increase in ethane and methane prices. The price of ethane increased from $0.75/MMBtu to $1.75/MMBtu, and the price of methane increased from $0.75/MMBtu to $1.25/MMBtu. The ethane and methane price reforms represent an increase of 133% and 67%, respectively. The country is still the most cost-effective location for ethylene production, but Saudi Arabia has lost some of its competitiveness to the US, which utilizes cheap shale gas to produce ethylene. Regardless, Saudi Arabia is continuing its petrochemical expansion program.

The $20-B Sadara mega-complex started up its mixed-feed cracker in 2016, and the last unit was put into operation in August. The complex can produce more than 3 MMtpy of petrochemical products.

Saudi Arabia also commissioned the $8.5-B Rabigh 2 mega-project in late 2016. The project included an expansion of the existing ethane cracker, the construction of an aromatics complex and the expansion of a facility to process 30 MMcfd of ethane and approximately 3 MMtpy of naphtha as feedstock for a variety of high-value-added petrochemical products.

Additional petrochemical infrastructure is under development in the Kingdom. In mid-2017, Saudi Aramco and Total announced their plan to conduct a feasibility study for a new, world-scale, mixed-feed cracker in Jubail. The 1.5-MMtpy cracker would utilize feedstock from the two companies’ 400-Mbpd Satorp refinery. If built, the plant is estimated to cost $3 B–$5 B. However, the project would need to secure a vast amount of new natural gas feedstock. Total does not plan to begin detailed studies on the project until the partners are able to obtain additional gas supplies.

Saudi Aramco has also teamed up with Saudi Basic Industries Corp. (SABIC) to conduct feasibility studies on oil-to-chemicals technology. Phase 1 of the study has been completed. If greenlighted, the project could cost up to $20 B. The preliminary timeline would see the plant beginning commercial operations in 2024. The products would be exported to markets in Asia and Europe.

The Kingdom is expanding its phosphate fertilizer production. Saudi Arabian Mining Co.’s (Ma’aden’s) subsidiary, Ma’aden Wa’ad Al Shamal Phosphate Co., has completed construction on Phase 2 of its mega-scale phosphate fertilizers complex. The $8-B project can produce up to 3 MMtpy of phosphate fertilizer products. The company plans to add a third phase that will increase production by an additional 3 MMtpy. The $6.4-B Phase-3 project is scheduled to be completed in 2024.

To meet the growing demand for methyl methacrylate (MMA), Saudi Methacrylate Co. (Samac) invested more than $1.1 B in the construction of the world’s largest MMA plant. Dubbed the Alpha 2 project, commercial operations are expected to begin in late 2017. The facility can produce 250 Mtpy of MMA and 40 Mtpy of poly methyl methacrylate (PMMA).

To satisfy increasing regional and domestic demand for petrochemicals and detergents, Farabi Petrochemicals is building a $1-B plant in Yanbu to produce linear alkyl benzene (LAB) and n-paraffins. The plant will utilize diesel and kerosine from the Saudi Aramco and ExxonMobil refineries in Yanbu. Once completed in 2020, the facility will be able to produce 120 Mtpy of LAB and 246 Mtpy of n-paraffins, as well as de-aromatized specialty oils, asphalt, sulfonates, mining chemicals, process oils and lubes.

Rufayah Chemical Co.’s $500-MM chemical complex in Jubail Industrial City is also scheduled to go online in 2020. The plant will produce a wide range of specialty chemical products, with a total production capacity of 350 Mtpy.

United Arab Emirates (UAE)

Under Abu Dhabi National Oil Co.’s (ADNOC’s) 2030 Strategy, the UAE plans to:

  • Expand crude oil and sour gas production
  • Double domestic refining capacity
  • Triple domestic petrochemical production capacity.

This program is needed to meet increasing demand for refined products in the country. Energy demand in the UAE is increasing by approximately 9%/yr, and with the country’s population expected to double by 2030, additional downstream infrastructure will be needed to satisfy demand.

The UAE has announced multiple downstream processing capacity investments. Emirates National Oil Co. (ENOC) is investing $1 B to expand its Jebel Ali refinery. The project will add 70 Mbpd of new domestic refining capacity by 2020. Once completed, the Jebel Ali refinery’s total refining capacity will reach 210 Mbpd.

Renewed interest has been seen in the Fujairah refinery project. The $3.5-B, 200-Mbpd project was put on hold while the project’s developers—International Petroleum Investment Co. (IPIC) and Mubadala Investment Co.—completed their merger. The company is assessing its long-term goals, which include a possible restart of the Fujairah project. The revived interest in the Fujairah project was sparked by a fire that knocked out production at the Ruwais refinery, which increased domestic transportation fuels demand; as well as a spat with Qatar that has closed the country to Qatar’s fuel imports. If greenlighted, the refinery would not begin operations until the early- to mid-2020s.

As part of the UAE’s Vision 2030 plan, the country is making significant investments to boost domestic petrochemical production capacity from 4.5 MMtpy in 2016 to 11.4 MMtpy by 2025. To help accomplish this ambitious goal, ADNOC and Borealis are developing the Borouge 4 complex. The facility will utilize a mixed-feed cracker to produce polyolefin and non-polyolefin products. The project’s FID will be taken in 2018. If greenlighted, Borouge 4 is scheduled to begin commercial operations in 2023.

At the JV’s Borouge 3 complex, ADNOC and Borealis are developing a fifth PP plant. The PP5 project will use surplus feedstock from the Ruwais refinery’s propane dehydrogenation unit to produce 500 Mtpy of PP. Both the PP5 and Borouge 4 projects will help the UAE increase its domestic petrochemical production capacity to 10 MMtpy. Additional optimization and debottlenecking projects at Borouge 1, 2 and 3 will help the country move closer to reaching its petrochemical capacity goal of 11.4 MMtpy by mid-2025. HP

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