Tag Archives: refinery

Refinery Progress Highlight’s Egypt’s Domestic Downstream Push

ImageAfter years of delays and challenges from inside the country and out, Egypt’s new refinery project appears poised to finally break ground and it could not come at a better time.

In the two years since the collapse of the government of Hosni Mubarak, Egypt has faced significant challenges to meeting domestic energy needs thanks to increasing demand, an unsustainable state subsidy program and an overall loss of confidence on the part of production partners. In an effort to cut down on costly imports, the country’s new government has pushed for substitution options, the most notable of which is a $3.7 billion refinery projects helmed by Citadel Capital.

First proposed in 2007, the project has encountered a series of obstacles to completion including a wider global economic slowdown that made securing needed financing all but impossible. More importantly, Egypt became the poster case for the Arab Spring, spurring the collapse of the long-standing government of Mubarak. This development pulled the rug out from under the country’s business environment, again, making financing a difficult goal to reach.

Still, while financing the project took far longer than they expected, Citadel was able to close the process last summer, clearing the way for the project finally moving forward. The facility will produce more than 4.2 million tons of refined product a year, halving the country’s imports and saving the government an expected $300 million during that time. Most importantly for a country facing an increasingly frustrated population that has faced blackouts and cuts in services due to fuel shortages, the facility means a long-awaited boost in downstream capacity.

Citadel was able to meet financing needs with the help of a number of outside actors that looked past the country’s current uncertainty. These have included the African Development Bank, the European Investment Bank and Qatar who have pledged billions in investment and support for Egypt over the last several months.

Other efforts to curb dependence on expensive imports at a time of political and economic volatility have included possible new trade deals with Iraq and a soft credit crude agreement with Libya. 

Image: Arabian Business

Originally Posted: Newsbase Downstream Monitor, All Rights Reserved

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Libya’s Lofty Goals Remain But So Do Challenges

After rebounding faster than many thought possible, Libya’s oil and gas sector has set its sights on further expansion with new production goals for this coming March and significant expansion over the next five years. With a plan that includes gradually broadening their exploration efforts, increasing refining capacity and even venturing into unconventional options, including shale, Libya appear poised to finally live up to their energy potential in the region.

Despite such confidence and political will, the North African nation now faces more than its share of challenges standing in the way of those lofty production goals. More than just an additional revenue stream for the country, Libya’s energy output represents the country’s clearest and surest path towards sustainable growth and stability over the coming decade. Currently, Tripoli looks to hydrocarbon revenue for 80 percent of GDP and 97 percent of export earnings, making the sector’s stability and growth all the more vital to Libya’s post-war future.

However, questions about security, shared domestic benefits and confidence among needed foreign partners have cast some doubt about whether the country’s new political leadership have a plan in place to make this happen.

A Quick but Unsure Recovery

With more than 46.4 billion barrels of available crude, Libya is home to Africa’s largest proven oil reserves. Despite the country’s potential, Libya has seen a steady decline in production levels from a 3 million bpd peak in the 1960s. This slowdown was the result of an insufficient infrastructure and political isolation under the leadership of Muammar Gadaffi. Production efforts began to rebound after international sanctions were lifted in 2004, though the government’s handling of the energy sector and underperforming efforts created a cautious atmosphere among foreign firms. The collapse of the Gadaffi government amid widespread violence last year dealt another blow to production efforts last year, but quick action on the part of the transitional government helped output rebound ahead of analysts’ predictions, reaching 1.6 million bpd this month. While still far short of 1960s’ highs, the recovery has offered some confidence, setting up a production goal of 1.72 million bpd by late March and 2.2 million by 2017.

Libya has also been able to increase natural gas output, producing 2.5 billion cubic meters (bcm) a day as of this month, with plans to increase to 3 bcm by the end of the year.

Members of the country’s National Oil Corporation (NOC) have suggested that the country’s’ short-term goals can be met with only existing projects, moving beyond that amount will require expanding both up and downstream efforts in the coming months.  This will include new production licenses within the next year, according to Reuters, as well as following up on projects that were delayed as a result of the conflict. After signing a $900 million exploration agreement in 2009, BP announced their intent to return to Libya with both on and offshore projects planned.

Further, expansion efforts will include improvements to the country’s refining capacity, which now stands at 378,000 bpd, across five facilities, according to a recent European Commission report. The growth of the country’s refining capacity will be especially important moving forward to address export demands, as well as domestic needs. Libya currently relies on imports for three-quarters of its gasoline needs.

However, the NOC and the country’s new political leadership must first deal with a series of domestic challenges standing in their way, most stemming from the violent conflict that led to the collapse of the Gadaffi government.

In addition to dealing with damage to the country’s energy infrastructure during the civil war, Libya has also been plagued by uncertainty about the country’s security situation. While some companies, including Italy’s Eni and Spain’s Repsol, made quick returns after the war ended, others have remained cautious, with many of the militias that rose up during the conflict still active and armed.

This situation has become more pressing as some of these groups have begun using up and downstream faculties as tools of protests. Recently, a group demanding medical care and compensation for their role in the war halted production at the Zawiya Refinery for three days in protest, costing the country an estimated $30 million in lost revenue, according to Reuters. In addition to lost earnings, the protest spurred action among local workers who threatened protests of their own to demand better security at the facility. So far, Tripoli have been able to avoid such protests with a pledge to hear out workers’ concerns, though no long term solutions have been put on the table. This lack of clarity has been made worse by an ongoing struggle for political influence between the traditional central government in Tripoli and the unofficial capital of the oil-rich east, Benghazi.

A Stable Setting for Foreign Investment

Whatever solution is finally applied to the country’s security situation, it will need to come quick to ensure needed international investors. This is especially true with the country’s current and anticipated energy infrastructure. In addition to boosting transport lines, Libya will need significant investment in unconventional technology if it hopes to reach the estimated 290 trillion cubic meters of shale gas the U.S. Energy Information Administration believes the country holds.

While Libya has not traditionally relied on gas production, the country’s shale potential has forced a reevaluation of its role in the energy sector and the country’s ability to move beyond pre-conflict production levels, NOC Chairman Nuri Berruien told Bloomberg. Reaching those reserves will require costly early investment and appeals to foreign firms with more direct experience with hydraulic fracturing, or ‘fracking’ – the process necessary to extract deep-set shale deposits.

Image: The Wall Street Journal

Originally Posted in Newsbase, Afroil Monitor

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Algeria’s Downstream Deficit on Display

The impact of Algeria’s downstream deficit became clear this month as a tighter European refining market threatened a series of gasoline deliveries scheduled for mid-October. Despite substantial oil and gas reserves and high export rates to the United States and Europe, Algeria does not currently offer the downstream capacity to meet growing domestic needs. Recent refinery closures and site maintenance in Europe and a sharp increase in car ownership locally have exacerbated the country’s energy challenges by reducing accessibility to refined products, according to a Platts report and comments from Energy Minister Youcef Yousfi.

As of January 2012, Algeria boasted a total crude oil refining capacity of 450,000 bpd at four facilities. This capacity is not on track to meet rising domestic demand for refined materials, promoting an increase reliance on imports, which rose from 1.3 million tones in 2010 to 2.3 million tones in 2011. This situation has hardly been helped this year with the six-month closure of their largest facility, the 335,000 bpd refinery at Skikda in July 2012.

To address this deficit, Algeria has launched a series of renovation efforts at each of the facilities with an aim of being able to increase output to meet domestic demand by 2014. These efforts include the construction of a Liquefied Natural Gas (LNG) plant and three Liquefied Gas Facilities at the Skikda location, an expansion of 20,000 bpd at the Algiers location, an increase of 30,000bpd at the Arzew location and a plan to build three new LNG trains at the Hassi Messaoud site.

In addition to improving sites to meet current demand, Algeria must also prepare for expanded production efforts, including both traditional, unconventional shale and the country’s push into offshore exploration. Recently, the country’s government and state-backed oil and gas firm Sonatrach unveiled an expanded $80 billion energy investment plan, with about $60 billion set aside for exploration efforts. The government also revised the country’s hydrocarbon laws to appeal to foreign firms willing to support investment into shale projects.

According to a Bloomberg report, Sonatrach CEO Abdelhamid Zerguine has stated that the North African country offers an estimated 2 trillion cubic meters of shale gas which they base on tests carried out in three provinces over 180,000 sq. km.

Image: Arabian Oil and Gas

Originally Posted: Newsbase Downstream MEA Monitor

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Qatar Lays Downstream Foundation in North Africa

As investors and development teams from Europe and the United States keep their cautious distance from the uncertainty of North Africa after the Arab Spring, some financial support and confidence is arriving on the Mediterranean shores, perhaps none more substantial than that of Qatar.

Active and present from early on in the rapidly changing capitals of Cairo and Tunis, Qatari representatives have stepped up their support in recent weeks, signaling a willingness to contribute, including downstream efforts that could prove vital to the region’s recovery and future growth.

Eager to strengthen ties in the region, especially in those states that have seen a shift in political leadership over the past year, Qatar began outlining a series of financial programs earlier this year. In Tunisia, a dormant refinery project was revived in May after Qatar announced that they would again put forth the $2 billion necessary to support a refinery project that could see the country’s output capacity increase fourfold. Boasting an initial output of 120,000 bpd, the plant will eventually produce 250,000 bpd upon completion, as well as 1,200 jobs. By aiding in a post-Tunisia’s efforts to reduce heavy dependence on foreign energy resources and even move them towards a possible role as refined product exports, Qatar is hoping to sew the seeds of good will with the post-Ben Ali government.

In addition to cultivating a relationship with the new government in Libya, Qatar has also worked to help the development of downstream energy projects in a post-revolution Egypt. Earlier this year, Qatar announced a $3.7 billion financing agreement with the Egyptian Refining Company to help support a refining project there, with the Qatar Petroleum set to take on a 25.3 percent stake in the effort, according to a Bloomberg report. Shortly after, the Qatar Investment authority announced a sprawling $18 billion investment plan, with $8 billion set aside for electricity and natural gas projects to the East of the Suez Canal.

The expansion of a North African footprint comes as Qatar has extended its reach into the energy sector, including several recent purchases and expansions of stakes in energy companies across North Africa and Europe. The new funding agreements also challenge the tide of recent state and private investors who have acted with caution when dealing with North African nations.

Image: North Africa United

Originally Posted in Newsbase’s Downstream MENA Issue

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Ras Lanuf Re-Opens But Libyan Recovery Doubts Remain

As Libya became the center of global attention for all the wrong reasons last week, the country’s energy sector took a significant step towards recovery as deliveries from the Ras Lanuf refinery resumed after a year of closure. Responsible for more than half of the country’s oil and gas refined output, the return of production was a welcome step towards reaching and surpassing pre-conflict production levels.

However, lingering concerns about security throughout the country and a slowing production recovery have cast doubt on whether the country can continue to increase its output levels for both domestic energy and government spending needs.

According to the Libya Herald, Tripoli has outlined an annual operating budget of $55.3 billion and estimates they can earn $54.9 billion in oil and gas revenues over the next year. With little else in the way of exports or local development, Libya’s hydrocarbon output is the country’s surest way towards keeping the state moving towards stability and recovery. The reopening of the Ras Lanuf refinery after it was closed during last year’s civil war is a significant step in that direction.

Before closing its doors last year, Ras Lanuf was a leading producer of naptha and jet fuel and was capable of producing four cargoes of low-sulfur fuel oil a month, according to a Reuters report. After a series of delays, the plant came back online late last month, producing about half of its 220,000bpd capacity. The plant is overseen by the Libyan Emirati Refining Company, a joint-venture between Libya’s state oil company National Oil Corporation and UAE-based Al Ghurair group.

Despite the good news for the country’s recovering energy sector, the reopening comes as Libya’s return to pre-conflict levels has begun to slow. Earlier predictions that output would recover by this October as output began to stall around 1.38 million bpd in August, according to the Financial Times. Further recovery has also been shadowed by growing concerns that Libya’s security situation is not yet stable enough for a full return for much-needed international investors – a feeling that became very real last week as attacks on Western interests spurred strict travel warnings from the US and United Kingdom.

Originally Posted with Newsbase’s Downtream Monitor

Image: Maghreb Panorama

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Algeria Explores Downstream Investment Plans

Saddled by increasing energy demand and public spending, as well as steadily declining production levels, Algeria and its state-backed firm Sonatrach have outlined an increased budget for the next five years, with much dedicated to improving downstream efforts.

Algeria recently announced a $12 billion increase in their budget dedicated to the energy sector over the next five years, adding to the $68 billion already set aside for infrastructure and downstream efforts. Much of the additional funds have been set aside for increasing Algeria’s refining capabilities and investing in non-traditional efforts, both of which will require high initial investments but are intended to decrease the country’s dependence on imports.

The importance of improving the country’s most important revenue stream has become increasingly important in recent months as the new Algerian leaders seeks out ways to avoid the kind of public protests that led to the collapse of governments in Tunisia and Libya. Like Morocco, Algeria stepped up public spending to quell growing opposition but now face pressure in sustaining such spending. Algeria currently looks to oil and gas revenue for the majority of their export revenue and much of their government spending.

Algeria’s need for greater refining capabilities has become especially clear in recent weeks as purchases of gasoline and other refined goods spiked amid increased demand and in anticipation of a six-month closure of one of the country’s largest plants. Currently responsible for nearly 335,000 bpd, the Skikda refinery will be closed over the next six months for planned repairs. Overall, planned refurbishments to Algerian downstream efforts are predicted to increase output from 1.2 million bpd to 1.5 million bpd within five years.

To help fund the effort, Sonatrach have announced their plans to return to exploration and production efforts in neighboring Libya and increase foreign investment through a revision of the country’s energy policies. The country has recently seen a decline in international interest in energy efforts due to what has been called a hostile investment environment. According to Reuters, the amendments to Algeria’s energy law will introduce “tax incentives that aim to boost offshore exploration and attract foreign companies that can bring technology know-how for the development of unconventional reserves.”

Cross Posted with Newsbase’s MENA Downstream Observer

Image: Energy D-V

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Libyan Downstream Looks for Support

As Shell joins the ranks of foreign firms reassessing their presence in Libya amid political and security instability, the country’s downstream ability to attract needed investment and modernization financing has become increasingly questionable. Although general production levels are on schedule to meet pre-conflict levels this summer, Libya’s ability to move beyond that amount and make better use of the continent’s largest proven reserve of crude is far less certain in the eyes of potential production partners.

While both sides of last year’s conflict expressed their intent in protecting the country’s valuable production and refining infrastructure, many facilities were damaged during the violence that led to the collapse of the Gadaffi government. Far more remains outdated and unable to meet growing needs.

At the center of the debate is the country’s continued delay in re-opening the 220,000bpd Ras Lanuf refinery. While operations at the country’s second largest Zawiya Oil Refinery have reportedly returned to 100 percent, concern about stability and disputes with local authorities have kept the needed Ras Lanuf from operating at full capacity.

These concerns stem from growing public protest against new and existing contracts and uncertainty about the country’s political well-being. The latter of these issues has been further complicated by the recent news that national elections would be postponed from this month to next. Meanwhile, according to a Dow Jones report, the country’s energy sector has been slowed and in some cases stopped completely, by an ongoing review process and increasingly anxious opposition to agreements with US and European firms.

The resulting landscape has left many foreign partners, who would provide needed funding for infrastructure development and downstream expansion, wary about returning or entering the Libyan marketplace. In March, State Oil Co. of Azerbaijan, or Socar, denied reports that they would enter into agreements with Libya to expand their refinery and petrol station presence in the country, citing ongoing instability as the reason.

Image: Bloomberg

Originally Posted in Newsbase’s Downstream Monitor, All Rights Reserved

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