ADNOC awards refinery work

Chris Stanton

• Last Updated: November 04. 2009 6:45PM UAE / November 4. 2009 2:45PM GMT

The Abu Dhabi National Oil Company (ADNOC) has awarded the first contracts for a multibillion-dollar oil refinery project that will serve as the foundation for the emirate’s diversification into petrochemicals.

The Ruwais refinery will boost ADNOC’s crude oil processing capacity by 400,000 barrels per day, or 74 per cent, to produce fuels for export and raw material for two petrochemical complexes.

Two contracts worth a total of US$5.2 billion (Dh19.1bn) to build key equipment at the refinery were awarded to two Korean firms, the state news agency WAM reported yesterday.

ADNOC’s decision to proceed with the project, which is estimated to cost $10bn in total, comes during a sustained downturn in refining margins.

Demand for refined fuels collapsed as a result of the financial crisis, and the market has an oversupply caused by the start-up of new refineries in the Middle East and Asia.

“Today you don’t need any more refinery capacity,” said Michael Corke, a refining expert at the energy consultancy Purvin and Gertz. “We anticipate this downturn in profitability will result in quite a few refinery closures.”

But Purvin and Gertz expects “significantly improved economics” by 2015 or 2016, Mr Corke said, a year or two after the plant starts up in 2014.

ADNOC officials have previously said they hoped to save between 30 and 40 per cent in construction costs in awarding the refinery contracts this year, and see demand recovering in several years. Company officials were not available for comment yesterday.

The refinery contracts are the latest in a number of large investments by ADNOC on the downstream energy sector in a year of sharply reduced profits.

The company’s fertiliser arm announced last week it would spend $1.2bn to build a new plant, and Borouge, ADNOC’s joint-venture plastics producer, announced in July a $1bn contract for part of its third-stage expansion.

The Ruwais refinery will have “strategic benefits” to the development of petrochemicals, said Bill Sanderson, an analyst at Purvin and Gertz.

“The economics here are different than what we describe globally,” Mr Sanderson said.

The Korean firm SK Engineering and Construction was awarded a $2.1bn contract to build the refinery’s distillation unit, the first of seven packages on the project.

GS Engineering and Construction was awarded a $3.1bn contract for the refinery’s catalytic cracker unit.

SK said in an announcement it would deliver the distillation unit at the start of 2014.

Takreer, the refining arm of ADNOC, expects to award five more contracts for infrastructure, a port and pipelines, WAM reported.

The new refinery will boost ADNOC’s export surplus of naphtha, a light oil product, by 50 per cent by 2013.

About half of that surplus would be piped to Taweelah to feed Tacaamol, the chemicals complex that will be completed by 2014, Mohammed al Azdi, the chief executive of Chemaweyaat, the firm behind the project, said last month.

The refinery will also produce propylene, a raw material in plastics, for use in the Borouge plants in Ruwais.

cstanton@thenational.ae