The Abu Dhabi National Oil Company (ADNOC) is pushing ahead with a major expansion of its oil refinery at Ruwais despite worsening economic conditions for refineries worldwide. An engineering, procurement and construction contract to double the production capacity of the company's largest refinery would be put out for bidding in June, said Jasem al Sayegh, the general manager of Takreer, ADNOC's refining division. "We believe this is the right time for construction," Mr al Sayegh told a refining conference in Abu Dhabi. "We are proceeding with all these projects as planned. As you are aware, all of our projects are self-financed." The Ruwais refinery's capacity will expand from 417,000 barrels per day (bpd) to 817,000 bpd, to supply fuels to the Abu Dhabi market and produce raw materials for ADNOC's petrochemical division.
Takreer expected to save between 30 per cent and 40 per cent on construction costs as a result of falling prices for contractors and building materials when it awarded the contract at the end of this year, Mr al Sayegh said. He declined to give cost estimates for the expansion, which should be complete by the end of 2013 and operational the year after, Mr al Sayegh said. ADNOC is proceeding with the project at a time of sharply reduced operating profits in the refining industry. Refiners earn their income on the difference between the cost of crude oil and the prices they fetch for petrol, diesel and other products. But the world economic crisis has sharply reduced demand and prices for oil products, often so quickly that refiners have lost money on each barrel of crude they process. Mr al Sayegh said he was satisfied with Takreer's operating margins this year, which he said were comparable to refineries in Singapore.
The company had not reduced production at its two refineries in Ruwais and at the edge of the capital, he said, in contrast to companies in the US and Europe. But energy experts say the refining sector will be squeezed hard over the next several years. The fall in demand will combine with a glut of supply from new refineries in Asia and the Middle East to keep profits low. Profits in diesel production, which boosted refining companies for the past several years, would be hit hard in particular as China, one the fuel's main consumers, became a net exporter this year, said Pierre Sigonney, the chief economist at Total, the French oil company. "We are not optimistic for refining margins for this year or next year," Mr Sigonney said. "The market will not be good just because of very low demand." He predicted that most refinery projects at an early stage of development would be delayed until margins recovered.
"We think that many projects that were still probable last year are now completely out for the next five, six years," Mr Sigonney said. Total, which is co-operating with Saudi Aramco to build a 400,000 bpd refinery in Jubail, would take advantage of the fall in construction costs, Mr Sigonney said. "We are willing to use the new conditions just to try to get better prices for the services," he said. firstname.lastname@example.org