x Abu Dhabi, UAESunday 23 July 2017

List of delayed Gulf oil-refining projects grows

Gulf refining projects are increasingly being delayed as oil majors grapple with the slumping market.

The list of delayed Gulf oil-refining projects is growing as demand for fuel shrinks rapidly throughout the industrialised world. The latest casualty may be a US$15 billion (Dh55.09bn) project to build Kuwait's fourth refinery, with a proposed crude-oil processing capacity of 615,000 barrels per day (bpd). The development was already at the centre of a political debate, with Kuwait's parliament and some officials of the Kuwait National Petroleum Company opposing it over costs, and the state audit bureau probing alleged irregularities in the tender process for contracts. With the final construction contracts still unsigned, the government now plans to cancel the proposed Al Zour refinery and replace it with a smaller project to revamp two existing oil-processing facilities, according to the Kuwaiti newspaper Al Seyassah. The political problems, combined with a deteriorating outlook for refining profits, are "definitely pushing back the completion date by one year or maybe even two years", said Raja Kiwan, an analyst with the consulting firm PFC Energy. Elsewhere in the region, three Saudi refining projects are facing delays and two more in the UAE are vulnerable, analysts say. "Nobody needs to be in a hurry when it comes to export refineries," said Samuel Ciszuk, the Middle East and North Africa energy analyst with IHS Global Insight. As Asian demand for transport fuels soared over the past few years, the UAE had been gearing up to double its refining capacity. Two developments were planned: one to increase the capacity of Abu Dhabi's main refining complex at Ruwais to 817,000 bpd from 400,000 bpd, and a second to build a refinery in Fujairah. The Fujairah project, which has already experienced several setbacks, may be in jeopardy. "From an economic standpoint, it is looking a lot more difficult to justify," said Mr Kiwan. Last year, ConocoPhillips, the US oil company, pulled out of the venture over soaring costs, and this summer the project's proposed capacity was cut to 200,000 bpd from 500,000 bpd. Abu Dhabi's state-controlled International Petroleum Investment Company, the project leader, is seeking a new partner among European refiners, but has been tight-lipped regarding its progress. The Ruwais refinery expansion appears to be on more solid ground. Takreer, the refining unit of Abu Dhabi National Oil Company, said last month it would host a job explanation meeting for contractors ahead of soliciting bids for the project. But Mr Ciszuk said it would make sense to delay the bidding in order to benefit from falling construction costs. That is the approach the Saudi national oil company, Aramco, has taken with several refining projects planned for the kingdom. Last month, ConocoPhillips and Aramco pushed back construction bids for a proposed $10bn refinery at Yanbu by six months. Total, the French energy company, said the award of construction contracts for another $10bn refinery project with Aramco at Jubail also had been delayed by at least three months over financial uncertainties. In September, contractors preparing to bid on a contract to build a third Saudi refinery at Jizan were advised that the 250,000 bpd project's completion date had been extended by two years to 2015. The Saudi petroleum and mineral resources ministry had originally proposed to award the licence last year, but now expects bids to be filed by next March. The deferred and threatened projects were all considered strategic to supplying Gulf states' increasing domestic needs for petroleum products and to diversify the region's oil exports beyond crude. In the UAE's case, that was part of a broader government plan to diversify the country's economy and increase its resilience in the face of volatile crude prices. In previous oil cycles, falling crude prices helped oil refiners by reducing their input costs. But those were cycles driven by changes in global oil supply in which a drop in the price of crude would precede any change in demand for refined products such as petrol. By contrast, in the current demand-driven cycle, a precipitous drop in demand for transport fuels in key oil-consuming markets such as the US presaged and may have set off the slide in crude prices. That has squeezed refiners' profit margins and caused them to cut back processing. As of last week, nearly 15 per cent of US refining capacity sat idle. tcarlisle@thenational.ae