New refining capacity totaling 13 million b/d seen by 2012

Uchenna Izundu
International Editor

LONDON, Oct. 26 -- Wood Mackenzie Ltd., Edinburgh, expects 13 million b/d of crude distillation capacity to be built within the next 5 years out of the 20 million b/d proposed worldwide.

Lindsay Sword, who managed WoodMac's study entitled Global Refinery View, told reporters Oct. 25 that most of the capacity would be built in the Asia-Pacific area. "The grassroots projects are in China and India. China is growing capacity to meet demand, but India has expressed an aspiration to become the largest exporter in the region."

The Middle East is the second major growth region, with most of the projects proposed in Iran.

"The grassroots project in Kuwait is likely to start in 2013," Sword said. "The Al Zour refinery was estimated to cost $10 billion originally, but now Kuwait is expecting it to cost $14 billion in a retender."

Kuwait National Petroleum Co. has invited 17 companies to bid to construct the 615,000 b/d Al Zour refinery after finding that initial submissions cost more than it had expected. KNPC expects to award five engineering, procurement, and construction contracts. Those that have been selected to bid include Italy's Snamprogetti SpA and South Korea's Hyundai Engineering & Construction Co. Ltd., a consortium of Japan's JGC Corp. and Korea's GS Engineering & Construction Corp., and a consortium of Technip Italy SpA, Foster & Wheeler Corp., and Korea's SK Engineering & Construction Co. Ltd.

Cost inflation and biofuels legislation are the main problems facing refinery proposals in the Middle East and North America, respectively. In Europe, capacity expansions for Italy and Spain have been proposed.

Sword told OGJ that WoodMac ranked as "weak" the three proposals to build a refinery in Ceyhan, Turkey, saying these would be unlikely to happen by 2012.

Calik Enerji AS of Turkey, JSC NC KazMunaiGaz, and Indian Oil Corp. plan to build a $4.9 billion refinery with a capacity of 15 million tonnes/year. Turkish company Turcas Petrol AS and the State Oil Co. of Azerbaijan (Socar) have also applied to build a 10 million tonne/year refinery. Separately, OMV AG and Turkish company Petroil Offici have announced plans to build 10 million-tonne/year refinery.

"Europe does not actually need more crude capacity—there is not too much capacity, just the wrong type, so adding additional capacity is not really aligned with the supply-demand fundamentals in the region. The capability of each of the sponsors in each project to build a new grassroots refinery is questionable; they have not done this before, certainly not recently," Sword said. "Lukoil, who had announced plans to build a refinery at Ceyhan has since, as we understand, canceled this and decided instead to concentrate investment in their refinery in Bulgaria. Getting permits to build new refineries in Turkey is very difficult."

Sword said, "National oil companies dominate the refining expansion picture with only limited investments in new capacity planned by the international oil companies." He said, "The IOCs feel they can make better use of their capital elsewhere."

John Waterlow, principal analyst for oil demand at Wood Mackenzie, told OGJ that the consultancy does not expect oil prices to hit $100/bbl because there is too much speculation around the factors underpinning that price. "The supply and demand fundamentals don't show that," he said.

According to Waterlow, global demand has been resilient to high oil prices for a number of reasons. One is that developing economies have subsidized oil prices. Where governments have reduced support and populations have been exposed to market prices, oil demand growth has slowed.

"In developed economies, companies can change to other fuels in power plants when the prices become too high," he said.

Contact Uchenna Izundu at uchennai@pennwell.com.

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