Work on abandoned refinery projects to resume

A significant drop in construction cost during the economic downturn has forced oil majors in the Gulf to resume the construction of abandoned refinery projects and take up new ones.

The most recent development in this regard is a 30-40 per cent slide in cost of construction expected by Abu Dhabi Refining Oil Company (Takreer) for its Ruwais project. In another example, there is a near 30-per cent drop in the construction cost reported by Total-Aramco for its Jubail joint venture. The refinery project which was earlier estimated to cost $14bn will now cost $10bn, Cyprus-based Middle East Economic Survey (Mees) said in a new report.

In a third example, Qatar Petroleum (QP) is reviewing its Al Shaheen oil refinery project. Jassim Darwish, a senior petroleum development engineer with QP's refinery projects recently said the project that had earlier been put on backburner is now being reviewed as the construction costs have come down.

QP had earlier completed the preliminary design for the project, but, had not gone further.

Apparently, the GCC has an acute shortage of refineries. The Gulf will remain a net importer of gasoline till 2013, Washington-based PFC Energy had said in a recent report. Most of the Gulf states will also remain an importer of diesel and fuel oil, the report added.

Low refining capacity in the region forced it to import gasoline ranging in between 100,000 barrels a day and 200,000 barrels a day, PFC Energy said. Most Gulf states will also keep importing diesel and fuel oil, it added.

Analysts say this may just the right time for such projects as they are expected to come on line when the demand for refined oil is expected to resume.

"Many of these refineries went out to tender when construction costs were incredibly high and still climbing. As a result, the economic viability of these projects were increasingly being questioned," said Raja Kiwan a Dubai-based analyst with PFC Energy.

"With construction costs now having eased considerably since the peaks seen in mid-2008, the region's national oil companies – and in Saudi Arabia's case the private sector partners – are able to get much lower prices. With completion dates set for 2013 and beyond, market conditions should have improved considerably by then," Kiwan said.

Drop in steel and cement prices is being considered the prime reason for a drop in prices, analysts say. "The dramatic fall in the construction of materials such as steel and cement has already eaten into the capital expenditure (Capex) needed for greenfield refineries and upgrades, and as the slate of projects thins out, construction costs are seeing a further slide," Mees said.


Taqa to invest $2.5bn in North African projects


Abu Dhabi National Energy Company (Taqa) will invest $2.5bn (Dh9bn) in North Africa in 2009, a senior company executive said yesterday. Taqa is 75 per cent-owned by the government of Abu Dhabi.

It is looking at expanding its generating capacity at the industrial port of Jors Lassar in Morocco, among other global investments, said Majid Iraqui, the company's Managing Director for North Africa and the Middle East.

Iraqui said Taqa was also well positioned to win a contract for a 300MW wind farm project in Morocco. (Reuters)

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