Oman's Duqm refinery project to double downstream throughput and increase sector growth

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In April 2018 the foundation was laid for one of the sultanate’s largest engineering ventures – the $7bn integrated refinery at Duqm. Indeed, according to industry media, its construction will account for some 8% of Oman’s entire GDP in the years preceding its completion in 2022. The refinery will form a key part of the country’s overall oil and gas development strategy by securing its position in the global refining market.

The scheme illustrates the benefits the sultanate can offer as a location for sector infrastructure, close to both global trade routes and Gulf suppliers. The refinery may also jump-start a range of associated industries, with Duqm envisioned to become a major petrochemical and industrial hub in the years ahead.

Throughput & Products

According to the June 2018 “BP Statistical Review of World Energy”, Oman had a refinery throughput of 204,000 barrels per day (bpd) in 2017, between the 178,000 bpd produced in 2016 and the high of 224,000 bpd refined in 2008. Throughput estimates vary due to maintenance, other periodic processes and fluctuating output.

Prior to breaking ground at Duqm, Oman had two refineries located in Muscat and Sohar, which were opened in 1982 and 2006, respectively. Both are run by the Oman Refineries and Petroleum Industries Company (ORPIC), which is in turn publicly owned via the Oman Oil Company (OOC). The older site maintains a production capacity of 106,000 bpd, while the Sohar Refinery Improvement Project, finished in May 2018, boosted the capacity of the newer facility to 198,000 bpd.

The two sites house four plants between them. At Muscat, the Mina Al Fahal refinery processes crude into gasoline, diesel, liquid petroleum gas (LPG), jet fuel and fuel oil. The long residues are then shipped via a 226-km pipeline to the Sohar complex, where they are mixed with crude and made into fuels, naphtha and propylene. The naphtha is sent to an aromatics plant, which can convert 818,000 tonnes of paraxylene and 198,000 tonnes of benzene per annum. The propylene is piped to a polypropylene plant, which can manufacture up to 350,000 tonnes of polymer pellets each year.

When completed, the 900-ha facility at Duqm should produce up to 230,000 bpd, and once it operates at full capacity, the project will nearly double the sultanate’s current daily production volume.

International Cooperation

The Duqm complex is owned by the Duqm Refinery and Petrochemical Industries Company (DRPIC), a 50:50 joint venture formed in April 2017 between OOC and Kuwait Petroleum Corporation (KPC), a subsidiary of Kuwait Petroleum International. OOC had initially partnered with Abu Dhabi’s International Petroleum Investment Company, though the firm withdrew in 2016, citing a poor fit with its changing investment strategy. When KPC stepped in, OOC and its new partner agreed to provide 35% of the project finance themselves and solicit the remainder from local and international banks. When construction began one year later, Bakheet Shabib Al Rashidi, Kuwait’s minister of oil, electricity and water, told reporters that $4.8bn had been secured from international credit agencies and commercial lenders.

The refinery’s development has been tailored to process the heavy oil that is preponderant in both Kuwaiti and Omani crude, and it will initially be supplied by both countries. Kuwaiti crude, which will make up 65% of throughput at the outset, will be delivered by sea to the Port of Duqm and moved via a liquid pipeline jetty system designed to accommodate vessels of up to 150,000 deadweight tonnes.

Associated Works

The refinery will sit within the Duqm Special Economic Zone, a free zone and greenfield development that should harness the sector’s cutting-edge capabilities. Moreover, its tenants will be entitled to 30-year tax exemptions, free profit and capital repatriation, and expedited Customs and visa services, among other incentives (see Industry chapter). The complex will house units for mercaptan oxidation, hydrocracking, hydrotreating, delayed coking, sulphur recovery and hydrogen generation, which could be spun off into petrochemicals businesses.

Construction will also benefit several specialist builders, as the DRPIC issued three engineering, procurement and construction (EPC) packages valued at $5.75bn in 2017. The largest, EPC 1, was acquired by a joint venture between Spain’s Técnicas Reunidas and South Korea’s Daewoo Engineering and Construction, and entails commissions for the facility’s main units. EPC 2 – awarded to the UK’s Petrofac and South Korea’s Samsung Engineering – covers commissioning, training and other start-up services for the refinery’s offsites and utilities. EPC 3, won by Italy’s Saipem and the US’ McDermott International, covers logistics, including the port of Duqm, a crude tank farm at Ras Markaz and an 80-km pipeline connecting those facilities. Additional contracts include an OOC agreement worth $483 with Thailand’s Gulf Energy Development, which will install a facility capable of delivering 326 MW of electricity and 1667 cu metres of water per hour, in order to keep the complex independently supplied; and an unspecified, multimillion dollar deal with the Scottish industrial firm Wood, which will provide two coker heaters. Construction began in June 2018, when the DRPIC issued a formal notice to proceed on all three contracts.

Retaining Gains

Due to the sophistication of petrochemical refinery development, most of the contracting has gone to highly specialised international firms. However, in keeping with the government’s interest in keeping value in-country, these firms have been keen to hire locals where they can. For example, a $50.6m subcontract from EPC 2 was awarded to Galfar Engineering and Contracting, the largest construction firm in Oman.

DRPIC has taken measures of its own to pursue this end. By requirement, 10% of purchases and services by value will go to small and medium-sized enterprises in the country’s joint supplier registration system, while a further 20% will go to locally sourced goods. Similarly, it is required of contracting firms that at least one in 10 of their employees be Omani nationals. Moreover, DRPIC will train 600 Omanis to work at the refinery, which could comprise up to three-quarters of the 800-man workforce needed to operate the site at full capacity.

Such training is part of a long-term strategy to address the shortage of Omanis qualified to work in technical fields like petrochemical engineering. “Highly specialised projects require a certain level of expertise that is currently challenging to acquire locally; however, ongoing training initiatives by the government and developing education institutes will eradicate the problem,” Nalin Chandna, CEO of National Gas Company, told OBG. In September 2018 the DRPIC organised an exhibition to encourage youth to apply for the training programme, which will provide 100 scholarships in 2019. Thus, by the time the refinery comes on-line in 2022, the local sector should have a solid labour force to employ, which KPC has already expressed interest in pursuing in collaboration with the sultanate.

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The Report: Oman 2019

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