The downstream energy sector in Brunei Darussalam is set to get the biggest makeover in its history, with a Chinese consortium planning to invest up to $6bn to develop an oil refinery and associated chemicals plant at the Pulau Muara Besar (PMB) industrial site.
On July 3 the Brunei Economic Development Board (BEDB) – the state agency tasked with advancing the growth and diversification of the national economy – announced an agreement had been reached between the government and Chinese textiles and raw materials supplier Zhejiang Hengyi Group to build a $2.5bn refinery at PMB, which the board has been promoting as the Sultanate’s main petrochemicals centre.
Under the deal Sinopec Engineering, the engineering arm of China’s state-owned petroleum firm Sinopec, will carry out the front-end engineering design for the project, followed by the preparation of a detailed study prior to the commencement of construction. Though largely a Chinese venture, Zhejiang has said it would offer local equity participation of up to 30% in the project.
Located on a 260-ha site, the plant will have a production capacity of around 135,000 barrels per day (bpd), with its output split between gasoline, diesel and jet fuel. The plant will also turn out paraxylene and benzene, both of which are used extensively in textiles production.
The refinery will, however, be only the first part of a two-stage process, with the second tier of investment, valued at an additional $3.5bn, seeing expansion of the refinery to allow for the production of olefins, which are used as raw materials in plastics manufacturing. The first stage of the project is expected to create up to 800 jobs, with a further 1200 positions linked to the petrochemicals plant. Most of the output from the refinery and the olefins plant will be exported, with China’s industrial sector being the main market.
According to Ali Apong, the chairman of the BEDB and the deputy minister at the Prime Minister’s Office, the refinery project will be the driving force in development of PMB as an industrial centre. “The BEDB will continue to work very closely with Zhejiang Hengyi and other relevant stakeholders towards the successful implementation of this project,” he said when announcing the inking of the deal. “It is hoped that the investment by Zhejiang Hengyi will not only contribute to Brunei Darussalam’s economic growth but will also act as a catalyst to develop PMB and its surrounding areas.”
Already ratified by His Majesty the Sultan, the agreement is the culmination of months of negotiations between officials from Brunei Darussalam and China, with the deal having been flagged back in February when it was announced talks were being held over energy cooperation. However, the speed at which the project has reached the approval process is impressive, with a senior Bruneian official saying some months ago that an announcement on cooperation between energy firms from the two countries could be expected “in the next year or so”.
A few details have yet to be clarified, including the exact timetable for the construction and opening of the plant, though this is dependent on the planning process. Another is where the bulk of the oil to be processed by the refinery will come from. In announcing the agreement, the BEDB said that a portion of the feedstock will be sourced locally, though with the current production of Brunei Darussalam’s fields running at around 200,000 bpd, and most of this already committed to the export market, the new refinery’s operators will likely need to look overseas for crude.
Brunei Darussalam already has one oil refinery, operated by Brunei Shell Petroleum, the company responsible for the majority of oil extraction in the Sultanate. However the existing refinery, located at Belait, has a production capacity of just 10,000 bpd, with almost all of its output of unleaded motor gasoline, gasoil, Jet A1 and kerosene used to meet local demand.
The Chinese project is not the only such development that has been mooted in recent years. In 2008 private consortium PetroBru proposed the construction of a 200,000-bpd refinery at PMB, with the scheme carrying a price tag of $3bn-$4.3bn. However, despite extensive consultations with the government, and a detailed feasibility study that forecast work on the refinery could begin in 2013, the plan seems to have lapsed. Like the Sinopec-Zhejiang plan, most of the crude to be processed at the plant would have been sourced from overseas, with Kuwait named as the potential main provider, and output would have been exported, largely to the Asian market.
When completed, the new facility will be the largest single foreign investment in Brunei Darussalam’s economy, as well as almost immediately becoming one of its biggest employers. It will also go a long way to establishing the Sultanate’s credentials as a petrochemicals centre, which in turn could attract further investment into the sector.