On September 25, PetroBru chief executive officer Mohd Zaman Noordin told local media he hoped work on the $3bn refinery would commence in late 2012 or 2013. Under the proposal put forward to the government, the refinery would have a maximum capacity of 500,000 barrels per day (bpd), with diesel and aviation fuel being the main production focus, he said.
“We are confident that in the absence of major economic fallout, the viability of the refinery will be validated in the study,” he said.
Currently, Brunei’s only processing facility is the Seria Oil Refinery, operated by Brunei Shell Petroleum and situated at the oil town of Seria in the Belait district. The 25-year-old refinery consists of a crude distillation unit and a reformer unit, each with a production capacity of 10,000 bpd, producing unleaded gasoline, gas oil, aviation fuel and kerosene. The refinery’s output meets most of domestic demand, though Brunei still has to import some processed oil products.
According to Mohd Zaman, all of the refinery’s output would be destined for export, with the initial pre-feasibility study having already shown there was definite potential for an export-oriented refinery.
One factor in favour of the proposed refinery is the growing demand for oil products across the region, especially diesel and jet fuel. China, Vietnam, Indonesia, Malaysia, and the Philippines will have a shortfall in terms of the delivery of these products by 2012, Mohd Zaman said.
PetroBru is in the process of securing overseas partners for the project, and has already held talks with both a Kuwaiti firm over supplying crude for processing and several Chinese companies to take the refined output from the plant, according to Mohd Zaman.
“Other than these two, we are also in talks with a few other parties. None of these have been concretely finalised yet, because I think to an extent some of them are waiting for the results from the detailed feasibility study,” he said.
The Brunei-based company already has one foreign partner on board, with Malaysian-listed TRC Synergy Bhd taking a 26% stake in PetroBru in November, only days after the local firm had applied to the government for permission to carry out the initial feasibility study.
Yeoh Sook Keng, TRC’s chief financial officer, said consideration was being given to foreign oil majors to take a stake in the refinery. Were the companies to come on board, they would bring in the pledge of crude oil apart from capital, he told local media in Kuala Lumpur.
“We have received interest from oil majors in China and Iran,” Yeoh said. “In China, for instance, there is a big demand for refined oil; a tie-up with an oil major would be able to complement our efforts.”
Under the plans, the refinery is to be built at Pulau Muara Besar, where a deep water harbour and adjacent infrastructure and support facilities is currently undergoing construction by the Brunei Economic Development Board (BEDB). More than 190 hectares have already been set aside for the oil refinery project and storage facility at the port.
While things appear to be falling into place for PetroBru, the project still has to win full state approval. There are other potential hurdles to overcome, including a possible cost overrun even before work on the refinery has begun.
Steel prices are a particular matter of concern. Though they’ve fallen from their record high of $1000 a tonne earlier this year, prices are still hovering around $825 a tonne, well above the approximate $650 a tonne when PetroBru first proposed the refinery project last November.
Another potential difficulty the project could face is the shortage of skilled workers for the construction stage of the development. With a number of new refineries either under construction or in the pipeline in both Asia and the Middle East, specialists in the field are in short supply and thus in a position to demand top dollar – a factor that could both slow the project and push up costs.
PetroBru will also have to find sufficient crude, at an affordable price, to supply the plant. Most of Brunei’s present production is shipped overseas unprocessed. Even if some of these exports were to be diverted, the country’s oilfields do not have the capacity to meet the new refinery’s predicted maximum output, with flow of around 200,000 bpd.
In an interview with local media in July, Mohd Zaman said the initial study had been based on the assumption that 50% of the required crude would be sourced from Brunei and the other half from the Middle East, though this was not the only option.
“We also had various scenarios whereby we would be getting the crude solely from the Middle East, he said. “Obviously that would affect the profitability of the refinery, but it is still doable.”
Though costing and supply issues still need to be addressed, the project could bring distinct advantages to Brunei’s economy. The 3000 jobs expected to be created by the refinery itself, along with spin-offs for local firms supplying materials and services, all depend on whether the project gets off the ground – something that will become clearer when the results of PetroBru’s detailed feasibility study is released, possibly in the new year.
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