Integrating Oman’s petrochemicals sector

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Looking to maximise the benefit of its hydrocarbons reserves, Oman is investing in downstream oil-and-gas activities, including a new petrochemicals plant and an expansion at one of its refineries.

On July 23 the Oman Refineries and Petroleum Industries Company (ORPIC) announced it was proceeding with a $5bn programme to boost processing capacity at its refinery in Sohar and build a nearby petrochemicals complex. Key to this plan is a $3.6bn facility to be sited next to ORPIC’s refinery, which will have a steam cracker unit, high-density polyethylene and linear low-density polyethylene plants, and a polypropylene plant. Once completed, the plastics project will increase Oman’s petrochemicals production capacity from 200,000 tonnes per year to 1.4m tonnes.

ORPIC’s CEO, Musab Al Mahruqi, said the tender for the front-engine engineering design (FEED) stage of the project could be called within two months.

“We will appoint the FEED contractor to help us create the designs, which may take 12 to 16 months, before we actually produce a tender for the engineering, procurement and construction contract of the project,” Al Mahruqi told a press conference. “This will also give us more flexibility in terms of integrating with the refinery. Also, it will help in optimising the feedstock we have in the refinery and the natural gas because the steam-cracker feedstock will be both natural gas and refinery products.”

Another component of the project is a 300-km pipeline to run between Fahud, the site of a future gas extraction facility that will provide 40% of the feedstock to the new petrochemicals plant, and Sohar. Though not directly connected to the plastics project, ORPIC is also planning to link Sohar and Muscat with a high-capacity pipeline, a development that will allow processed fuels to be moved to the capital without having to use road tankers. Estimates are that, when completed in 2016, the pipeline will reduce tanker traffic in Muscat by around 70%.

The plastics plant is set to begin operations in 2018, a timeline that will dovetail with a planned expansion of ORPIC’s Sohar refinery, which will provide the majority of the feedstock for the petrochemicals project. At an estimated cost of $1.5bn, the upgrade will boost the refinery’s capacity from 116,000 barrels per day (bpd) to 180,000, while also expanding the range of products the facility can produce. When the upgrade is completed, the refinery will be better equipped to process heavy crude, while also able to turn out bitumen for the local market and provide feedstock to the plastics plant.

The tender for the engineering, procurement and construction (EPC) contract for the refinery project was called last December after nine companies pre-qualified in August, chosen from a pool of 50 first-round applicants. A final decision on the EPC winner is expected before the end of the year, with the new capacity due to come on-line in 2016.

In addition to offering long-term benefits to Oman by broadening the base of the economy, the refinery and plastics projects will likely offer more immediate opportunities for plant, equipment and services providers in the petrochemicals industry, as well as for construction companies and financial institutions.

While ORPIC officials have said they will raise some of the funds for the projects internally, either from equity contributions from shareholders or revenue flows, up to 70% of the capital-intensive work will be supported through loans or bonds. ORPIC has indicated that it will be looking to Omani, regional and international banks, along with global financial institutions, to generate financing, with Al Mahruqi saying on July 23 that a financial advisor had already been appointed for the Sohar refinery improvement project.

The new plastics plant and the upgrade to ORPIC’s Sohar refinery will provide a boost to Oman’s hydrocarbons and petrochemicals industries. The plastics facility in particular has the potential to become the centre of much wider economic development for the local private sector, being able to feed spin-off production of plastic products for commercial, retail and construction purposes, further bolstering the value-added component of the energy industry.

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