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NEIGHBOURS AND PROCESSING

Caspian countries increase the quality of oil refineries

Author:

01.08.2019

Despite the efforts to find alternative sources of fuel such as for electric vehicles or the use of hydrogen, non-fossil fuel such as biodiesel and vegetable spirit, global demand for oil products is growing regularly, making the producing countries to increase their refining capacity. At the same time, tight environmental requirements makes the producers to pay special attention to the quality of produced hydrocarbons.

Azerbaijan, as one of the countries exporting hydrocarbons, is also part of this process.

 

One for all

Oil refining industry of Azerbaijan was founded in 1859, when the first oil refinery was established in the village of Surakhani. By 1902, the number of refineries reached 91. There is only one oil refinery in Azerbaijan, the Heydar Aliyev Baku Oil Refinery, which provides fuel both for domestic and export needs. Thanks to expansion activities carried out in recent years, the refining capacity of the plant increased in 2018 to 94.1% from 80.4% in 2008. In 2019, the company expects to increase this indicator to 94.3% to process 6.1 million tons of oil.

Despite the large assortment of produced oil products (40), the plant produces only AI-92 brands of petrol, while Premium Euro-95 and Super Euro-98 have been imported into Azerbaijan since April 1, 2014. Domestic demand for motor petrol in Azerbaijan is growing annually (according to SOCAR, in Q1 2019, domestic demand petrol increased by 3%).

The quality of products manufactured by the plant does not allow expanding its export geography. According to Vice-President of SOCAR for processing, Davud Mammadov, currently SOCAR exports oil products, liquefied gas and diesel fuel. “In the first quarter of 2019, we exported about 8 thousand tons of liquefied gas and about 200 thousand tons of diesel. Liquefied gas is supplied to Georgia, Iran, Pakistan, Afghanistan, and diesel fuel to Georgia and the Black Sea region,” Mammadov said.

To solve these problems and provide consumers with high-quality fuel, SOCAR is implementing a large-scale program for reconstruction and upgrade of the Baku Oil Refinery. The project envisages the construction of 13 new installations and is tentatively estimated at $2.2b. SOCAR plans to complete all reconstruction and upgrade works by mid-2021. It is expected that due to the implementation of the project, the capacity of the plant for the primary refining of oil will be increased from 6 to 8 million tons annually, and diesel and gasoline will meet the Euro-5 environmental standards.

As a result of upgrade works, Baku Oil Refinery will produce 2.2 million tons of petrol annually instead of the current 1.2 million tons, diesel fuel - 2.9 million tons (versus 1.9 million tons), jet fuel - 1 million tons (versus 600 thousand tons), petrochemical products - 390 thousand tons (versus 112 thousand tons). SOCAR expects that the production of diesel fuel according to Euro-5 standards will be available by the end of 2020, and Euro-5 AI 92/95/98 gasoline by 2021.

The government of Azerbaijan forecasts a significant increase in the production of diesel fuel in 2021 up to 2.37m tons, whereas this year production is expected to be less than 2m tons, and in 2020 even 1.8m tons.

SOCAR plans to increase the capacity of primary oil refining through the construction of a new installation of ELOU AVT-6 with annual capacity of 7.5m tons, which will cost $350m. Given the strategic importance of the project on the reconstruction and upgrade of the Baku refinery, the state has fully covered the cost of implementation. “If the construction of the installation starts in 2020, then this work will be completed, at best, at the end of 2023,” D. Mammadov said. Until that time, ELOU AVT plant with annual processing capacity of 6m tons of oil will start operations.

In the first quarter of 2020, SOCAR also plans to begin the construction of a new gas processing plant and polymer complex of SOCAR GPC with annual capacity of about 10 bcm. The cost of the project is estimated at about $4.2 billion.

Iran, Central, Western and Eastern Europe, Turkey, China are considered as sales markets for polymer products from SOCAR GPC. “According to our estimates, after the construction of SOCAR GPC, the plant will provide annual income of $1b. Construction of the facility will begin at the end of the first quarter of 2020 in order to start production of finished products in the third quarter of 2023", experts of SOCAR assure.

In the fourth quarter of 2019, SOCAR plans to make a final financial decision on the GPC complex construction project and close the issue of its financing.

 

Competitors

Meanwhile, other countries of the Caspian region also joined the process of developing oil refineries.

The world's first plant for the production of petrol from gas opened in the Ahal province of Turkmenistan on June 29, 2019. According to Turkmengaz state concern, for the first time in the world practice, the plant will process large volumes of natural gas to turn it into liquid gasoline. The annually processing capacity of the plant is 1.8bcm. Design capacity of the plant is 600 thousand tons of gasoline that meets the Euro-5 environmental standard, as well as 12 thousand tons of refined diesel fuel and 115 thousand tons of liquefied gas annually. The cost of 1 liter of gasoline produced at the plant will be 2 Turkmen manats (60 cents).

By the way, the company even received a certificate from the Guinness Foundation "The world's first plant for the production of gasoline from natural gas", as well as a certificate from the American Environmental Protection Fund "Environmentally Friendly Products" and a certificate from the Swiss Federal Institute of Technology "Innovative Technologies".

In addition, Turkmenistan is developing a “Conceptual Development Strategy for the Turkmenbashi Complex of Oil Refineries and the Seydi Oil Refinery”. Today, the products of this plant are exported to Afghanistan, Tajikistan, Turkey, Georgia, Ukraine, UAE and Switzerland.

Kazakhstan also plans to increase the deep processing of oil to produce more finished products that meet international standards for supplies to domestic and foreign markets. Currently, there are three refineries in the country with a population of over 18.2 million - Atyrau, Pavlodar and Chimkent. The Chimkent refinery was built in 1985, KazMunayGaz and CNPC each own a 50% stake in the plant. Atyrau and Pavlodar refineries were built in 1945 and 1978, respectively, controlled by the state company KazMunayGas. Thanks to the upgrade of these three plants, domestic market demand for Euro-4 and Euro-5 gasoline is fully met through local production. Nevertheless, the country's leadership began discussions about the need to build a fourth refinery last summer. The project worth $420 million is implemented jointly with investors from the UAE. The annual capacity of the plant will be 16 thousand bpd, or about 800 thousand tons of oil products.

According to regional authorities, this is an import substitution project but is also export-oriented: 80% of the produced Euro-5 gasoline, diesel, kerosene, bitumen will be exported to local market, while the rest of the volume will be exported in CIS countries and abroad.

Iran is pursuing its own goals in an effort to increase the refining capacity of the country. According to Iranian officials, Iran intends to counteract U.S. sanctions and mitigate their consequences for national economy.

According to IRNA, the Iranian parliament on June 22, 2019 approved a bill to increase the capacity of the country's oil refineries and gas condensate plants through public investment. “The construction of oil refineries is Iran’s clever response to oil sanctions, and will help increase production and create new employment opportunities,” Sakine Almasi, a representative of the parliamentary committee on energy said.

There are 10 oil refineries in Iran: in Abadan, Tehran, Isfahan, Tabriz, Shiraz, Kermanshah, on the island of Lavan in the Persian Gulf, in Shazand in the Arak region of the Central Province (Imam Khomeini refinery) and in Bandar Abbas.

According to Iranian Deputy Minister of Oil, Alireza Sadeqabadi, the total refining capacity of the country, which was 1.55m bpd of oil two years ago, has now reached 2.15m bpd. It is expected that by the end of the current Iranian calendar year, which end on March 19, 2020, daily refining capacity of Iranian refineries will increase by 250 thousand barrels reaching 2.4m bpd.

A. Sadekabadi noted that 850,000 barrels of crude Iranian oil and gas condensate, which were not allowed to enter the world market due to US sanctions, are currently being processed domestically into products with higher benefit. “Following the policy of the Ministry of Oil, by the end of the current fiscal year gas condensate processing will increase from 450 thousand barrels per day to 500 thousand barrels per day, and crude oil - from 1.7 million barrels per day to 1.9 million. barrels per day,” he said.

According to the official, most of the increase in refining capacity is expected at the expense of the fourth phase of the Iranian Gulf Star Refinery, located in the southern province of Hormozgan, a refinery that receives raw materials from the nearby South Pars supergiant natural gas field and naphtha.

According to the above-mentioned plans, the prospects for the development of oil refining in the Caspian Sea region are promising. It is however, unlikely that the new plants compete with each other, given the goals and coverage of export markets. Although, in any case, it is an incentive to periodically increase the level of production and keep the bar. In addition, on a global perspective, the construction of new oil refineries will help create new jobs, diversify exports and boost the economy. Considering the significant influence of neighbouring economies on each other, this factor is important enough to enjoy the ongoing events together with our Caspian neighbours.



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