18 November 2019

Monday, 09:37

CURRENCY

STAR GATES

Mesut ILTER: “Azerbaijan opened a window into the global logistics network with its large industrial complex in Turkey.”

Author:

15.10.2019

A significant event took place in the economic life of Turkey on October 19, 2018: STAR oil refinery controlled by SOCAR Turkiye Enerji (Turkish subsidiary of SOCAR), was launched in Izmir. This is one of the largest investments of SOCAR abroad.

Apart from the expected annual income of half a billion dollars, the project is important for Azerbaijan because it will create conditions for SOCAR to enter the Mediterranean market with its diesel and jet fuels, as well as raw materials for the chemical industry.

Mesut ILTER, General Director of STAR Refinery, shared with us the achievements of the plant over the past period and about further plans.

"How would you rate the importance of the STAR plant for Azerbaijan? What will be the real dividends from the project?"

"The construction of the STAR refinery is in line with the strategies of Azerbaijan and SOCAR to reduce dependence on a single product, oil. As an important component of SOCAR’s oil refining and petrochemical complex, STAR will help SOCAR regulate its profitability if global oil prices fall. STAR refinery provides the Petkim petrochemical complex with raw materials, thereby increasing the operating profitability of the enterprise and creating additional profit. Most importantly, given that Azerbaijan does not have direct access to the ocean, SOCAR Terminal can deliver Star's products to anywhere in the world thanks to its proximity to the largest port in the Aegean Sea. Thus, Azerbaijan has cut a window into the global logistics network. By the way, the STAR refinery was the first oil refinery built in Turkey over the past 60 years."

"How do you assess the first year of the STAR refinery?"

"Our annual processing capacity is 10 million tons of oil, or 214 thousand barrels per day of up to 100 grades of oil. The range of petroleum products produced annually includes 1.6 million tons of naphtha and 4.8 million tons of diesel fuel, plus jet fuel and reduced gas, petroleum coke, reformate and other products.

In August 2019, we completed all tests, and at the end of September the refinery reached its full capacity. This means that next year the plant will process up to 10 million tons of oil. Since its launch in October last year and until August this year, we processed 4.8 million tons of oil. By the end of the year, this figure will reach 7.5 million tons. In just eight months of 2019, the company produced 4.5 million tons of various types of oil products sold in the domestic market and exported to Mediterranean and Eastern European countries.

However, our main focus is on the domestic market. We try hard to satisfy local customers first. After all, the plant will make it possible to reduce significantly Turkey's dependence on imports of petroleum products and the current account deficit. Currently, 70% of all finished products are supplied to the Turkish market, but we expect that from next year all oil products, with the exception of reformate, will be sold in the domestic market. There is no demand for reformat in Turkey so it is exported, but the situation may change after the implementation of the construction project in Izmir, the second new petrochemical complex, where this oil will be used as the main raw material.

We also plan to meet Turkey's need for aviation fuel in full. A significant amount of STAR's jet fuel will be delivered to the Istanbul Airport. We expect that other airports in Turkey will be among our buyers of aviation fuel as well. Turkey's annual demand for aviation fuel is about 5 million tons. However, it is expected that the expansion of the tourism sector and the commissioning of the Istanbul airport will increase the annual demand for jet fuel to 6-6.5 million tons. Taking into account the arrival of another 1.6 million tons of aviation fuel per year from STAR, and the production volume of other Turkish enterprises, Turkey will not need to import these products from abroad in the next 7-8 years.

"What types of oil are refined at the plant?"

"Until June 2019, the Russian Urals blend has been processed at the STAR refinery. Since the end of August, we began to purchase various types of oil, including Siberian light, Libyan oil, as well as the Basrah grade from the Middle East. Starting next year, we plan to expand the range of purchased oil. At the same time, we prefer heavier grades. They contain more sulphur, but are sold at a lower price, but ultimately allow us to get higher income from the sale of processed products."

"How does the operation of the STAR plant influence the operation of Petkim Petrokimya Holding?"

"Our plant is a supplier of raw materials, i.e. naphtha, to the Petkim complex. The first sale of raw materials was completed in January 2019. For the first half of the year, the refinery delivered 260 thousand tons of naphtha to Petkim. Our main goal is integration with the Petkim complex. For this purpose, a pipeline was recently built to connect these two largest enterprises. Naphtha production, as well the efficient and stable provision of naphtha to the Petkim complex increase the production capacity of the latter and its quality indicators."

"How quickly can the funds invested in the construction of the STAR refinery return?"

"The payback period of the project is 11-12 years. The actual costs of the project reached $6.3 billion, of which $3.3 billion is attracted loans, and another $3 billion was a capital investment from our shareholders. We plan to start returning the invested funds to shareholders from 2022 as dividends. The repayment of loans raised for the construction of the plant began in April of this year."

"How much income do you expect to generate?"

"Our refinery is already operating at full capacity. Depending on global oil prices, we expect annually $6–9 billion from sales of finished products. The plant’s net profit is projected at approximately $500 million per year. By the end of this year, income from the sale of finished products should be $4 billion or more."

"Any plans regarding new investments in the further development of the STAR refinery?"

"Currently, STAR is implementing a new project to expand the capacity for storing oil and oil products to 2.5 million cubic meters. As part of this project, we commissioned additional 12 tanks with a total capacity of 350 thousand cubic meters for the storage of diesel, gasoline, aviation fuel and reformate. We also plan the construction of two tanks for storing oil (134.5 thousand cubic meters each) and two tanks for storing intermediate oil products (36.5 thousand cubic meters). Thus, we will create additional capacities for storing oil and oil products, or 342 thousand cubic meters. This project will be completed in 2021. The estimated cost of the project is $600 million, but these funds will be used not only for the construction of tanks but also for the creation of additional infrastructure, in particular pipelines, as well as for the purchase of spare parts, etc. The project will be funded locally thanks to our shareholders."



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