Algeria looks downstream

Algeria wants to expand its refining and petrochemical industries on the back of its burgeoning oil revenues.

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By  ITP Published  November 1, 2006

|~||~||~|Algeria plans to increase its refining capacity over the next 10 years to process an expected rise in crude oil production and to help boost its petrochemical sector. In 2005, the country produced around 1.35 million barrels per day (bpd) of crude as well as 440,000 bpd of condensate and 250,000 bpd of natural gas liquids, bringing total oil output to around 2 million bpd.

The country plans to be producing 2 million bpd of crude alone by 2010, which would take overall oil production to the equivalent of over 2.5 million bpd. Algeria consumes around 250,000 bpd of oil, meaning the country has a significant amount available for export. Europe accounts for 90% of Algeria’s oil exports thanks to the Saharan Blend’s (45° API) low sulphur-content, which means it meets EU fuel standard requirements.

In an attempt to meet its 2010 crude output target, Sonatrach, the state-owned oil and gas company, is spending around US $700 million this year on exploration work, with a further US$300 million being invested by international oil companies active in the country. Oil reserves in the country are estimated at around 11.4 billion barrels.

Processing the new crude will require an expansion of existing refining capacity, which currently stands at 450,000 bpd and is operated by Sonatrach subsidiary, Naftec. Transport, distribution and retail sales of refined products are handled by Sonatrach’s Naftel unit, which operates some 1700 service stations.

The four refineries are Skikda, Algiers, Arzew and Hassi Messaoud. Skikda is the largest, producing 300,000 bpd, followed by Algiers and Arzew with 60,000 bpd each and Hassi Messaoud with a capacity of 30,000 bpd. Skikda was commissioned in 1980 and exports 80% of its mainly petrochemical production. It has two units, each with a capacity of 7.5 million tonnes per year (tpy) producing liquefied petroleum gas (LPG) and fuels as well as a 380,000 tpy aromatics unit and a 145,000 tpy road and oxidised asphalt unit.

The Algiers (El Harrach) refinery came on stream in 1964 and processes 2.7 million tpy of crude. It produces LPG, kerosene, gasoline, gas oil, naphtha and fuel oil.

Arzew was commissioned in 1973 and specialises in the production of lubricants and asphalt. It can process 2.5 million tpy of crude and supplies the west and southwest of Algeria with fuels and LPG. The refinery has two units producing lubricants, greases and paraffin with a combined capacity of 170,000 tonnes. There is also a bitumen unit producing 145,000 tpy of road and oxidised asphalt.

The Hassi Messaoud facility also has two refining units. The first, which produces 120,000 tpy of fuels and butane, was commissioned in 1960, while the second, which process 1,116,500 tpy of crude, came on stream in 1979 and supplies a large area of southern Algeria with gasoline, gas oil and kerosene.

Several refinery expansion projects — both upgrades and new builds — have been announced. In 2001, Sonatrach issued a tender for a 20,000-bpd refinery in Adrar, in the Sbaa Basin and two years later signed an agreement with China National Petroleum Corporation to build it. The plant is expected to be commissioned at the end of this year.

Sonatrach has also announced plans for a new US $3 billion, 300,000 bpd refinery at Tiaret and is reportedly about to announce a partner for its construction.

Meanwhile, Naftec has embarked on a modernisation programme at Arzew and in January 2005 engaged Honeywell of the US to carry out a US $60 million modernisation programme of all its refinery instrumentation systems. This is aimed at improving processing rates and boosting operational efficiency. The project is expected to be completed in 2009.

At Hassi Messaoud, Sonatrach awarded Aker Kvaerner a US $23 million contract in August for new equipment to improve and upgrade processing capacity. The new facilities will be delivered at the end of 2007 and commissioned in the summer of 2008.

Naftec is also planning to restart the mothballed 6,000-bpd In Amenas refinery. This first began operations in 1980 but was closed in 1986 because of technical problems. When operational, it produced gasoline, gas oil and kerosene.

Arzew and Skikda also have associated petrochemical production facilities. The former produces 365,000 tpy of ammonia, 145,000 tpy of urea and 180,000 tpy of ammonium nitrate. Skikda has a 130,000 tpy high-density polyethylene unit, a 120,000 tpy ethylene cracker and an aromatics complex. The third, main petrochemical production site is Annaba, which produces ammonia and nitric acid.

The petrochemical sector is well established in Algeria but low production rates have meant the country continues to rely on imports to meet most of its demand. Now, the government is looking for foreign investment to help fund a major expansion of the petrochemical sector – to meet domestic demand and create an export market.

Several projects have already been announced worth billions of dollars. Feedstock for these new projects will come from the expansion of refining capacity and also Algeria’s abundant natural gas supplies.

Petrochemical production in Algeria is handled by another Sonatrach subsidiary ENIP (Entreprise Nationale de l’Industrie Petrochemique). Plans to develop the petrochemical sector were announced in the early 1990s but stalled as foreign investors shied away from the country during a period of heightened civil unrest.

Increased political stability and higher government revenues thanks to the prolonged period of strong crude prices have put these projects back on the agenda. In fact, Sonatrach has just reported first half 2006 net revenue of US $27.05 billion, up 29% from the same period in 2005.

Promoting petrochemical projects is of interest to the government, as it will help diversify the economy away from oil and gas production and create much-needed employment opportunities. In 2005, Sonatrach announced a US$15-billion petrochemical masterplan, which includes new projects at Skikda and Arzew.

It wants to build integrated ethylene complexes at both sites. Skikda will use naphtha and condensate as feedstock and produce 1.7 million tpy of ethylene and 400,00 tpy of propylene. It will supply downstream units that will produce ethylene glycol, polyethylene and polypropylene.

At Arzew, Sonatrach will build a US $746 million, 1 million-tpy ammonia and urea plant under a joint venture with Egypt’s Orascom Construction Industries (OCI) announced in February 2006. Once approved by the Algerian Investment Council, OCI will have a 51% stake in the project and Sonatrach 49%. Sonatrach gas will be used as feedstock. The plant is due to come on stream in 2009.

Sonatrach also wants to establish a new petrochemical complex to produce purified terephthalic acid and purified terephthalic polyethylene resins at an as yet unspecified location. It is also considering a 3,000-tpy methanol plant most likely to be situated at Arzew.

As a result of these projects, Algerian output of ammonia, urea, methanol and naphtha will reach 6 million tpy from the current 380,000 tpy by 2010-11. As well as new production capacity, the master plan also includes upgrading and expansion of the existing facilities. ENIP has stated that all the projects will be completed by 2009.

In July, the Ministry of Energy and Mines said it planned to liberalise part of the petrochemical sector, with some of the existing production facilities to be privatised.

Funding the petrochemical projects will require foreign investment and the Ministry is reportedly working on a new package of incentives aimed at encouraging foreign investment. ENIP has reportedly held talks with several American, Asian and European producers on possible joint ventures.

Possible partners are said to include: Basell; Japan’s Itochu, Marubeni and Mitsui; India’s Oil and Natural Gas Corporation; Royal Dutch/Shell and France’s Total. Sonatrach is also understood to have held talks this summer with Spain’s Cepsa – with whom it partners in the Spanish LNG export pipeline – regarding a possible petrochemical joint venture.||**||

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