Twin leaps forward for Algerian downstream
Thursday, May 17, 2018
Algerian NOC Sonatrach took two major steps forward in early May on the fresh development path promised by the reformist new CEO on his accession last year. The traditionally conservative company acquired its first overseas refining asset and signed a firm deal with an IOC major to proceed with a long-mooted multi-billion dollar petrochemicals project at home.

Meanwhile, the slow-moving drive to improve domestic refining provision also saw progress in the form of a technology supply contract on the planned upgrade of the country’s largest existing plant.

On May 9, Sonatrach signed a deal of undisclosed value to acquire the 175,000 bpd Augusta refinery in Sicily from Esso Italiana, the Italian subsidiary of US super-major ExxonMobil.

Also covered are fuel terminals at Augusta, Palermo and Naples, with associated pipelines. The acquisition is the Algerian firm’s first international downstream investment, cohering with a new overseas expansion policy instigated by incoming CEO Abdelmoumen Ould Kaddour when he was appointed to the role in March 2017. The deal is anticipated to close by year-end pending local regulatory approvals.

However, while other major Middle Eastern oil producers have purchased refining assets abroad primarily to secure market share for their crude in regions of fast-growing oil products demand, Sonatrach’s maiden foreign venture remains driven by domestic supply imperatives and the refinery’s closeness to the home market. The facility is envisaged processing Algeria’s Sahara Blend crude and residual products from the Skikda refinery – Algeria’s largest – on the northeast coast into higher-grade fuels for re-export to fill gaps in local provision and thereby reduce the burgeoning bill for product imports.

As Ould Kaddour explained in an interview shortly before the deal, the timing for such acquisitions is opportune for Algiers – as Western majors look to reduce their exposure to the oversupplied European refining sector.

Despite total refinery throughput of 620,000 bpd in 2016 and demand of only 400,000 bpd, the North African country was forced to spend US$2.5 billion on such purchases last year in light of the deficit in key products.
A harbinger of the ExxonMobil deal came in the form of a landmark agreement in January with Swiss-based trading giant Vitol to exchange up to 2 million barrels per month of the light, sweet Algerian crude for gasoline and gasoil.

Sonatrach’s ability to enter downstream ventures with IOC majors was bolstered by the resolution of a long-standing dispute with foreign upstream investors over profit-sharing terms.

France’s Total was among those to benefit, announcing an agreement in April last year on a new contractual framework for the Timimoun gas project and the Tin Fouye Tebenkort gas field – while also pledging “enhanced co-operation” elsewhere in the energy sector.

The French super-major has been associated with a proposed petrochemicals project at the Arzew downstream hub in the north-east for more than a decade. As a result, an agreement unveiled in December 2016 for the two companies to carry out a feasibility study on a “world-scale” venture of indeterminate location or configuration was greeted with some scepticism at the time.

However, on May 11, the pair defied the doubters – signing an agreement to launch engineering studies on a planned propane dehydrogenation/polypropylene (PP) plant at Arzew, site of an existing 3.75 million tpy refinery. The planned capacity is 550,000 tpy of PP and investment is put at US$1.4 billion, with Sonatrach to take a 51% stake and Total the remainder.

Front-end engineering and design (FEED) work is due to start by the end of the third quarter, pending approval by the Algerian regulatory authorities.

The sense of gathering momentum around Sonatrach’s downstream development had already been evident in accelerated progress on a wide-ranging programme of greenfield and brownfield expansion and upgrading of the domestic refining sector – after many years of delays.

In early 2016, the then-Amec FosterWheeler – now part of the UK’s Wood Group – was awarded the FEED contracts on three new refineries at Hassi Mesaoud in the east, Tiaret in the north-west and Biskra in the north-east – each envisaged having capacity of 5 million tpy.

The selection of an engineering, procurement and construction (EPC) contractor for the first of these is expected by the end of the third quarter following the submission of bids earlier this year. Tenders for the Tiaret plant are anticipated next year, while the Biskra project is understood to be a lesser priority.

A delayed upgrade and expansion from 2.7 million tpy to 3.6 million tpy of the Algiers refinery is scheduled for completion later this year following the replacement of TechnipFMC by China Petroleum Engineering & Construction as the EPC contractor in late 2016.

Algiers refinery is currently the country’s third largest after those at Sikda and Arzew.

Meanwhile, a project to add a fuel oil hydrocracking unit and catalytic reforming unit for surplus naphtha in order to increase the output of Euro-V standard fuels at the 16.5 million tpy Skikda refinery advanced on May 8 with the signature by Sonatrach of a technology supply contract with the US’ Honeywell UOP.

The US firm will provide licensing and basic engineering design for an 81,000 bpd unicracking unit for the production of ultra-low-sulphur diesel, and a 24,100 bpd solvent de-asphalting unit allowing production of different grades of bitumen to feed the local construction industry. It will also provide CCR platforming and isomerisation units to convert 143,000 bpd of naphtha into high-octane gasoline.

In late 2016, Spain’s Tecnicas Reunidas was awarded a basic engineering and project management consultancy contract on the slow-moving scheme.

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