UOP signs Zarqa refinery contract
Thursday, May 18, 2017
Jordan Petroleum Refinery Co. (JPRC) has awarded a technology supply contract to UOP, for the planned expansion of the kingdom’s sole refinery at Zarqa, close to Amman.

The choice of company was unsurprising; the same firm worked on the refinery since the original facility’s establishment in the 1950s and having been selected four years ago to advise on the expansion.

However, the news appeared to indicate belated movement towards implementation of the long-delayed project. The scheme has been on the drawing board in various forms for almost two decades, despite the increasing budgetary burden of importing fuel at a time of fast-growing energy consumption.

UOP, a subsidiary of the US’ Honeywell, announced the signature on May 8 of a wide-ranging contract with JPRC on the expansion project, aimed at almost doubling capacity from 70,000 bpd to 120,000 bpd while bringing output up to Euro V fuel standards at the ageing plant.

The deal covers technology licensing, front-end engineering and design (FEED) consultancy, basic engineering design and equipment supply for the facility, located 24 km northeast of Amman.

The American firm will supply the technologies for the new crude and vacuum distillation units, and the hydrotreating unit, as well as a variety of technologies geared towards the production of cleaner, higher-octane gasoline. Project costs are estimated at US$1.6 billion.

Speaking during the signing ceremony in late April, JPRC CEO Abdulkarim Alaween put forward a new timeframe, foreseeing completion in 2021-22.

The so-called ‘fourth expansion project’ was first mooted in the late 1990s and passed through various iterations, as the company debated the scale of the capacity increase given financing constraints.

Progress was also interrupted at the turn of the decade through a failed attempt to part-privatise JPRC – in which the government’s Social Security Fund remains the largest shareholder with around 20%, with the remainder listed on the local bourse.

As UOP highlighted on signing the latest deal, the firm worked on the refinery’s original development in 1956 – while it was also selected earlier this decade to provide technical advice on the expansion and upgrade project.

Difficulties securing finance have proved a longstanding hindrance and the CEO made no mention of the source of funds now being envisaged. However, both he and Energy Minister Ibrahim Saif claimed last year to be in negotiations with prospective financiers including the International Finance Corp., the private-sector lending arm of the World Bank, and unnamed Chinese investors.

The urgency of increasing lower-cost local supply is also rising – with fuel demand estimated to be growing at around 3% annually. Jordan’s dependence on imports for more than 95% of energy needs renders it one of the few in the region to have gained from falling oil prices over the past three years. But reliance on imports for 50% of the kingdom’s refined products needs remains a significant drain on the public finances – hit severely by the political instability wracking the region since 2011.

In that year, imports of cheap gas from Egypt began being repeatedly interrupted by closure of the Sinai pipeline and volumes have never recovered, obliging the government to turn to costlier alternative sources of fuel for local power stations.

Amman was forced to turn to the IMF for a US$2 billion assistance package the following year to help bridge a ballooning budgetary shortfall – with an additional three-year, US$723 million loan agreed last August. A government report published in February put the refinery’s actual average output in 2016 at 60,000 bpd – equivalent to around 40% of petroleum products demand of about 150,000 bpd.

Meanwhile, JPRCs monopoly on oil product imports is being gradually removed – with distributors Total of France and the local Manaseer Oil & Gas being progressively permitted to import a wider range of derivatives and full liberalisation scheduled for 2019.

Conduit hopes
Reinvigoration of the expansion project over the past year has also coincided with a revival of the long-planned project for the development of a 1,700-km crude pipeline from Iraq, which would include a 150,000-bpd spur to Zarqa en route to the Red Sea port of Aqaba – offering JPRC a source of cheap crude feedstock.

The estimated US$15-18 billion project stalled in the wake of the invasion by so-called Daesh in 2014 – as the militants took over areas through which the pipeline was due to run, at the same time as forcing Baghdad to focus on other spending priorities.

However, as military victory neared for the government and international assistance alleviated the fiscal crisis, the tendering process resumed in December with an invitation to bid on the internal Iraqi portion of the link. This is now planned to run from the southern oil production hub in Basra province to Najaf after re-routing to avoid the unstable Anbar province further north.

The cross-border section, running along the Saudi frontier into Jordan, has long been envisaged being carried out under a build-own-operate-transfer (BOOT) contract. Talks were widely reported to have resumed last year with a consortium of Beijing-owned China Petroleum Pipeline Bureau (CPPB) and Jordan’s Mass Global to implement the scheme.

The JPRC award capped a profitable fortnight for UOP – which in late April also signed a contract to supply critical equipment to the refinery near Lagos under development by Nigeria’s Dangote Group – envisioned becoming the largest single-train refinery in the world.

The company is also working in neighbouring Egypt as the technology and equipment supplier for the expansion of the privately-owned Alexandria National Refining & Petrochemicals Co. refinery and petrochemicals plant at the port city, under a contract awarded in 2015.

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