June 7th, 2010

Refining Dilemma



Oil minister Hussein al-Shahristani says Iraq will become an exporter of refined products within a few years. That’s a very optimistic assessment of the status of the Iraqi refining sector. True, Iraq has four new grass roots refineries with a combined capacity of 740,000 barrel per day offered to private investors. But it still has a long way to go before any investor jumps in and spends billions on building a new refinery when the existing ones suffer from inefficiencies, feedstock interruptions and products bottlenecks.

Despite having a nameplate capacity of close to 900,000 b/d, operational capacity of Iraq’s three major refineries and almost a dozen topping plants is a lot less than that and throughput is even less than operational capacity. The three main refineries (Daura, Baiji and Basrah) were built between 1955 and 1982. Basrah has undergone the biggest revamping process so far, adding a new 70,000 b/d distillation unit and having a second one currently under construction. Those two crude processing units will replace Daura’s old and desolate but still functioning units built decades ago, then destroyed by war, then refurbished. The new units will only help Daura stay put where it is and not fall apart in pieces. It will not bring Iraq into the unleaded gasoline age. That’s still a few more years down the road.

Daura’s major problem – aside from old age – is feedstock. Pipelines pumping crude from Kirkuk, Basrah, Naft Khanah and East Baghdad, all suffer from low pressure and reduced flows. That’s a problem that any potential investors in any of the new refineries, if any, will have to face up to and account for in their planning and budgeting.

More important than infrastructure and operational problems is concept. Iraq has to decide first what its private refining sector would look like. Failing to define a concept and a framework for private investments in the refining sector will result in investors dictating their terms and Iraq acquiescing out of desperation. If Baghdad really wants to become an exporter of refined products in a few years, time is of essence, especially if it intends to hold its first conference for private investments in the refining sector in late June as planned.

The View from Baghdad