The Sitra Refinery began production in 1936, making it the Gulf’s oldest such facility, and the refinery has undergone frequent upgrades since then. Sitra produces around 260,000 barrels per day (bpd) of refined product. In 2013 the kingdom announced plans to expand the refinery, and at an estimated cost of $9bn the project will be the most expensive in the country’s history. The upgrade will help the Bahrain Petroleum Company (Bapco), the owner of the refinery, maintain market share at a time when the downstream market in the GCC is seeing vast growth in capacity. Three new refinery projects opened in the Gulf in 2014. The expansion plans call for a modest increase in production and will add no more than 100,000 bpd. The storage capacity of the refinery, which can hold 14m barrels, will be likewise expanded. Instead, the large budget reflects the cost of doing a complete upgrade to the facility with a minimum of shutdowns and the move from fuel oil production to middle distillates.
New Development Plans
The upgrade will include four separate packages: an upgrade of offsite locations and utilities; an upgrade of the crude oil unit and associated facilities; a new hydrocracker and associated units; and a residue conversion project. The centrepiece of the planned upgrade is the construction of a new 60,000-bpd hydrocracker and expansion of the existing hydrocracker facility from 54,000 bpd to 70,000 bpd. The fluid catalytic cracker unit will also be replaced, as well as associated units during the upgrade. It is not yet clear whether the phases will be launched simultaneously or in stages; however, the recent completion of the largest turnaround in the history of Bapco in 2014 gave the firm confidence that either option is viable. The upgrades will likely be completed sometime between 2017 and 2020. Given the engineering challenges and complexity of the project, the winning front-end engineering design (FEED) bid is likely to involve 2.5m man-hours of engineering and planning. The companies short-listed for the FEED contract included US firms CB&I Lummus and Bechtel, as well as Japanese construction firm JGC Corporation, France’s Technip and Australia’s Worley Parsons. In 2013 Engineers India bid $124.6m and the US’s Foster Wheeler offered $189.7m for project management consultancy contracts. Engineers India’s proposal is likely to have discouraged others from entering as its bid was below industry norms. Typically, project management consultancy offers are valued at 3% of the total project contract.
Expansion Goals
Over nearly eight decades of operation, the Sitra Refinery has proven to be among the kingdom’s most fruitful investments. The expansion will ensure the refinery helps add value to its petroleum exports. One of the secondary goals of the project, beyond increasing production, is to improve both the energy efficiency and environmental performance of the facility. Fuel oil is increasingly both more expensive and less efficient than natural gas, yet the product accounts for 21.4% of the refinery’s output. After the upgrade, it is hoped that ultra-low-sulphur diesel and other middle distillates will account for just over 60% of the refinery’s production by-product. This upgrade builds on the success of the last major upgrade of the Sitra Refinery, launched in 2005 and completed in 2007, which had a similar goal. In that project, the $725m engineering, procurement and construction (EPC) contract was awarded to JGC, which completed the 100,000-bpd cracker used to create low-sulphur diesel in 2007.
In 2012, a lube-base oil plant was built by Bapco to produce Group III lubricant base oil products on a site located near the Sitra Refinery.
Recent Moves
Some of the smaller aspects of the development have been completed, including a new water-treatment facility and power-generation upgrades at the refinery. In 2013 Bapco installed two new 14-MW steam turbo generators (STGs) at the refinery, which lowered maintenance costs and improved the thermal efficiencies of power generation. The two STGs, provided by General Electric, were installed at a cost of $108m and replaced older generators that were installed over a 10-year period stretching from 1946 to 1958. The five older generators had previously produced a combined 21 MW, accounting for 40% of the 85 MW needed to run the factory. It is projected that following the next expansion round, the electricity needs of the facility will increase to between 120 MW and 130 MW. The rest of the plant’s electricity needs will be met by purchases from Aluminium Bahrain.
In December 2013 Bapco inaugurated a $120m wastewater treatment plant (WWTP) at the Sitra Refinery. The WWTP was the world’s first refinery-based wastewater treatment facility. The plant was engineered for Bahrain’s climate and is meant to operate in high temperatures and cope with the high salinity of the Gulf’s water. At 40 pounds of salt per 1000 pounds of sea water, the Gulf’s salinity is due in part to the region’s high temperatures, which increase evaporation, and the fact that few rivers flow into the body of water.
A New Pipeline
Currently, the refinery is supplied by the 54-km, subsea Arabia-Bahrain (AB) Pipeline. The AB Pipeline provides the refinery with 220,000 bpd, with an additional 40,000 bpd coming from the Bahrain field. The pipeline, which was laid in 1945, is set to be replaced by a $350m pipeline that will travel 115 km from Saudi Aramco’s Abqaiq plant to the Sitra Refinery. While the old pipeline had a capacity of 230,000 bpd, the new line, which has a diameter of 76.2 cm, will have a capacity for 350,000 bpd. Urban encroachment means that much of the current pipeline route passes through semi-urban areas that were empty when the first pipeline was completed in 1945. To avoid any problems, the new line will be buried in several places. Some 74 km of the pipeline will be overland, while a 41-km section will be subsea. The new conduit will also likely be made from a modern composite material to avoid the risk of leaks. The FEED was completed by Worley Parsons and the tender for the EPC contract is likely to be released in the near future.
Project Financing
Despite price estimates as high as $9bn, financing the Sitra Refinery upgrade should not be difficult. Bapco is debt-free and Bahrain offers a stable investment with little risk. Since 1997, Bapco has been sole owner of the refinery. In December 2012 the company appointed HSBC and BNP Paribas to jointly arrange the financial aspect of the upgrade project. For the 2005 upgrade projects, the Japan Bank for International Cooperation contributed $311m in a guaranteed tranche for financing. If Bapco were to assign the project to an East Asian EPC giant again, there is a possibility that a similar agreement could be reached.
Another option is to complete the residue conversion project first and allow the resulting profits to fund other upgrades, as the programme currently includes four separate phases. This would limit shutdowns and mean much of the facility would be able to continue functioning while individual units are upgraded. It would also make the project easier to fund as financing the entire shutdown and upgrade in one phase will carry a significant amount of project risk. However, it may also add engineering complexity to the FEED side of the project to do each unit separately while other units continue production. Currently, the refinery relies on natural gas for energy and Bapco has designed the project to be competitive if natural gas prices increase. At the moment, natural gas is priced at $2.25 per million British thermal units (mBtu) in Bahrain, which is more than Saudi Arabia and the UAE, but far below the Henry Hub index average. Studies conducted by Bapco suggest the project is still competitive and that the refinery will prove profitable even if Bahrain’s price schedule were to rise to $4 or even $8 per mBtu.
Future Markets
The refinery upgrade is designed to keep Bapco advantageously positioned despite a number of competing refinery projects planned or recently completed in the region. Currently, over 40% of Bapco products by value are sold within the GCC, but the upgrade will allow the company to expand its sales to other markets. After 2020 demand for Bapco’s current refined products in the GCC will decrease substantially, according to the company’s projections, given competing oil refinery projects, such as the Yanbu Saudi Aramco Sinopec Refinery Company project in Saudi Arabia. However, unlike competing regional projects, the Sitra Refinery upgrade focuses on medium distillates and ultra-low-sulphur diesel, environmentally conscious products that will appeal to OECD states. “This upgrade will focus on bottom of the barrel destruction, crude capacity increase and energy efficiency improvements. The refinery will continue to be driven by export market requirements, and will focus on maximising middle distillate yield, and hence the upgrade will result in additional ultra-low-sulphur diesel production,” Ebrahim Abdulla Talib, deputy chief executive of the firm’s refining and marketing division, told OBG.
In addition, Bapco officials are also looking to Africa and Asia for new markets. While the GCC may soon see a glut of new refinery projects, only a handful of greenfield refinery projects have been approved in the EU or US over the past 30 years. Given the pending GCC-EU trade agreement and the kingdom’s free trade agreement with the US, the refinery will be able to take advantage of opportunities in those markets as well.
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