Over the past decade, many countries in the region have announced ambitious plans to increase their refining capacity. If implemented, these projects could turn the region into a leading hub for exports of refined products, competing not only in the crude market, but also in the more specialized products markets.
Some of these projects have already come on line with most of the increase concentrated in the GCC. The completion in the past three years of Yasref and Satorp, two Saudi refineries, and the Ruwais facility in the UAEadded approximately 1.2m b/d of new refining capacity.
While some countries in the GCC succeeded in increasing refining capacity, conflict has destroyed capacity in many Arab countries, resulting in a shortage of petroleum products which has, in turn, forced governments increasingly to rely on expensive imports.
The oil price collapse since mid-2014 has curbed investment over the medium term with some projects being pushed back and others cancelled.
“We anticipate only a handful of projects will come on line within or shortly after their targeted completion date, with the Jazan project in Saudi Arabia and the UAE’s Fujairah plant the major additions,” the report said.
A wild card in the region is Iran. The 360k b/d Persian Gulf Star Refinery has been facing delays due to financing issues, but is still expected to come on stream within our medium-term horizon. Once it is fully operational, the country will not need to import gasoline.
Iran is planning to go ahead with some strategic projects such as the Siraf refinery complex with eight processing plants, each with a capacity of 60k b/d to be funded by the local private sector.
Establishing a key position in the products markets can provide MENA producers with a strategic opportunity to develop the trading industry and establish regional trading hubs. In Oman, plans are underway to build the world’s largest crude and petroleum product storage facility with a capacity of 200m barrels.
Competition is squeezing margins and may force some of the least efficient refineries to close, though shutting refining capacity could prove to be a lengthy process as factors other than profitability enter into the decision. Faced with increased competition in global products markets, subsidized prices in local markets, and overcapacity in global refining, it is a good time for governments to re-evaluate their downstream strategies.