Iraq expands refining capacity to reduce imports of petroleum products

BAGHDAD – During a visit to the South Refineries Company on November 4, the new Iraqi Oil Minister Hayan Abdel Ghani announced that his ministry’s policy is to focus on increasing the refining capacity company at 350,000 barrels per day.

“The Southern Refineries are today one of the largest Iraqi refineries in terms of production and large volume of work to meet the needs of citizens and consumers of petroleum products,” Abdel Ghani said. “Despite the economic and health challenges and crises that the country has faced over the past period, the workers of the refineries in the south were at the level of responsibility thanks to their distinguished efforts to continue working and producing.

Abdel Ghani stressed that his ministry will continue to support all the refineries in the south to achieve the targets set for these refineries in order to reach the point where Iraq no longer needs to import oil.

Iraq’s refining sector suffers from major problems due to its dilapidated state and lack of significant investment. This has led the country – which is OPEC+’s second-largest oil producer, producing 4.6 million barrels a day – to import most of its fuel needs.

Currently, half of the quantities produced by Iraqi refineries are fuel oils.

Iraq is spending more than $3 billion on oil import produced annually, including 1.07 million tons of diesel worth $657 million, 3.46 million tons of gasoline worth $2.5 billion and 163,000 tons of oil white worth $102 million.

On October 20, the Ministry of Petroleum tests carried out on units at the Karbala refinery with the expectation that actual production would start in the first quarter of 2023.

Oil ministry spokesman Assem Jihad told Al-Monitor: “The ministry seeks to develop the refining sector despite the security, health and financial challenges it faces. It has completed the Karbala Refinery and is working on completing the Al-Faw Refinery while developing others.

He said: “Iraq will stop importing 60% of its gasoline and diesel needs next year, and it will invest these funds in developing other sectors of the economy.” He noted that the Karbala refinery will supply raw materials to secondary industries.

The cost of establishing the refinery was $6.5 billion over an area of ​​6 million square meters (1.5 million acres), with a refining capacity of 140,000 barrels per day, according to refinery manager Mohammad Fazza.

He told Al-Monitor that 80% of crude oil will be refined, as it will produce light and high-quality products. He pointed out that it will produce 9 million liters of high octane gasoline, 3 million liters of jet fuel, 4 million liters of diesel and 1,500 cubic meters of cooking gas.

Fazza noted that the first phase of operation will produce 85,000 barrels per day, while full capacity is expected in the second phase.

Baiji, Iraq’s largest oil refinery, was destroyed after Islamic State took control of Salahuddin province when it was producing 300,000 barrels a day.

The Ministry of Petroleum reactivated the refinery to operate at half capacity. While Iraq had planned to establish seven new refineries, with a total capacity of 1 million barrels per day, it failed to do so due to the weak investment environment. Iraq only succeeded in setting up the Karbala refinery and signing a contract to establish the Al-Faw refinery in Basra.

There are currently more than 15 refineries in Iraq, including refineries in the Kurdistan regionand refining capacity is over 1 million barrels per day.

Al-Monitor learned from the Department of Petroleum Products Distribution that Iraq currently consumes 32 million liters of gasoline and 25 million liters of diesel, and that the deficit of more than 21 million liters per day is covered by imports.

During the first quarter of this year, Iraq spent $1.5 billion in fuel imports, and the bill could reach $6 billion by the end of the year. Previously, the country spent $3 billion a year on fuel imports. This is due to high prices on the world market due to Russia’s war against Ukraine.

Iraqi energy expert Yasar al-Maliki told Al-Monitor that Iraq was suffering from high fuel prices on the world market, and although the operation of the Karbala refinery could reduce imports, it would not lead not Iraq to self-sufficiency.

He pointed out that the refining sector in Iraq is still weak due to the government’s economic policies, and that foreign investors cannot invest in the refining sector and establish a refinery worth billions of dollars at a time when the price fuel is heavily subsidized by the state. .

Due to central government subsidies, fuel in Iraq, with the exception of Kurdistan regionis considered really cheap. The government imports gasoline at a price of $1 per liter and resells it to citizens at a price $0.45 pricewhich led to its smuggling to the Kurdistan region and neighboring countries.

The energy expert said the government and the problems it was facing – namely falling oil prices and high volume of expenditures due to the level of employment – caused the state to focus mainly on securing employee salaries, instead of spending money in the refining sector.

Maliki said that the Al-Faw refinery in Basra, which the Chinese CNCEC will perform, will only aim to export oil.

He noted that current refineries in Iraq are obsolete and half of their production is heavy fuel oil, while gasoline and diesel production is very low.

For political reasons, investments in Iraq are experiencing a significant decline, especially in the oil sector, as several foreign companies have withdrawn from the country and refrained from developing oil fields. Add to that the problem of bureaucracy, as a number of companies have reached agreements but have not signed contracts to start executing their projects.

Oil expert Ihsan al-Attar told Al-Monitor that the Karbala refinery should have been completed in four years, but the delay was due to the Iraqi state running out of funding due to falling oil prices. oil in 2014.

He noted that the Ministry of Petroleum had offered Hyundai’s engineering and construction company, which runs the Karbala refinery, crude oil in exchange for cash or taking out a loan from a Korean bank – but Hyundai refused.

He noted that the Karbala refinery does not produce motor oils but very high quality light fuels, and is located on the pipeline from Basra to the Turkish port of Ceyhan.

Iraq’s current plan in the oil sector is to focus on investing associated petroleum gas in order to operate power plants. Although Iraq offers several investment opportunities in the refining sector – such as the Missan and Dhi Qar refineries, among others – it has failed to attract investors, implying that Iraq will continue to import fuel for the next 10 years.

Edward N. Arrington