Expert: huge opportunities for mini refineries
Ashish Bajpai from Pyramid E&C on the role of mini refineries in the region's downstream development
We talk to Ashish Bajpai, managing director, Pyramid E&C, about the role mini refineries are playing in the region’s downstream development
Why do operators use mini-refineries? What advantages do they offer compared to a larger, permanent structure?
At Pyramid E&C, we supply three main types of refinery, each being best suited for a different set of circumstances.
The first type of refinery we offer is the mobile field diesel production unit. This unit produces only one type of product, namely diesel. This diesel can be used for running generators and for running rigs. Essentially it is a tool which goes to the oil and gas drillers and operators.
With this refinery, you extract the diesel and the light products from the top and the heavy products from the bottom then you mix it again and you blend it with the crude. So there are no bi-products or additional products from this type of unit.
The second type of refinery we offer is the topping units for production of diesel, naphtha, kerosene and fuel oil. The topping unit requires proper foundations and proper infrastructure. Each of the products has its own market, so we do storage for these products. That is where the real investment starts coming in.
Finally, we also offer the hydroskimming units for production of petrol and other products.
These units can have a design life of 5 to 20 years depending on the usage profile. These units are largely modularised and take less than a third of the time to build a full scale refinery.
These refineries can address short term need of fuel and provide self sufficiency for small countries. The other advantages are the ability to monetise opportunity crude oils which are not of interest to large refiners as well as servicing the remote locations where the transportation cost of fuel adds to the price.
The key selling point of these mini and mobile refineries is that they allow you to start production in one third of the time of a regular refinery. You can get the diesel or the gasoline in one third of the time.
What sort of timescales are we talking about?
A diesel refinery typically takes around 24 months to complete. These mini-refineries will start producing diesel in 8 or 9 months. With gasoline it would tend to be a 3 year project but we can do it in just 12 months. It really is fast.
What is the typical size of a mobile refinery? What are the biggest ones that you offer?
Well, by the nature of the thing, these refineries are not very big. If we make them bigger, we start to encounter he same sort of challenges as companies who do the larger scale refinery projects. So, we have to keep it to a certain size.
The smallest field diesel unit starts at 200 barrel per day going up to relatively complex hydroskimming units of 20,000 barrel per day of crude oil throughput. Each of these units can provide you with a revenue of around $600mn per year.
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How much demand is there for these mobile refineries here in the GCC?
There is a serious demand. Right now we are working on more than 18 proposals in the Middle East and Africa. We predict that each of the countries in the Middle East region would need at least one of these units. So, we can easily count the countries who already have one and if they do not have one yet, they will certainly need one in the future.
We deal with the governments of these countries and also the key investors for each country. They can be any kind of company – right the way from a one man, high net worth investor right the way through to an international trading company or a government house.
Are these mini refineries particularly well suited to the Middle East’s challenging conditions?
Theoretically all smaller countries in the Middle East and Africa which import fuels will need these units at some point in time. Several countries may graduate to full scale refineries while others may continue with mini units. While the countries producing crude oil have a stronger case, other countries would like to have these for strategic reasons.
When we talk about the mobile field diesel production units these can be operated in any location. You can pull them to the remotest of locations, they have got their own power supply, their own utilities and they can start functioning in a couple of days.
When you are talking about the topping units, which is a considerable piece of equipment, you need to remember that it takes around a couple of acres to be able to put it up. It needs to be close to a proper well connected hub and properly built roads.
The hydroskimming unit is a serious investment. These require safe locations. Today we classify the region in terms of the infrastructure that it offers and then the safety. The safety is the most important factor for companies making the investment.
Having said that, there are other models emerging, in the freezones in the UAE.
There are a number of companies who are making larger investments in the refineries and are bringing the hydrocarbons to these locations and processing them there, because the location where the hydrocarbons are located is too risky.
What kind of products can you produce in a mobile refinery?
The mobile field diesel production unit they produce grades of diesel that are suitable for non-automotive uses.
The topping units produce the diesel grades which can be put into any car.
The gasoline units also produce petrol to very high standards, right the way up to Euro 4 or Euro 5 grade.
The mobile units are simple and can only produce diesel of few grades. However mini refineries can produce Gasoline, Naphtha, Kerosene, Mineral Turpentine Oil, Marine Gas Oil and Fuel Oil.
What Kind of products are currently in demand?
In certain parts of the Middle East the higher grade products are in demand, the GCC is very much geared towards Euro 4 or Euro 5 grade gasoline. The gasoline that is consumed in Dubai is pretty high grade.
However, in places like Iraq and Afghanistan, Euro 2 grade gasoline is fine. In some cases Euro 1 grade is also fine for these locations.
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What were the main challenges to overcome when you designed these mobile facilities?
We faced three main challenges. In the first instance, speed of execution is a real challenge. Being fast track projects, the project management style needs to be different and depends largely on a robust supply chain and pre engineered pieces of work assembled together to be delivered on time.
The second challenge is engineering volume. Even though the units are small, the volume of engineering is the same as for a larger unit, which does put pressure on cost and needs careful management.
The third challenge is meeting fuel quality requirements. The Euro norms for motor fuels are becoming more stringent by the day, these do add significant complexity to refining, which is a serious factor in the viability of such refineries.
In addition to these challenges, the main challenge is securing finance. With the price of oil falling, most companies are seeing their business volumes shrinking and with that their banking limits and facilities are also shrinking. This means that the amount of money they can invest is limited. Securing finance has become a real challenge.
Since the price of crude oil has gone down, the margins for refining have also gone down. The percentage margins remain the same but in terms of the total amount of money being made, that has gone down. This means that the payback period for these refineries has increased significantly due to the falling price of crude.
What trends are you noticing developing in the Middle East’s downstream sector?
The downstream sector in the GCC will continue to grow due to the inherent advantage of the region, namely its abundant supply of the prime raw material, i.e. crude Oil. The industry is moving in a traditional manner towards achieving security of fuel supplies, manufacturing value added products and diversifying into petrochemicals.
The larger producers are ahead of the game and smaller producers are trying to emulate the model and identifying the hydrocarbon supply gap to achieve higher value addition. However for larger player selling into international markets, the high labour costs and limited skills tend to limit the development in competition to Far Eastern players.
What predictions do you have for the downstream sector?
We expect that the majority of our current investments in 2015 will go towards Iraq and Saudi Arabia. Reduced crude oil price comes as a mixed bag for refiners and petrochemical producers. On one had the inventory and fuel costs are reduced, while on the other hand the operating margins tend to drop.
However local situations also determine the product prices, and since most of the small refiners thrive in the regions needing import and long distance inland transportation of fuel, the profitability is likely to improve for them.
Which markets are you hoping to target in the future?
Right now we have three target markets in the region: upstream oil and gas, refining, and hydrocarbon storage, which is related to setting up the terminals and setting up the pipelines.
In other geographies, we also work on bio fuels. We do have solutions in place for offshore oil production also. These are like rigs that can be converted into dynamic mobile producers in shallow waters. We will be bringing these solutions to the market.
For the next five years we will continue to focus on the hydrocarbon market in the Middle East and try to improve our offerings by adding new technologies and operational efficiencies and by improving our service levels.