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The benefits of Saudi Arabia, UAE oil refinery projects in Balochistan

By virtue of its geo-strategic location, Gwadar is likely to emerge as a free oil port in the South Asian region. It can serve as the future petroleum and petrochemical hub of Pakistan meeting the oil transshipment requirements of different countries. That is why, Pakistan needs to enhance its refining capacity and it needs mega oil refinery projects in its strategically located province of Balochistan.

Pakistan is largely dependent on oil imports. Bulk of the Pak Arab Refinery Limited (PARCO) revenues is generated from its refinery operations. PARCO markets its products through off-take agreements with Oil Marketing Companies and also through its own brand, PEARL. It also has a 40% stake in TOTAL-PARCO, a joint venture with Total Fina Elf — a French conglomerate, to market upto 25% of the MCR’s production through a rapidly expanding network of TOTAL- PARCO outlets. UAE has 40 percent equity in PARCO — located in Mehmood Kot area of Multan. The $886 million country’s largest refinery, capable of purifying 100,000 barrels of oil a day, was commissioned in September 2000. The White Oil Pipeline transports imported oil from Port Qasim to the Pak-Arab Refinery.

The development of two refinery projects, proposed one at Gwadar and other at Hub, in coastal Balochistan have their own strategic importance. Both are significantly linked to the China Pakistan Economic Corridor (CPEC) worth $60 billion. Gwadar port is expected to serve as secure outlet for the Middle East and Central Asia oil and gas supplies through a well defined corridor passing through Pakistan. Deep-sea port at Gwadar, and future plans for important cross-national oil pipelines traversing the state would further enhance the region’s strategic value.

Saudi Arabia Oil Refinery

Saudi Arabia has agreed to invest $10 billion for refinery and $1 billion for petrochemical complex in Gwadar port city. The feasibility study about the proposed refinery and petrochemical complex will at least take one year to complete. The proposed Saudi refinery will have the capacity to refine the crude oil of 300,000 barrel per day. Pakistan and Saudi Arabia also agreed to establish a Joint Working Group (JWG) for setting up $11 billion oil refinery and petrochemical complex at the Gwadar Port in February 2019.

The JWG would hold regular interaction to exchange information needed for carrying out feasibility studies of the project on a fast track. Pakistani officials claim that the proposed oil facility in Gwadar would help bring down the country’s oil import bill by $1.2 billion annually. Pakistan’s average annual oil consumption is around 26 million tons (MT), out of which 13.5 MT is met through local production of eight existing oil refineries and rest of the 50 percent crude oil is imported to meet the energy needs.

With the construction of a state-of-the-art oil refinery and petrochemical complex in Gwadar port city, Pakistan would be able to capture markets in China and landlocked Central Asian states where fuel supply takes weeks to reach through other routes. According to one estimate, the fuel transportation to China through the China Pakistan Economic Corridor (CPEC) would take just seven days as opposed to the western route that takes almost 40 days. The proposed oil facility would help refine and store imported oil for onward transportation to China and develop fuel supply chain for the landlocked Central Asian counties.

 

Khalifa Coastal Oil Refinery

Khalifa Coastal Oil Refinery (KCR) project is a joint venture between Pak Arab Refinery Limited (Parco) and International Petroleum Investment Company (IPIC) of United Arab Emirates (UAE). The KCR project, which was scheduled to be completed by end of 2012 has been in doldrums since 2009. Last year, the PARCO made up its mind to establish a state-of-the-art deep conversion coastal refinery with capacity to refine crude oil up to 300,000 barrels per day at the Khalifa Point near Hub in Balochistan. For this purpose, the board of directors of the company already approved initiation of a feasibility study. Upon completion of the study, PARCO will take a final decision to go for a mega refinery or not.

In 2007, UAE had signed an implementation agreement with Pakistan for establishing a $5 billion refinery at Khalifa Point in the Hub district of Balochistan. Under the deal, Abu Dhabi’s IPIC will set up refinery with a target capacity of refining 200,000 to 300,000 barrels per day (bpd). While IPIC holds a 74 percent stake, the stake of Pakistan-Arab Refinery Company (PARCO) is 36 percent in the project. PARCO is a joint venture between Government of Pakistan (60%) and Abu Dhabi Petroleum Investment (40%). It was incorporated in Pakistan in May 1974, as a public limited Company. Today, PARCO is considered the fulcrum in Pakistan’s strategic oil supply and logistics. It has emerged as the strategic fuel supplier to the country. It is actively involved in various facets of oil storage, transportation, refining and marketing of energy products.

Khalifa refinery would be the sixth in the country after National Refinery Limited, Pakistan Refinery Limited, Attock Refinery Limited, Pak-Arab Refinery Limited and Indus Refinery Limited. Pakistan has an installed refining capacity of 12.82 million tons a year from its five refineries. It will be the largest oil refinery of the country with 250,000 barrels per day oil refining capacity. It will cost $6 billion. Before 2009, work on KCR project slowed down due to circular debt. In January 2009, the Abu Dhabi government had put work on the refinery project on hold due to global recession but now circular debt had become major reason for another delay.

In 2009, the UAE government argued that because of the global economic meltdown that adversely affected the UAE economy it was unable to immediately start work on the refinery with huge investment. Keeping in view the expected delay in initiating the project, Pakistan had asked PARCO to start working by enhancing its capacity to refine another 100,000 barrels of oil per day to cater to the country’s future needs.

The proposed Khalifa refinery would be connected with existing POL distribution network and its petroleum products would be based on ‘Euro IV’ specifications for improving environmental standards besides, ensuring the products to be easily traded on the international market. It will have operation and maintenance service business for Pakistani companies besides, developing other ancillary and support industry around the refinery complex.

It will not only help the country meet its local demand but also to export the rest of refined petroleum products. Pakistan’s total refining capacity is about 12.5 million tons.

Khalifa Coastal Refinery would double Pakistan’s refining capacity. Crude oil tankage for the refinery is estimated in the range of 500,000 and 600,000 tons. It would have single-point mooring (SPM) with sub-sea pipeline for crude unloading and product loading operations. The capacity of SPM is expected to handle about 1.5 million tons per month. Under the tax holiday regime, the refinery will get concession of repatriation of all income and capital gains outside Pakistan without any tax liability. It will remain exempted from workers participation fund (WPF) and workers welfare fund (WWF). The development charge of 0.5 percent has also been exempted for 20 years.

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