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Chinese agree MOU for Egypt refinery

Petrochemicals

Two state-owned Chinese oil companies have signed a memorandum of understanding (MoU) with Egypt about investing US$2 billion in the construction of a 300,000-b/d refinery in the country, Reuters reported recently. Rongsheng Petrochemical Co. and CNPC would develop the refinery under a 25-year build-own-operate-transfer (BOOT) contract, eyeing a possible doubling of the plants capacity after the first phase has come onstream.

p>Two state-owned Chinese oil companies have signed a memorandum of understanding (MoU) with Egypt about investing US$2 billion in the construction of a 300,000-b/d refinery in the country, Reuters reported recently. Rongsheng Petrochemical Co. and CNPC would develop the refinery under a 25-year build-own-operate-transfer (BOOT) contract, eyeing a possible doubling of the plants capacity after the first phase has come onstream.

No firm timeline for the project was presented - and very few details about its capacity and product range - but it is meant to both supply the domestic Egyptian market and export refined products to China.
The project appears to be in the very early stages - to say the least - and MoUs in themselves are not binding, so might not necessarily come to fruition. Egypt offers good upstream investment terms, but has struggled to attract downstream investment into its refining sector over the past few decades, more because of the nature of its domestic demand and crude supply than because of unattractive fiscal terms. Egypt's oil production is increasingly mature, rendering the crude allocation for a new large plant somewhat difficult to make, while at the same time domestic demand has been growing rapidly.
Domestic supplies are heavily subsidised, and although the government is hoping to phase subsidies out, until it succeeds in doing so it remains an unattractive market for a private investor.
Large-scale export output growth for an export refinery on which to base long-term plans is also unlikely given that, apart from mid-size growth in the Western Desert (by-and-large offset by mature declines elsewhere), Egypt is increasingly a gas play when it comes to growth opportunities.
Hence, the more likely projects are those that manage to turn the Egyptian predicament to its benefit, such as the Mostorod refinery project, which is attempting to reprocess mid-distillate rich Egyptian fuel oil into international standard fuel oil and, for example, diesel.