Azernews.Az

By Gulgiz Dadashova

Azerbaijan, an oil and gas rich nation with more than 9.6 million people hasn’t been a serious player in the refining industry for some time, but expanding oil production and a need for more refining capacity showed the necessity of major restructuring plans.

Population growth and well-being have resulted in a higher demand for petroleum products in the country. Azerbaijan’s energy giant SOCAR has long been working on consolidating the refining capacity of the country with a view to eliminate economically inefficient production and open up new opportunities in this sector, which require a large amount of investment.

A while ago, the company announced about a major plan to build a new complex for oil and gas processing and petrochemical production (OGPC). However, changing economic realities have forced the company to make adjustments to its existing plans.

As the gap between the consumption and production of gasoline in Azerbaijan narrowed, SOCAR, which is the only producer of oil products in the country, was forced to take a number of serious measures that continue to this day. First, the company has completely shifted to the production of gasoline AI-92, which accounts for 95 percent of total gasoline consumed in the country, and to abandon the production of gasoline AI-95 [currently imported].

Furthermore, the company has reduced the export of gasoline to a minimum, and this year, it did not export petroleum products.

SOCAR, which had previously owned two refineries, announced plans to shutter and subsequently merge the processing activities of its Azerneftyag refinery with those of its nearby Heydar Aliyev refinery from January 2015.

The decision to close the refinery and unify its refining operations came as part of SOCAR’s overall plan to improve corporate structure and optimize business processes through consolidating its refining business under an integrated management scheme, the company said.

The move is intended to eliminate economically inefficient production activities associated with the operation of two separate refineries.

The company decided to rebuild the refinery so that it will continue to function for another 15 years. The plant is expected to undergo a large-scale renovation process and along with the construction of new plants, it will increase the capacity and quality of production.

Upon modernization, domestic gasoline production will increase from 1.3 to 2.2 million tons, the production of diesel fuel from 2.3 to 2.9 million tons, while the production of jet fuel will jump from 0.7 to 1 million tons. These figures will meet local demand in fuel at least until the end of the 2020s, that is, before 2030, when the company plans to launch a new refinery within the OGPC.

Azerbaijan produced over 5.31 million tons of oil products in 2014, compared to 5.09 million tons of oil products in 2013.

Along with the fact that the upgraded refinery will increase the volume of output of oil products, it will allow for the production of 95-octane gasoline, as well fuel that complies with the Euro-5 environmental standards by 2018.

This is a huge undertaking requiring a large amount of money. The company has recently agreed with the International Bank of Azerbaijan to draw 1.26 billion manats ($1.2 billion) for refining complex modernization.

SOCAR Vice President Suleyman Gasimov said SOCAR would soon receive the first tranche of the loans from the IBA. The total amount of the loan will be 1.86 billion manats ($1.78 billion). The funds will be spent on the development of the processing industry and drilling new wells in the Caspian Sea. The Finance Ministry will act as the guarantor.

He further noted that under the first installment of the IBA loan that some 50-60 million manats will be directed to reconstruct the oil refinery, and about 200 million manats to conduct drilling.

“Both are long-term loans. The loan for oil refinery modernization is intended for about 13 years, the first three years covering a grace period. It will be repaid over 10 years in equal installments with the help of funds from the state budget and SOCAR’s authorized capital,” said Gasimov.

Meanwhile, this week, SOCAR and Austrian Pörner Group signed a contract for the construction of a bitumen unit as part of the modernization of the Heydar Aliyev Baku Oil Refinery.

"It is planned to renovate the primary processing, catalytic cracking, catalytic reforming and factory-wide units, as well as to construct several new units," SOCAR President Rovnag Abdullayev mentioned at the event, adding that the new bitumen production unit will be commissioned in mid-2018.

The new bitumen unit will completely decommission the existing infrastructure at the Azneftyag plant, optimize operating costs at the Heydar Aliyev refinery, establish high-quality bitumen production and contribute to the improvement of the ecological situation in Baku.

Modernization is a necessity. In case SOCAR fails to upgrade the refinery, refining capacity would operate at the limit by 2017 and fail to meet increasing consumption. As Abdullayev previously mentioned, upgrades on the Heydar Aliyev Baku Oil Refinery will be completed by the end of 2018.

The modernization and renovation of the plant will not only cover the internal needs of the country, but will also allow SOCAR to enter the international market with high quality fuels that meet the highest standards. As the Vice President of SOCAR on Strategic Development, Tofig Gahramanov, said 75 percent of the gasoline produced at the plant will be directed to the local market, while a quarter of it will be exported. As for diesel and aviation fuel, the product will provide for 60 percent of demand in the domestic market, and 40 percent will be exported.

Modern requirements for the oil refining process bring to the fore the ecological impact of enterprises. The country joined the fight against harmful auto emissions back in 2010 by introducing the Euro-2 standard for vehicles. Under a decision by the Cabinet of Ministers, the Euro-4 ecological standard was applied to vehicles imported and manufactured in Azerbaijan from April 1, 2014.

As already mentioned, SOCAR plans to establish a new processing complex within 60 kilometers of Baku. The complex will have a new refinery, which will then decommission the Heydar Aliyev refinery after its launch, and the grounds on which it is located will be purified and ennobled. Construction of the new refinery in the very outskirts of the capital and the demolition of the old refinery, which is located in the city center, will surely have a positive impact on the ecological situation in Baku.

The construction of the new refinery will be completed under the second phase of the OGPC project. The annual capacity of the new plant will be 8.6 million tons.

Work on the modernization and development of the oil-refining complex allows SOCAR, firstly, to ensure the withdrawal of harmful production outside of Baku. Secondly, the formation of the country's new and modern production facilities will minimize the amount of emissions of harmful toxins. Third, to establish the country's production corresponding to the highest international standards of quality and to expand export capacity. The mobilization of existing internal resources and the creation of new oil refineries will finally allow local consumers to solve the problem of automobile fuel supplies in a comprehensive and beneficial way.

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