Samsung Engineering Secures $2.6 Billion Project Management Contract for Modernization of Sonatrach's Skikda Refinery

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading South Korean engineering company Samsung Engineering Company Limited (SEO:028050) (Seoul) has been awarded a $2.6-billion engineering, procurement and construction (EPC) contract by Algeria's largest company, state-owned Sonatrach (Algiers), to modernize a Sonatrach oil refinery at Skikda on the east coast of Algeria. This is the largest plant order ever awarded to a Korean company. The contract will be implemented on a lump sum turnkey basis, and material and construction costs will be settled under a cost-reimbursable contract.

The upgrade project is part of Sonatrach's expansion plan that involves a refining capacity addition of more than 80,000 barrels per day (BBL/d). The upgrade project was initially scheduled to be completed in the fourth quarter of 2009, but this has now been postponed to 2012. Once completed, the refinery's capacity will have increased 3 million tons per year to reach 18 million tons per year. The upgrade and modernization plans include the development of aromatic facilities and a crude distillation unit. The new units to be constructed include a 200,000-BBL/d benzene unit, a 700,000-BBL/d isomerate unit and a 220,000-BBL/d paraxylene unit. The refinery capacity will be increased to 330,000 BBL/d.

The Skikda refinery has an existing capacity of 300,000 BBL/d and was built by Sonatrach in 1980 as a petrochemical and export facility. The facility accounts for the bulk of Algeria's refined products. The complex does not have a cracker unit but has a bitumen plant and a benzene-toluene-xylene-producing aromatics unit.

At present, Algeria has a total refining capacity of 450,000 BBL/d spread across four Sonatrach-owned refineries. Naftec SpA (Algiers), a wholly owned subsidiary of Sonatrach, operates the four refineries--the 30,000-BBL/d Hassi Messaoud refinery in southern Algeria, the 60,000-BBL/d Algiers refinery, the coastal 60,000-BBL/d Arzew refinery and the Skikda refinery.

A fifth refinery project to be set up in Tiaret is currently being planned, and tenders are expected to be issued in July or August this year. The 300,000-BBL/d Tiaret greenfield refinery has been designed to ramp up the nation's production capacity of light products and help meet the growing demand for petroleum products. Part of the production would be exported as well. According to Chekib Khelil, the Algerian Minister for Energy and Mines, the front-end engineering and design (FEED) work of the $6 billion Tiaret refinery project is under way and nearing completion. The project is scheduled to be completed in 2013-14.

The Arzew refinery is also currently under expansion. The contract to implement the $400 million expansion project was awarded in November 2008 to a consortium comprising Hyundai Engineering and Construction Company (SEO:000720) (Seoul), Daewoo International Corporation (SEO:047050) (Seoul) and Hanwha Engineering and Construction Corporation (Seoul). When the project is completed in 2010, the capacity of the refinery will be 3.6 million tons per year.

FEED activities to ramp up the capacity of the Algiers refinery are also under way. Work on the expansion project began in 2007 and is expected to be completed by 2010. The EPC tender is expected to be issued in October 2009.

Although Algeria has outlined plans to almost double the country's refining capacity by 2013, the nation is bearing the brunt of the rising cost of materials and the scarcity of qualified manpower. Algeria intends to invest about $28 billion during the next five years to overhaul the country's downstream sector, including the refining and petrochemical sectors. Sonatrach will contribute about $8 billion towards the effort.

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