Sonatrach Shortlists Four International Firms for Proposed Tiaret Refinery FEED Contract

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Researched by Industrial Info Resources (Sugar Land, Texas)--Sonatrach (Algiers, Algeria), Algeria's government-owned energy authority, has shortlisted four international engineering and construction firms to undertake front-end engineering and design (FEED) activities for Sonatrach's proposed 300,000-barrel-per-day (BBL/d) refinery at Tiaret. The refinery will be located in the Hauts Plateaux region of the country.

The companies selected include a consortium of Saipem SpA (OTC:SAPMY) (Milan, Italy) and Chiyoda Corporation (TYO:6366) (Yokohama, Japan); Technip SA (OTC:TKPPY) (Paris, France); CB&I Lummus (The Hague, Netherlands); and China Petroleum and Chemicals Corporation (NYSE:SNP) (Sinopec) (Beijing, China). Nine companies were prequalified to bid for the project.

The refinery, which is expected to begin operations in 2014, will produce naphtha, propane, gas oil, butane and kerosene to meet domestic demand and exports. The project will receive feed from the 34-inch, 498-mile OZ-2 pipeline, linking Haoud El-Hamra and Arzew. The construction cost of the project is estimated to be $5 billion to $6 billion. Engineering, procurement and construction (EPC) activities are expected to be completed in 42 to 48 months.

In November 2008, Abd Al-Hafid Feghouli, head of Sonatrach, indicated that the cost of the Tiaret refinery project was likely to dip due to the impact of the financial slowdown on construction prices. Earlier, there were concerns raised about the viability of the project due to the location, spiraling costs, and funding. In 2007, Jacobs Consultancy, the technical consulting arm of Jacobs Engineering Group (NYSE:JEC) (Pasadena, California), and HSBC Holdings plc (NYSE:HBC) (London, England), completed feasibility studies, which were later approved by Sonatrach. However, the project faced delays due to internal developments in Sonatrach and increasing costs. Banks also were hesitant to provide funds due to the location of the refinery. Sonatrach had planned to build the Tiaret refinery with international partnership. The company decided to build the refinery on its own, after discussions with Total SA (NYSE:TOT) (Paris, France) and China National Petroleum Corporation (CNPC) (Beijing, China) did not materialize.

Experts have stated that the Tiaret refinery was planned as a greenfield project in the Hauts Plateaux region, where procurement of cooling water was difficult. Sonatrach later announced that water supply was secured from the water department, and a supply agreement was sealed with a new water treatment facility in the region.

Sonatrach recently announced that it has shortlisted eight of the 11 prequalified bidders to perform the expansion of the company's refinery at Algiers. The bidding companies shortlisted include a consortium of Saipem and Snamprogetti SpA (Milan, Italy), Sinopec, Samsung Engineering Company Limited (SEO:028050) (Seoul, South Korea), Petrofac Limited (LSE:PFC) (London, England), Tecnicas Reunidas SA (MCE:TRE) (Madrid, Spain), GS Engineering &Construction Corporation (SEO:006360) (Seoul, South Korea), and Technip.

Algeria is focusing on augmenting and refurbishing the capacities of the country's existing refining facilities. Sonatrach has set a target of doubling Algeria's refining capacity in the next five years to meet growing domestic demand. Algeria's Ministry of Energy and Mines reportedly has allocated $28 billion for revamping and augmenting the country's downstream sector, including petrochemical and refining facilities. About $20 billion of this investment is expected to be funded by Algerian banks, while the balance will be invested by Sonatrach.

Sonatrach is confident that the augmentation program will increase refining capacity to 24 million to 25 million tons per year by 2011. Last year, Sonatrach signed 142 short-term and medium-term agreements with a combined value of about $260 million to construct and expand refineries in Skikda, Arzew and Algiers.

Algeria's consumption of oil is expected to grow at an annual rate of 5%, reaching 330,000 BBL/d by 2010. As of January 2009, Algeria had proven oil reserves of about 12.2 billion barrels, and ranked third-largest in the African continent, after Libya and Nigeria, according to the Energy Information Administration (Washington, D.C.).

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