Identifier
Created
Classification
Origin
09BAGHDAD47
2009-01-08 15:38:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Baghdad
Cable title:  

IRAQI REFINERIES PRESENT AND FUTURE (CORRECTED COPY)

Tags:  EINV EPET ENRG IZ 
pdf how-to read a cable
VZCZCXRO2352
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0047/01 0081538
ZNR UUUUU ZZH
P 081538Z JAN 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 1149
INFO RUCNRAQ/IRAQ COLLECTIVE
UNCLAS SECTION 01 OF 02 BAGHDAD 000047 

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SENSITIVE

TAGS: EINV EPET ENRG IZ

SUBJECT: IRAQI REFINERIES PRESENT AND FUTURE (CORRECTED COPY)

UNCLAS SECTION 01 OF 02 BAGHDAD 000047

SIPDIS
SENSITIVE

TAGS: EINV EPET ENRG IZ

SUBJECT: IRAQI REFINERIES PRESENT AND FUTURE (CORRECTED COPY)


1. (SBU) Summary: Iraq's refineries are plagued by
poor maintenance and antiquated design. Modern refineries produce
80% to 90% of a barrel of oil into light or medium distillates,
while Iraq's refineries produce between 50% and 55%. This creates
large amounts of heavy fuel oil (HFO),which must be sold and
transported within the country or exported. Plans to modernize and
expand Iraq's refineries are moving slowly mostly due to difficult
contracting procedures, a shortage of skilled staff to manage large
projects, and are exacerbated by lack of reliable electric power to
safely operate high tech process equipment. The Ministry of Oil
(MoO) faces an uphill climb to meet its goals of self-sufficiency
and higher exports. End Summary

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Iraqi Refineries: Three Operating Companies
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2. (SBU) Iraqi refining capacity is divided into three operating
companies. The North Refinery Company headquartered in the Baiji
Oil Refinery (BOR) is led by Director General (DG) Dr. Ali
Al-Obaidi. The Midland Refinery Company is headquartered in the
Daura Refinery and led by DG Dathar Khashab. The South Refinery
Company is headquartered in the Basrah Refinery and led by DG Thaer

E. Jaber. All of these companies fall under the Deputy Minister of
Oil for Midstream, Ahmad Al-Shamma.


3. (SBU) Iraq's design refining capacity within country stands at
approximately 740,000 barrels per day (bpd). BOR accounts for more
than 40% of this design capacity at 310,000 bpd. The other two
large refineries are Daura refinery with a capacity of 90,000 bpd
and Basrah refinery at 160,000 bpd. The remaining refineries range
from 30,000 to 10,000 bpd capacity

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Design versus Operational Capacity
--------------

4. (SBU) The difference between design capacity and operational
capacity can be great. BOR has an operational capacity
approximately 75% of the design capacity. Basrah Refinery's
operational capacity is approximately 15% less than its design
capacity. This stems primarily from the MoO's inability to bring in
spare parts for maintenance, damage caused by unreliable electricity
supplies, long-term effects of the sanctions period, and a shortage
of highly skilled workers. Total Operational capacity is
approximately 65,000 bpd, or 10% lower than design capacity.


5. (SBU) In addition to the condition of the refinery, inadequate

supplies of oil reduce production. The Daura refinery regularly
operates at approximately 50% capacity due to inadequate supplies of
crude oil. The Strategic Pipeline can no longer fully fuel all the
users along the route. Repairs to the pipeline's pump stations have
not progressed and the problem will remain for a number of years to
come. Iraq loses approximately 116,000 bpd, or 17% of operational
capacity, due to inadequate quantities of crude oil reaching the
refineries. Many days, no crude at all is received.

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Refineries Lack Modern Technology
--------------

6. (SBU) Iraq's refineries are mainly simple distilling units. Iraq
has only one hydrocracker at BOR, which has not been operational
since 2002. Hydrocrackers allow a refinery to further break down
complex carbon molecules and produce more light and medium
distillates. Most modern refineries have hydrocracker units. The
unit will typically increase production of lighter distillates from
approximately 50% to approximately 70% of each barrel of crude oil.



7. (SBU) Most modern refineries have a Fluid Catalytic Cracking
Q7. (SBU) Most modern refineries have a Fluid Catalytic Cracking
(FCC) unit. The FCC unit has much the same function as the
hydrocracker, but adds an extra layer of ability to the refinery.
With a hydrocracker and FCC, a refinery can refine 80% to 90% of
crude oil into lighter distillates. The MoO has begun the tender
process to put bids out for FCC units at the Baiji, Daura, and
Basrah refineries, but these are in the earliest of stages and will
not be completed until 2016.

--------------
HFO Issues: Urgent Need for Refinery Capacity
--------------

8. (SBU) There is an urgent need for the MoO to address its
inability to process HFO through further refining. Currently the
MoO exports to Iran, Turkey, Syria, and Jordan via truck, sells
domestically at subsidized and un-subsidized prices transporting the
HFO via truck, and fuels electricity generation via truck and
pipeline. HFO, a heavier distillate, does not move easily via
pipelines and does not store readily in tanks. A truck which has
transported HFO needs to be thoroughly cleaned before transporting
lighter distillates to avoid contamination. All of these issues
strain the system and create build-ups of HFO at some refineries,
such as the BOR. In the past, refineries have even shut down due to
the strain of excess HFO storage and over-production.


BAGHDAD 00000047 002 OF 002


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The Future of Iraqi Refineries: U.S. and International
Firms Help, But it Will Take Time
-------------- --------------

9. (SBU) In early December 2008, Iraq signed Front End Engineering
and Design (FEED) contracts for four new refineries. Two for
150,000 bpd refineries in Kirkuk and Maysan were awarded to the U.S.
firm, Shaw, Stone and Webster; one for a 300,000 bpd refinery in
Nassariyah to the U.S. firm Foster Wheeler; and one for a 140,000
bpd refinery in Karbala to the French firm Technip. These contracts
represent the earliest preliminary design portions of the refinery
building process. The companies are not likely to bring personnel
to Iraq to conduct the work. MoO officials report that the
contracts will take at least 18 months to complete and the
refineries will not be completed for five-to-seven years. It is
currently unclear whether these designs will include FCC units and
hydrocracker units.


10. (SBU) The Midland Refining Company is currently building two new
refining units in the Daura refinery of 70,000 bpd each. One 70,000
bpd unit should be completed first quarter 2009 and the second early
in 2010. The DG anticipates moving some the 10,000 bpd units from
Daura to smaller refineries and having Daura's capacity at 210,000
bpd by the end of 2010. The Basrah refinery plans to add an
additional 70,000 bpd unit by 2010 and move its 10,000 bpd unit.
This will raise Basrah's design capacity to approximately 210,000
bpd. All three of these 70,000 bpd units are being designed and
built by Technoexport out of the Czech Republic. These additions
and the new refineries under the FEED contracts will approximately
double Iraq's refining capacity.

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Budget Woes
--------------

11. (SBU) Recently the Kuwaitis contracted to build a 600,000 bpd
refinery with a reported price of over $15 billion. Extrapolating
that price for the Iraqi refineries would mean approximately $8
billion for the 300,000 bpd refinery and $4 billion for the two
150,000 bpd refineries and the 140,000 bpd refinery. It is unclear
whether the Iraqis can afford $20 billion over the next
five-to-seven years from their oil revenue based budget even if oil
prices climb again, given the many other desperate needs in Iraq.
Ministry officials stated that they are looking for partners to
build the refineries. The officials have said that the only serious
offer they have received so far has been one on the Kirkuk refinery
but they hope for more bids as the projects are readied.
CROCKER