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Regional Report: The Middle East oil market and refining sector

Hydrocarbon Engineering,

The Middle East continues to be a focal point for the world oil market, dominating the reserves picture, pushing for the continued development of oil and natural gas resources, investing in petrochemicals and petrochemical refinery integration, and expanding its refining sector to compete in international export markets as well as to provide for strongly growing domestic markets.

Price, supply and demand issues
High prices for oil generally do little to dampen demand in the Middle East, first because petroleum product prices are usually kept artificially low for domestic consumers, and second because high prices often bring an influx of wealth into the region. Middle Eastern oil demand is continuing to grow, but preliminary data indicates that year 2009 demand growth was modest.

Development of the Middle East refining industry
Middle Eastern crude capacity expanded even during the 1980s, a time of global overcapacity, when capacity closures were common in the US and the industrialised world. Middle Eastern crude capacity began to expand in the early 1980s, and capacity by the year 2008 was nearly four and a half times its 1965 level.

Bahrain’s petroleum product market is the smallest in the Persian Gulf region at approximately 42 000 bpd in size. Bahrain has a high value demand barrel made up of approximately 86% light and middle distillates.

Iran is the Middle East’s most populous country, with oil product demand of approximately 1.7 million bpd. Approximately 70% of the Iranian demand barrel is gasoline and middle distillates.

Iraq: Special focus
The Iraqi refining industry has experienced enormous change over decades of war, enduring untold damage to the equipment and infrastructure needed to produce and deliver fuel to the local economy.

The country has three main refineries that incorporate and/or manage most of the smaller topping units. At the highest level, all refineries have been run by the State Oil Refineries Administration (ORA), with three main subgroupings: North Refineries Company (NRC), Midland Refineries Company (MRC) and South Refineries Company (SRC). This changed in 2009 with the entrant of a new refinery company, the KAR Group, which opened the country’s first private sector refinery.

Kuwaiti petroleum product demand is approximately 360 000 bpd, including fuel oil and directly used crude.

The Omani oil market is approximately 70 000 bpd in size, with a demand barrel overwhelmingly dominated (nearly 90% of demand) by light and middle distillates.

Qatar is known for its massive reserves of natural gas, and a host of projects have been launched to develop and utilise these resources, including LNG and GTL complexes.

Saudi Arabia
Saudi Arabia retains its dominant role in the Middle East. It is the largest country in the Persian Gulf region, but with a relatively small population (28.7 million) and a low population density. The oil market is also the largest in the Gulf, with current demand of approximately 2.4 million bpd (including directly burned crude oil).

On a per capita basis, the United Arab Emirates is one of the Middle East’s wealthiest countries, with a GDP per capita figure of US$ 41 800 (2009 estimate). Oil demand is approximately 650 000 bpd, but approximately 45% of this is fuel oil (mainly bunker fuel).

In the Persian Gulf region, Yemen is regarded as the poorest economy, with the lowest per capita GDP estimated at just US$ 2500 in 2009. The oil market is modest in size at approximately 120 000 bpd, three quarters of which is gasoline and middle distillates.

The Middle East remains a focal point of the global oil market. The region dominates the world oil reserves picture, and key Middle Eastern countries continue to serve as swing producers. Middle Eastern natural gas resources are being developed for local use and for export in the form of LNG and GTL diesel. Local oil demand is growing, and it is forecast to continue to grow. The refining industry also has grown enormously, led by Saudi Arabia and Iran, and every key refining country in the Gulf has refinery projects underway and planned.

To read the full article by Nancy Yamaguchi, subscribers can login and read the May 2010 issue of Hydrocarbon Engineering.

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