Iraq seen relying on oil product imports for at least five years

Baghdad (Platts)--12Jan2006

Iraq will have to rely on imports of refined products for the next five
years at least to satisfy growing local demand until proposed new refineries
become operational, its existing refineries are upgraded and revamped and its
pipeline network made safe from attack, Iraqi officials say.

     This is irrespective of the effects of unpopular measures taken to curb
local consumption such as the imposition of alternate days for car travel and
increasing the price of oil products, a move which led to the resignation of
oil minister Bahr al-Ulum in December. The minister returned to his office
this week and is trying to tackle the crisis over domestic fuel supply and
pricing.

     Iraq's downstream oil sector is largely the responsibility of the
ministry of oil and funded directly by the Iraqi government investment budget.

     The US Army's Project and Contracting Office (PCO) has committed itself
to funding and overseeing the implementation of only 12 projects in the
sector. Seven are projects for gas processing companies at a cost of $141-mil;
one for the oil products company at a cost of $12-mil and only four for 
refineries at a cost of $18-mil, all to be completed in the first half of
2006.

     There are no projects related to capacity increase and process upgrading
on the current agenda.

     However, companies affiliated with the ministry of oil made some progress
last year towards the implementation of major development projects.

    A Czech firm was awarded the contract to design, engineer and supervise a
70,000 b/d vacuum distillation unit at Dora refinery on the edge of Baghdad at
a cost of $40-mil. The project, which is due for completion at the end of
2006, will raise Dora's eventual capacity to 170,000 b/d from 110,000 b/d
currently.

    Tenders for a 70,000 b/d complete refinery in Kurdistan, the Koi refinery,
and for a 140,000 b/d refinery in central Iraq, the Nahrain refinery, have
been issued but both are still in the negotiation stage. Tender documents for
two package-type refineries of 30,000 b/d capacity to be installed in Najaf
and Diwaniya respectively and for an isomarisation unit at Dora are on the
verge of completion and will be declared soon, oil ministry officials say.

    Long delayed projects, such as the new reforming unit at Dora and the
isomarisation unit at Baiji have been reactivated.

    The ministry also followed a policy of installing new locally-assembled
small refining units, of 10,000 b/d capacity each, in various parts of the
country. These units are exact replicas of US-manufactured units bought during
the Iraq-Iran war. One such unit was installed in Samawa and was operated in
June while work is in progress to install one in Najaf, two are destined for
Sulaimania and two for Qayara near Mosul.

     The officials say it is premature to talk about a proposed 300,000 b/d
export refinery at Nassiriya and a 150,000 b/d refinery around Mosul, which
original reports suggested would both be financed by foreign investors and the
Iraqi private sector.

     With its refineries running at around 50-60% of capacity, estimated
currently at just under 600,000 b/d at all eight refineries, Iraq has been
forced to import huge amounts of refined product to satisfy domestic demand.
The imports bill, estimated at around $100-mil per month, has eroded the
country's income from the sale of crude oil in a year when crude oil prices
reached a record. 

     Ministry of oil figures obtained by Platts for December showed that
production and imports of refined products fell slightly over November but the
pattern of consumption and refinery output confirms that the OPEC member with
an estimated 115-bil bbl in crude oil reserves, will have to continue to
import oil products. (see story at 1154 GMT)

		--Faleh al-Khayat, newsdesk@platts.com

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