Azerbaijan interested in building refineries in foreign countries

Azerbaijan interested in building refineries in foreign countries

Baku, Azerbaijan, Aug. 14 / Trend /

Ellada Khankishiyeva, Trend Analytical Centre Head

Azerbaijan has received more proposals for the construction of oil refineries in foreign countries in recent years. And what is remarkable, interest in building refineries in their territory is more often shown by countries that do not have oil resources, or have them in small quantities.

So, at various times Kyrgyzstan, Tajikistan, Ukraine and Georgia turned to SOCAR for the joint construction of oil refinery projects. These countries are seeking to build refinery in their territory in order to reduce dependence on oil products supplies from other countries, to ensure their own energy security and export products abroad. Some of them call construction of the refinery a social project which will allow to create more jobs, increase incomes and, therefore, increase taxes to budget.

Appeal of these states to Azerbaijan is justified, because the country has vast experience in the oil sector. But at the same time, Azerbaijan, as the oil-producing country, and possessing all the necessary resources, has itself priority plans for modernization of existing oil-refining capacity and building new refinery.

Azerbaijan produces today oil products on the basis of two Baku refineries with total capacity of 20 million tons a year. Both refineries are part of SOCAR, which annually processes approximately seven million tons of oil from onshore and offshore fields at its own expense. In 2014 SOCAR intends to increase the depth of oil processing at its own refineries to 95 per cent.

At the existing refineries the production of fuel that meets the Euro 3 standard is ensured, but the fuel of Euro 5standard is expected to be produced at a new oil refinery complex, which will operate in Azerbaijan by the end of 2020. Creation of a new complex for oil and gas processing and production of petrochemical products (OGPC) involves the construction of a petrochemical plant with capacity of ten million tons a year, as well as gas processing plant with capacity of 10 billion cubic meters a year.

It is expected that Azerbaijan, jointly with foreign partners will invest $17 billion in the construction of this modern complex which will not only fill in the domestic market by oil products of own production, but also will also meet the demand for petroleum products in foreign markets.

Around $6 billion will be invested in the construction of STAR refinery of SOCAR in Turkey. The main purpose of the construction of the enterprise is providing raw material for petrochemical complex Petkim, which is the most important of the external assets of SOCAR. Annual production of naphtha at STAR refinery, which Petkim will use as the main raw material will be 1.66 million tons. Currently, more than 80 percent of the needs of Petkim in the naphtha is met through imports. With the introduction of a new refinery dependence on imports will be reduced to zero.

Azerbaijan's activity in the construction of refineries will not be limited by this. On the contrary, the country is interested in export of investment, which, in particularly can be invested in the construction of oil refineries in Kyrgyzstan, Tajikistan, Georgia, Ukraine and even in Latin America. The only thing that SOCAR demands from its future partners is economically viable and valid projects. The company should know the answers to such questions as the source and the price of oil, which will be processed to make a decision on the construction of the oil refinery. If the feasibility study shows that the return on investment can be carried out within two to three years, the project can be considered as effective.
Quite possibly, the time will come when SOCAR itself will decide on the purchase of existing or construction of a new refinery in a number of these countries, when the interests of the company focus on the Asian market or strategy works to expand refining capacity in Georgia or Ukraine. The time will show.

In any case, stimulus measures should be taken to attract investments of Azerbaijan, as for example, Turkey did. Thus, under the Turkish project to encourage investment, which began in April 2012, investment in oil refineries of SOCAR in Turkey will not be subject to VAT.

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