INTERVIEW: Oman's OQ8 expands as Middle East's first trading-led merchant refinery

Zawya

23-02-2025

Oman-based Duqm Refinery and Petrochemical Industries Company (OQ8), the Middle East's first merchant refinery, is preparing for its next growth phase, focusing on product diversification and expansion while leveraging key milestones, the company's CEO said.
The $9-billion mega project, a joint venture between OQ Group of Oman and Kuwait Petroleum International (KPI), recently marked one year since its official inauguration in February 2024.
'In this period, we expanded our capacity by 10 percent, from 230,000 barrels per day (bpd) to 255,000 bpd, and successfully integrated non-shareholder crudes,' David Bird told Zawya Projects.
Key milestones include mechanical completion in July 2023, full operational capacity in December 2023, and Care, Custody, and Control (CCC) in May 2024. The 90-day Lender Reliability Test (LRT), a critical component of project financing, was successfully completed in August 2024 with zero waivers.
"Not only did we achieve flawless operations to successfully complete the LRT, but we also did so while reaching nearly 70 percent nationalisation," stated Baird.
The 10 percent nameplate capacity increase was achieved just four months after LRT, within the warranty period, with support from EPC contractors and insurers.
The company is now working to release over $4 billion in shareholder guarantees.
'Over $2 billion on each sovereign's books will be freed up, allowing them to utilise this space in their liabilities to fund other growth projects,' said Bird.
Going full throttle
Since completing the LRT, the refinery has aggressively pursued feedstock flexibility to maximise margins, successfully processing seven different crude types to date. These include Basra Heavy, Vacuum Gas Oil (VGO) from India, and residue from Fujairah, with plans to receive West African crude in March.
'Through market dislocation that comes from [the spread between] Dated Brent versus Arab Heavy going into China because of the sanctions on Russian tanking fleet, we have an opportunity to procure and process West African crude,' explained Bird. He added that while West African crude may have been processed in the region before, it remains uncommon.
OQ8, the CEO said, sees itself as a strategically located, trading-led merchant refinery capable of processing diverse crude and feedstock types.
'We are not tied to a single crude source, nor do we have fixed domestic supply commitments. As a fully export-driven refinery, we have the flexibility to source any feedstock and sell our products to any market worldwide."
He pointed out that KPC Trading and OQ Trading, as offtakers and suppliers, serve as OQ8's market interface, procuring the crudes the refinery requires.
'We assess crude options based on their economic viability, which they then acquire, or they identify opportunities arising from market dislocations that we can process on an opportunistic basis.'
Bird explained that OQ8 was strategically designed to process multiple feedstock and export products into the major markets in the East and West, mainly Singapore and Europe.
' The fact that Europe was envisaged in the design means we have the capability to produce the most stringent product quality specs in the world. Our ability to land our product competitively anywhere globally is built into the design, and we have fully leveraged that.'
The refinery's product range includes diesel, jet fuel, naphtha, liquefied petroleum gas (LPG), sulphur, and petroleum coke. Almost half of these, particularly diesel, have been sold into East Africa, and a significant portion is also landing in India.
To enhance risk resilience, OQ8 is sourcing feedstock not only from the Ras Markaz Crude Oil Storage Terminal but also directly through the Port of Duqm's product terminal. The company is also leveraging the Port's deep draught capabilities, which can accommodate large Suezmax tankers.
'We can now bring in million-barrel cargoes of feedstock directly to the refinery, as well as export large parcels. We have already loaded 2-million-barrel cargoes of diesel.'
Next phase of growth
Twelve months after OQ8's official opening, discussions are underway on expanding its scale and diversifying the product mix to enhance resilience.
'We've started discussions because there's a lead time before those brownfield or growth projects come online,' said Bird, while confirming progress on the petrochemical expansion plans.
'The feasibility study is complete and with shareholders for their approval process,' he said. 'Saudi investors' interest in the expansion is a testimony to the success of the region's largest downstream investment between two GCC countries and its delivery track record.'
While not directly investing in green molecules or renewable energy, the company has positioned itself as a potential off-taker, with a daily hydrogen demand of 500 tonnes and an electricity requirement of 100-120 megawatts (MW), contingent on viable business models.
'We are effectively bringing demand to the doorstep of renewables, which eliminates one of the biggest challenges of the energy transition—the need to transport green energy from its source to demand centres,' explained Bird.
He ruled out paying a premium for offtake, citing customers' reluctance to pay a premium for the end product, but acknowledged that this could change over time.
Interestingly, Hyport Duqm, a collaborative venture between OQ Group, Belgium's DEME Group and UK's BP, aims to establish a substantial green and ammonia production facility within the Special Economic Zone at Duqm (SEZAD).
'We are at the epicenter of a lot of these discussions and potential partnerships,' Bird noted.
The golden age of oil refining
Bird agreed that Duqm Refinery has come online amid heightened geopolitical and economic volatility, driven by the Ukraine war, the Red Sea crisis, and potential shifts in global trade with a new U.S. administration.
He pointed out that over the past 20 years, refining margins have seen five major peaks, mostly supply-driven. Margins reached a record high of $35 per barrel in 2022, fuelled by post-COVID demand recovery and supply disruptions.
However, recent capacity additions – such as 650,000-bpd Dangote in Nigeria, 615,000-bpd Al-Zour in Kuwait, and Duqm itself - have led to temporary oversupply, compressing margins and triggering market corrections through capacity reductions.
Over the next five years, smaller, older, and less efficient refineries, particularly in Europe and North America, are expected to shut down, Bird stated.
'However, small, distributed-capacity production is being replaced by concentrated mega refineries,' he explained. 'So, when you get outages in this concentration of supply, volatility will increase, standard deviations will get higher.'
He also noted that demand forecasting is becoming more complex, citing the example of the UK, where gasoline demand is now at record levels due to slower-than-expected electric vehicles (EV) adoption and a shift from diesel to gasoline hybrids following diesel emissions scandals.
However, suggesting this scenario would have seemed absurd three years ago, as EVs were expected to be the ultimate solution.
'Regardless of demand projections, reinvesting in oil and gas infrastructure to drive efficiency is absolutely the right thing to do,' said Bird. 'The market will always find a way of balancing, overshooting on capacity, and then on capacity reduction.'
Meanwhile, OQ8 remains committed to strengthening its commercial resilience in an increasingly volatile market.
A trading mindset is about being 'ruthlessly cost-focused to stay resilient during the downturns while intimately engaging with the market to quickly respond to and capitalise on regional dislocations,' Q8 CEO emphasised.
'With our global capability, deep-draft port for large vessels, and the ability to meet product quality specifications for any market worldwide, we have what it takes to thrive in this period of volatility,' he concluded.
(Reporting by Anoop Menon; Editing by P Deol)
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