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Zawya
23-02-2025
- Business
- Zawya
INTERVIEW: Oman's OQ8 expands as Middle East's first trading-led merchant refinery
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) (
Observer
12-02-2025
- Business
- Observer
OQ8 celebrates LRT success and refining capacity boost
MUSCAT, FEB 12 The Duqm Refinery and Petrochemical Industries Company LLC (OQ8) – a 50:50 partnership of OQ Group of the Sultanate of Oman and Kuwait Petroleum International of Kuwait — in a significant achievement for Oman's energy sector, has successfully completed its Lender Reliability Test (LRT) just 10 months after mechanical completion, demonstrating the refinery's strong operational capabilities and financial stability. In celebration of its 1st year since inauguration, the refinery has also increased its production capacity to 255,000 barrels per day, solidifying its position as a competitive player in the global refining industry. LRT COMPLETION UNLOCKS FINANCIAL STABILITY In an exclusive interview with the Observer, David Bird, CEO of OQ8, highlighted the importance of the LRT in securing the financial independence of the company. "For those unfamiliar, the company is project-financed, meaning the shareholders initially take on the financial risk," Bird explained. "A key part of this financing is the shareholder guarantee, which, for this company, amounts to over $4 billion—split equally between Oman and Kuwait, with each contributing over $2 billion. The LRT serves as a rigorous test that proves to lenders that the refinery is performing reliably, both operationally and financially, allowing them to release these guarantees." The LRT process involved maintaining 90 days of flawless performance, covering technical aspects such as reliability, emissions, product quality, and safety, as well as financial operations like crude purchasing, revenue collection, and overall business execution. "Lenders don't give up these guarantees easily," Bird noted. "They impose strict, onerous requirements, but we passed the test flawlessly on the first attempt, with zero waivers. This success means that our shareholders can now free up over $2 billion each to pursue new growth opportunities." David Bird, CEO of OQ8 WORLD-CLASS PERFORMANCE IN RECORD TIME OQ8's rapid progress has set it apart from other greenfield refineries globally. "To complete the LRT within the first year of operation is absolutely world-class," Bird stated. "Not just in the region, but globally. A company of this size and complexity, developed in an underdeveloped part of Oman, achieving full operational capacity and sustaining it for an entire year is extraordinary." However, Bird acknowledged that the journey was not without challenges. "I often use the analogy of a duck on a pond," he said. "On the surface, everything appears calm, but beneath the water, the legs are kicking furiously. This achievement did not happen by accident—it's a testament to the incredible capability we've built within the organisation." REFINING CAPACITY INCREASED TO 255,000 BARRELS PER DAY A key part of OQ8's success has been its ability to optimise refinery capacity without major modifications. The company recently announced a 10% capacity increase, bringing production to 255,000 barrels per day. "This was achieved purely through operational process optimisation," Bird explained. "There were no physical modifications. Instead, we carefully managed process conditions to maximise output while remaining within the design limits of the facility." This increased production capacity aligns with OQ8's broader commercial strategy, which prioritises high utilisation of its assets. "In a capital-intensive industry like ours, once the investment is made, the focus shifts to maximising utilisation," Bird said. "It's no different from an airline ensuring full passenger loads or a hotel optimising room occupancy. For us, every additional barrel processed enhances value." FUTURE GROWTH AND EXPANSION PLANS Beyond capacity increases, OQ8 is also focused on long-term growth and efficiency improvements. "We use a phased approach internally," Bird revealed. "The first stage was launching operations, the second is optimising performance, and the third will be expansion and growth. But we have to earn our right to grow. The shareholders have already invested $9 billion, and before they commit more, we must demonstrate that we are a responsible and capable operator." FLEXIBILITY IN CRUDE SOURCING AND PRODUCT DISTRIBUTION One of OQ8's defining advantages lies in its flexibility in sourcing feedstock and distributing products. Unlike many refineries that are constrained by a single crude source or a fixed domestic market, OQ8 can source crude via Ras Markaz oil terminal and intermediate feedstocks through the Port of Duqm. "We're not tied to one crude type, and our products can go wherever market conditions dictate," Bird explained. "That gives us a unique competitive edge." Additionally, OQ8's strategic location outside the Strait of Hormuz and the Red Sea enhances its access to international markets. "Being directly on the Indian Ocean, close to major shipping lanes, allows us to target diverse markets," Bird said. "Initially, we expected our products to be split between Singapore and Europe, but we've been pleasantly surprised by the demand from East Africa and India. That flexibility is a major strength." SCALING UP EXPORT CAPABILITIES The refinery has also demonstrated logistical prowess by successfully handling large-scale exports. "In just 12 months, we've already exported two cargoes of one million barrels of diesel each," Bird noted. "When you load at that scale, your freight costs drop significantly, making it viable to supply markets as far as North and South America, Europe, and beyond." PROCESSING DIVERSE FEEDSTOCKS FOR MARKET ADVANTAGE OQ8's ability to process diverse crude types has been another key factor in its success. "We've already processed more than seven non-traditional feedstocks, including Basra Heavy and vacuum gas oil," Bird said. "Most refineries in the region are used to processing a single type of crude, but we've embraced flexibility, which allows us to capitalise on market opportunities." As OQ8 continues to refine its operations and expand its market reach, the company remains committed to demonstrating its value to shareholders and positioning itself as a leader in the global refining industry.
Observer
10-02-2025
- Business
- Observer
OQ8 celebrates ‘OQ8 Day' with 110% refining milestone
MUSCAT: Duqm Refinery and Petrochemical Industries Company (OQ8) proudly marks the first anniversary of its historic inauguration with OQ8 Day, celebrating a year of remarkable achievements and industry leadership. Since taking over operations, OQ8 has demonstrated exceptional resilience and operational excellence, expanding its refining capacity from 230,000 to 255,000 barrels per day, achieving 110% nameplate capacity. This milestone underscores OQ8's commitment to driving growth, sustainability and operational efficiency in the energy sector. Reflecting on the company's accomplishments, David Bird, CEO of OQ8, stated, "Since taking control from the project, OQ8 has demonstrated resilience, strategic foresight and operational excellence. Our growth reflects the dedication of our team, the strength of our partnerships and the unwavering support of our shareholders, OQ and KPI, as well as our suppliers & offtakers, OQT and KPCT. This milestone could not have been achieved without their ongoing commitment. As we celebrate this success, we remain focused on driving innovation, sustainability and long-term value for Oman, Kuwait and the broader global energy landscape." A key highlight of OQ8's journey has been the successful completion of the Lender Reliability Test (LRT) just 10 months after mechanical completion, reinforcing the refinery's technical prowess, business readiness and operational reliability. Furthermore, OQ8 stands as the first merchant refinery in the Middle East, showcasing its expertise in sourcing and processing diverse crude & feedstock types and demonstrating its flexibility and commercial strength in a dynamic global market. OQ8 has also made significant strides in workforce development, achieving a 68% nationalisation rate, up from 60% at the time of operational launch. This milestone reflects OQ8's dedication to nurturing national talent and supporting Oman's broader workforce development goals. OQ8's achievements extend beyond operational success and is positioning itself as a reliable partner and a catalyst for economic growth in the region. Since assuming full operational control, OQ8 has maintained safe, reliable and efficient performance, contributing to regional energy security and reinforcing Oman's role as a global energy hub. As OQ8 continues to build upon its safe, consistent and reliable operations, the company's future outlook remains focused on sustainable growth, technological innovation and enhancing its commercial resilience in a dynamic & increasing volatile market. Strategic partnerships and continued investment in sustainability and digital transformation will drive OQ8's growth, positioning it as a benchmark for operational excellence and environmental responsibility in the energy sector. OQ8 Day is more than a celebration of past achievements; it is a bold step forward, reaffirming the company's role as a leader in the global energy transition and a key contributor to regional prosperity.
