Capacity needs investment

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The Middle East is investing in the refinery capacity the world needs. (Essam Al-Sudani/AFP/Getty Images)

Recent announcements about refinery projects in the region show that the sector is heading for a period of sustained growth.

Just in the last month Iran's state oil refining firm and India's Essar Group announced the construction of a 300 000 barrels per day (bpd) refinery in southern Iran early next year; and Oman's plans to increase the capacity of its 116 000 bpd Sohar refinery, by as much as 35%, came to media attention. The Iran project may cost between US $8-$10 billion, will boost the OPEC member's gasoline production and reduce its reliance on imports.

The investment is a drop in the ocean of money required to fund the OPEC projects already on the table. OPEC country investments between the end of 2005 and end 2011 will add a total of 5.9 million bpd to global refining capacity.

As OPEC outlines in its assessment of downstream demands, "the market volatility witnessed in recent months has been, to a large extent, the result of imbalance between the available refining capacity and the demand for petroleum products. Until the necessary investments are undertaken in the downstream sector of the industry, volatility is likely to remain a feature of the oil market."

OPEC estimates the investment required for the realisation of these projects to be around US $66 billion within the period from 2006 to 2011. None of this will happen over night. The lead times for refinery construction are typically around four years. In many cases developments are aimed at increasing domestic capacity, but the effects will flow into the world market. Countries in the Middle East are also eyeing the benefits of developing their petrochemical industries, adding value to their oil.

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