Bahrain Petroleum Company (BAPCO) Low Sulphur Diesel Project (LSDP), Bahrain

Bahrain Petroleum Company (BAPCO) completed in early 2004 some major upgrades to the production capacity and infrastructure at its Bahrain refinery (the only one in the country). The refinery first opened in 1936 (initial production of 10,000bpd) and has undergone many upgrades in the past 69 years including some major projects in the early 2000s until production reached around 250,000 bpd.

In 2004-2005 BAPCO commissioned a new series of projects designed to completely modernise diesel production at the refinery and to bring its diesel products fully into compliance with strict new emissions regulations. The project was planned to increase the production of a high quality low-sulphur diesel to meetthe strict European and US environmental regulations, pursuant to a company policy of expanding diesel oil exports into European markets and emphasising light oil products. The goal was to reduce sulphur concentrations from an average of 0.7% to 0.001% upon completion of the project.

BAPCO REFINERY

The BAPCO refinery has five crude distillation units. The units upgraded comprised a mild hydrocracker, a catalytic reformer, a distillate hydrotreater and a visbreaker.

The refinery configuration is geared for high middle distillate yield operation. The crude oil supply is still fed from the Bahrain field (just over 16%) and Saudi Arabia by a 54km under-sea and overland pipeline.

BAPCO's wharf facility has seven berths and can accommodate transport ships of up to 70,000t. More than 700 ships are loaded annually to export petroleum products. More than 95% of BAPCO production is currently exported to Asia, Japan, Africa and GCC states. The European market and the US market are next on the agenda.The company has storage facilities for 14 million barrels of refined products.

HYDROCRACKER UNITS AND OTHER PROJECTS

The Japanese oil engineering company JGC Corporation was awarded the construction contract for a new hydrocracker unit with a capacity of 100,000bpd to produce low sulphur diesel. Construction began in March 2005 and the project was completed on schedule and commissioned in 2007. An official inauguration ceremony for the LDSP held in December 2007 was attended by 500 VIP guests, including Prime Minister Shaikh Khalifa bin Salman Al Khalifa.

JGC provided design, procurement, construction management and commissioning assistance services. The contract was worth an estimated $725 million. JGC were well acquainted with the refinery, having conducted four previous modernisation and construction projects there.

JGC undertook the construction of the facilities including the hydro cracking unit, a hydrogen production unit, two sulphur recovery units and off-site utilities, as well as increasing processing capacity of the existing mild hydrocracking unit from 54,000bpd to 70,000bpd and revamping it to an ultra-deep desulphurisation unit. This allowed the achievement of a reduction in sulphur levels in the diesel product down to below 10ppm.

REFINERY GAS DESULPHURISATION UNIT

The construction of a new refinery gas desulphurisation unit with a capacity of 45,000bpd was also planned as part of the project. The Engineering, Procurement and Construction (EPC) contract was awarded to Foster Wheeler. Execution is currently in progress and commissioning is due to begin in the third quarter of 2008. The project includes the installation of several new grassroots process plants, including a 220 tonnes per day sulphur recovery unit, tail gas treating unit, two sour water stripping units, a olefinic gas treatment unit and low flow-off gas streams treatment. When the low-sulphur diesel project is completed, BAPCO will have the flexibility to produce gasoil, kerosene and liquefied petroleum gas from their sole refinery unit.

FINANCE

The company raised finance of over $1.233 billion for the projects from a series of arrangements with various banks. In March 2005, BAPCO signed deals in a package including $370 million from the commercial facility, $330 million from the Islamic lease facility and $311 million of tranche guaranteed by Japan Bank for International Cooperation (JBIC) and Nippon Export Credit Agency. Additional banks involved in the financing include BNP Paribas, HSBC Bank, Mizho Bank, Arab Banking Corporation, Gulf International Bank, National Bank of Bahrain, Kuwait Finance House, Dubai Islamic Bank and Arab Petroleum Investment Corporation.

The financing was based on a commodity structured scheme which relied on both BAPCO's corporate strength and strong sovereign support. The return on investment from these modernisation and construction projects is expected to be at least 20% to 24%.

Often the refining industry is not very lucrative - as oil prices change the refinery margins may become negative due to the relatively lower product prices compared to crude oil (in the current economic climate refined products, especially diesel are at a premium price). The economics of the refining industry often dictate that it is more cost effective to upgrade an existing refinery rather than construct a new one from scratch.

In June 2008, BAPCO established a joint venture with Finland’s Neste Oil Corporation to build a high-quality lubricant base oils plant in Bahrain. The plant will be one of the largest of its kind in the world with an annual capacity of 400,000 tonnes of VHVI (Very High Viscosity Index). Scheduled for completion by the end of 2011, feedstock for the new base oil facility will be provided by BAPCO’s hydrocracker unit.