TURKMENISTAN - The Refining Sector.

Refined oil products for local use and for exports are processed at the two refineries, which have a total capacity of 237,000 b/d and are located at Seidi (formerly Chardzhou) and Turkmenbashi (which used to be known as Krasnovodsk).

The refining sector is controlled by the state company TurkmenNefteGaz, which is also responsible for the sale of oil products and gas to the local market. The company was created in July 1996 when President Niyazov re-organised the energy sector (see background in Vol. 63, DT No. 13).

The Turkmenbashi Refinery Complex: Located on the Caspian coast in western Turkmenistan, this refinery has a capacity of 116,500 b/d. It is being modernised and upgraded under a $1.4 bn programme consisting of several projects.

One of the upgrades was implemented by Merhav Corp. of Israel under a $500m contract signed in February 1996. The company arranged financing from Japanese, German, French and Turkish export credit agencies; and since 1996 the Israeli company has been acting as the official contractor to TurkmenNefteGaz. Merhav has since established a strong presence in Turkmenistan. In 1997 it played a key role in two deals worth $580m by arranging the finance for both.

The first involved a $400m polypropylene (PP) plant built at the Turkmenbashi refining complex. The plant came on stream in late 2001. The contracting group included three Japanese companies, Itochu, JGC and Nissho-Iwai. This is Turkmenistan's first polypropylene plant.

The second deal involving Merhav was a $180m contract awarded to Jewish-owned Bateman Project Holdings of South Africa which has developed a gas booster system. The first stage was located on the Central Asia-Centre gasline, Turkmenistan's gas export pipeline via Russia to Europe. It built a compressor station on the Uzbek border. Bateman Engineering Group of Israel was the main contractor in the venture.

Merhav built a lube oil unit and a 36,000 b/d catalytic cracker, and expanded the refinery's catalytic reforming capacity. The catalytic cracker was built by Technip of France under a $200m contract signed in August 1997. Reports later indicated that a 15,000 b/d catalytic reformer was built at the refinery by Chiyoda Corp. and Nichimen of Japan, together with Gama of Turkey.

Technip has built a lubricants blending plant, which has been much in demand in Turkmenistan. The plant was completed in 2004. Merhav has acted as "the ordering party" for construction of a second PP unit at Turkmenbashi.

The Seidi Refinery: This very old refinery, in the north-east of the country, has had a nominal capacity of 120,500 b/d. The plants is being totally modernised and upgraded under a project to cost more than $1 bn. Seidi is becoming the site of a petrochemical and gas processing venture as well.

The crude oil pipeline, which links the Seidi plant with Kazakhstan's refineries of Pavlodar and Shimkent, has been upgraded under an agreement signed in late 2002. Under an $80m contract signed in late 1998, the Anglo-Turkish Catego Energy-Gallion consortium has built a 185-km pipeline carrying very heavy crude oil from the Kokdumalak field of Uzbekistan to the Seidi refinery.

However, the refinery no longer relies on crude oil supplies from Kazakhstan and/or Russia. For many years during the Soviet era, the refinery used to depend entirely on Russian crude oil.

New crude oilfields in the east of Turkmenistan began to be the main sources crude for the Seidi refinery in July 2006. A cargo train carrying the first 500 tons of crude oil from the large Yoloten field in the neighbouring Mary province of Turkmenistan arrived at the Seidi oil refinery in July. It was commissioned earlier in the month and that was a major event for the country's petroleum sector, as the refinery was waiting for such crude oil for many years in the past.

The Seidi refinery was built in a town on the Amu Darya River in Soviet times. It was designed to process crude oil from Siberia. After gaining independence by Turkmenistan, Siberian crude oil supplies stopped. Starting form the mid-1990s up to 2005, the refinery had processed crude oil from Kokdumalak field on the border with Uzbekistan. In mid-2005, Turkmenistan became self-sufficient in crude oil and this reached the Seidi refinery from Yoloten and other Turkmen oilfields.

In late 2004, Turkmenistan kicked off the commercial development of Yashyldepe oilfield on the right bank of Amu Darya River. Within a short period, 14 production wells and two crude oil-gathering stations were put into operation there. The 80-km oil pipeline from Yashyldepe to Pelvert was built to supply the plant, but with a limited volume. Crude oil tankers have carried the feedstock to the refinery by train. From the village of Pelvert a filling terminal was built.

Additional crude oil wells commissioned on the Sag Kenar field have since become another source of feedstock for the refinery. Over 800 tons of crude oil have been sent to the Seidi refinery by this route which is more suitable and economical.

Now the new source of raw materials from Yoloten field is a major support for the refinery. The crude oil base for the refinery will be boosted significantly as the commercial production of the field increases.

Gas condensate is also being processed at the refinery. Light fuels produced by the refinery from condensate are in high demand in the republic and the world market.

The Seidi plant was the first among CIS oil refineries to introduce a gas condensate processing technology as part of a unit for preliminary distillation. By mid-2006, some 1.5 million tons of condensate had been processed.

Supply of condensate to the Seidi refinery has grown significantly since the commissioning of the Nayyp gas processing plant. This will double after the commissioning of Bagaji and Yashyldepe gas processing plants. Preparations for this at the Seidi refinery had begun long ago.

State-of-the-art equipment and the latest technologies being installed at the refinery will provide for deeper processing of heavier crude oils. It will make it possible to greatly increase the range of high-quality fuels to be produced by the plant in the coming years.

There are plans for establishment of new high-tech facilities for production of additional high-octane gasoline, polypropylene and other products which are in demand worldwide.

A number of countries have expressed interest in the reconstruction of the Seidi oil refinery and construction of another polyethylene plant as part of the Seidi complex.

In the first half of 2006 the Seidi refinery produced 446,000 tons of oil products. At the same time, the bulk of straight-run gasoline, diesel and gasoil have been exported. The refinery's capacity and its exports will increase with a further development of oilfields in the east of Turkmenistan.

In May 2004 President Niyazov fired the refinery's CEO Kakajan Charyev, charged with responsibility for the theft of precious metals - gold and platinum which part of the plant's equipment. Niyazov then said the equipment containing precious metals was sold outside Turkmenistan. In addition, he said, Charyev was involved in illegal sale of large consignments of oil products from the refinery, including gasoline, which were smuggled into Uzbekistan at very low prices. A criminal case was opened against Charyev and other figures involved in the thefts.

Kerkav Amannazarov was appointed to succeed Charyev, but Niyazov put him on a six-month trial. A video surveillance system was installed at the refinery, where the security service was beefed up.

In March 2004, President Niyazov signed a resolution directing TurkmenNeft to sign a number of agreements with Merhav. One of them was for Merhav to prepare tender documents, hold an international tender and act on behalf of the refinery's owner - TurkmenNefteGaz - in a $1 bn-plus project to modernise the refinery and reconstruct several of its units.

This involves installation of new technology, which will increase the capacity of the refinery eventually to 7.5 tons/year. The plant will have a polyethylene production unit, another in Turkmenistan.

On Jan. 18, 2006, visiting Chinese officials reportedly discussed a draft of a bilateral agreement on Turkmen gas supplies to China, which was formally signed during Niyazov's visit to Beijing in the spring. Chinese officials expressed interest in projects in Turkmenistan, notably upgrading the Seidi refinery.

The government is to have a gas-chemicals complex built at Seidi to produce a variety of plastics and chemicals. In early 2000 it appointed Petronas of Malaysia, which is developing oil and gas in the Turkmen sector of the Caspian Sea, to act as a consultant for this project. About 40 foreign companies have bid for the main contract, including Mitsui of Japan, Preussag and Lurgi of Germany, and Union Carbine and UOP of the US. With this in mind, a 160-km Korpeje-Balkanabat crude oil pipeline with the capacity of 3m tons/year was built. Crude oil is already being shipped to the Turkmenbashi complex.