TURKMENISTAN - The Refining Sector

Refined oil products for local use and for exports are processed at the two major refineries, which have a combined total capacity of 237,000 b/d and are located at Chardzhou and Turkmenbashi (which used to be known as Krasnovodsk). The refining sector is controlled by the state company Turkmenneftigas, which is also responsible for the sale of oil and gas. The company was created in July 1996 when President Niyazov reorganised the energy sector under the Ministry of Oil and Gas Industry and Mineral Resources, formerly the Ministry of Oil and Gas.

Plans for the expansion of both the Chardzhou and Turkmenbashi plants had been drawn up in the early 1990s. Some progress has been achieved in the case of the Turkmenbashi refinery (see below). The aim behind the planned expansion is to have continued self-sufficiency in refined products in view of a projected rise in local demand and in oil production.

The Chardzhou Refinery: This refinery has a capacity of 120,500 b/d. It processes oil imported from Russia via the pipeline from Western Siberia. The refinery is old and in need of serious upgrading.

The Turkmenbashi Refinery: Located on the Caspian coast in western Turkmenistan, this refinery has a capacity of 116,500 b/d. In February 1996 Merhav Corp. of Israel signed a $500 million deal to upgrade this refinery. It arranged financing from Japanese, German, French and Turkish export credit agencies.

The project would involve building a lube oil unit and a 36,000 b/d catalytic cracker, as well as expanding the refinery's catalytic reforming capacity. In August 1997, Technip of France won a $200 million contract to build the catalytic cracker. According to 'Petroleum Argus' of Feb. 26, 1996, Merhav had said that Technip of France would be joined by the National Iranian Oil Company (NIOC) in building the cracker.

Merhav said at the time that the Israel-Iran partnership would not cause problems, noting that Technip was acting as an intermediary. However, there has been no indication of any Iranian role in the project since then. Chiyoda and Nichimen of Japan, together with Gama of Turkey, would build a 15,000 b/d catalytic reformer.

Merhav has established a strong presence in Turkmenistan since 1996. In 1997 it played a key role in two deals worth $580 million by undertaking to arrange the finance for both. The first involves a $400 million polypropylene plant to be built at Turkmenbashi refinery with Itochu Corp., JGC and Nissho Iwai, all Japanese companies.

The second is a $180 million contract awarded to Jewish-owned Bateman Project Holdings of South Africa to develop a gas booster station. The first stage of the booster project would be located on the Central Asia-Centre gasline, Turkmenistan's only gas export pipeline via Russia to Europe. It would involve building a compressor station on the Uzbek border.

Bateman Engineering Group of Israel is the main contractor in the venture. In July 1997, it was disclosed that Israel's Bank Hapoalim and the Dutch ABN-Amro

bank would lead an international group to finance the project. Bank Hapoalim was to provide $40m, guaranteed by Israel's Foreign Trade Risks Corp. By April 1998, Eximbank of the US had guaranteed a $96m loan for Ashgabat to buy gas compressors, power turbines and other equipment from Dresser Rand, Corning and General Electric. It is the first time Eximbank has agreed to finance a gas project in Turkmenistan.

Speaking on the sidelines of the Turkmenistan International Oil and Gas Exhibition and Conference (TIOGE) in Ashgabat on March 13, Merhav's senior vice president of finance Leo Malamud was quoted by 'AFP' as saying that interest in Turkmenistan is "tremendous", and adding: "The whole region is opening up. If you compare the development in Turkmenistan with Kazakhstan for example this is only just starting".

The Seidi Refinery: This is a small plant in north-eastern Turkmenistan. In July 1996, Mobil of the US signed a joint venture agreement with Ashgabat under which the company was to modernise this refinery. Seidi is to become the site of a petrochemical and gas processing venture as well (see below).

LPG demand in the country, which amounts to 60,000 t/y, is met partly by the two main refineries, which produce 18,000 t/y. The rest has been imported from Russia at a cost of $220-230/ton. Import dependency has been reduced from 1996, after a new 10,000-12,000 t/y plant came on stream in early April 1996 at the Caspian port city of Turkmenbashi.

The new plant, processing associated gas, was imported from Canada at a cost of $3.5 million and was re-assembled by the Russian-Turkmen JV Intergaz. Funding for the project was arranged by the Russian foreign trade firm Kirishineftekhimeksport. By April 1996, construction was underway for a 30,000 t/y LPG plant, which aimed to make the country self-sufficient in LPG.