Oman’s OQ8 (Duqm) Refinery: project highlight

March 30, 2024

Oman's OQ8 (Duqm) Refinery is a high-conversion grassroots refinery equipped with modern, best-in-class facilities to produce fuels under Euro 5 and Euro 6 standards, as well as a range of petrochemicals feedstock.

The refinery is located in Oman, 600 kilometres south of Muscat and in a strategic port location in the path of international shipping lines providing access to global markets. While the motivations for developing the project are tied to hydrocarbons economics, it was designed to be an enabler of broader industrial investment and a cornerstone for economic development in the region.

KEY PLAYERS: The OQ8 Refinery is a 50% joint venture between Oman Oil Company (OQ) and Kuwait Petroleum International (KPI). Its development was structured into three EPC packages worth a combined USD 5.75 billion. The refinery’s main process units were constructed by Técnicas Reunidas and Daewoo Engineering and Construction as a joint venture, while utilities and offsite facilities were delivered by Petrofac together with Samsung Engineering. A further offsite facilities EPC contract covering the export terminal, the crude oil import and storage facilities at Ras Markaz, and the 80-kilometre pipeline linking Ras Markaz to the refinery, was awarded to a joint venture of Saipem and CB&I, who also supplied 47,000 square metres of solar panels to power buildings and outdoor lights. Integrated utility provider Marafiq supplied electricity, water and sewage treatment infrastructure.

INVESTMENT: The partners place total project costs at more than USD 10 billion. In 2018, OQ8 secured a USD 4.61-billion multi-sourced project financing facility participated in by a group of 29 banks including Crédit Agricole, Sumitomo Mitsui Banking, Standard Chartered Bank, Korea Development Bank and the Commercial Bank of Kuwait, among others. At the time, it was the largest-ever project financing in Oman, and the USD 890-million Islamic tranche was the largest sharia-compliant facility granted to a greenfield project.

 

PROJECT SCOPE: The refinery is capable of processing up to 230,000 bpd of crude oil, which will initially be sourced exclusively from Kuwait (65%) and Oman (35%). While primary outputs will be diesel, jet fuel, naphtha and LPG, the OQ8 project is planned as a phased investment that will turn out a range of petrochemicals and intermediate products for further value addition.

TIMELINE: The first feasibility studies for the refinery were conducted in 2011, and ground preparation for the site started in 2015. 2018 saw the formal commencement of the project, with the official signature of the joint venture agreement between OQ and KPI and the final close of USD 4.6 billion in financing. Basic construction was completed in December 2022, while the 80-kilometre pipeline linking the refinery to Ras Markaz oil terminal was finalised in January of 2023. Trial operations started in April of the same year, and the refinery started running at full capacity in February 2024.

SIGNIFICANCE: OQ8 is part of a regional phenomenon that is seeing modern, efficient refining facilities come online to make up for the supply gap left by decades-old refineries that are being shut down elsewhere in the world. While the refinery currently has agreements in place with KPI and OQ for delivery of crude oil, its access to port facilities means it can open up to other feedstock and a variety of grades in order to process them into high-margin middle distillates for delivery east and west, notably to emerging markets in Africa.

LOCAL BENEFITS: In addition to meeting mandatory requirements for operating in the Duqm Special Economic Zone, OQ8 follows a procurement and tendering policy that strives to ensure that a fair share of spend goes to in-country suppliers and service providers. Between 2018 and 2021, the company spent USD 1.89 billion on local suppliers, of which USD 458 million went to SMEs and USD 250 million specifically to inputs produced in Oman.
More broadly, the Special Economic Zone at Duqm, which occupies more than 2,000 square kilometres along the coast, is slated for investments of up to USD 15 billion in the next 15 years towards petrochemicals projects and infrastructure development, including commercial and residential real estate and tourism ventures.

Read our latest insights on:

• Kuwait
• Oman