SOCAR commissions STAR refinery but questions remain

29 October 2018
25 October 2018, Week 42, Issue 472

Azerbaijan’s SOCAR has formally opened its 214,000 bpd STAR oil refinery in Turkey, the country’s first new such plant for more than three decades, writes David O’Byrne in Aliaga

WHAT: Turkey provides a ready market for the plant’s products but there are questions about where it will source its crude.

WHY: Spats with the KRG and Saudi coupled with US pressure on Ankara to reduce imports from Iran could diminish supply options.

WHAT NEXT: SOCAR anticipates reaching full production capacity early in 

The formal commissioning on October 19 of SOCAR’s STAR refinery on Turkey’s Aegean coast was a landmark event for both Baku and Ankara. 

As the Azeri NOC’s first new-build processing plant outside Azerbaijan, it represents a significant move downstream for a state company whose ability to exploit its own oil reserves by exporting refined crude has to date been hampered by Azerbaijan’s lack of a sea route to international markets.

For Turkey, the commissioning of the first new refinery since Tupras’ Kirikkale plant in 1986, the opening of STAR is the realisation of a long held intent to make full use of its geographical position between the oil reserves of the Caspian and north Middle East and Western markets, and to reduce its dependence on imported refined products for a significant part of domestic demand.

With that latter aim in mind the STAR refinery has been tailored largely to meet the demand of the Turkish market, and in particular the feedstock requirements of the adjacent Petkim petrochemical plant, also majority-owned by SOCAR.

The 1.3 million tpy of naphtha and the 455,000 tpy of mixed xylenes STAR will produce are earmarked for Petkim, under contracts signed in 2015, and are expected to meet around 98% of the company’s feedstock demand. Petkim is currently on a 63-day maintenance shutdown, with STAR storing the naphtha and xylenes it is producing in tanks ahead of its re-opening, which is expected to be conducted in stages from mid-November. 

With test production at STAR still ramping up, the naphtha produced is currently being stored in tanks ahead of Petkim’s scheduled restart.

Other products are also being stored ahead of the start of open sales in December, with the plant due to reach full capacity early in 2019.

At full capacity the plant will produce 4.8 million tpy of diesel, 1.6 million tpy of light naphtha, 1.6 million tpy of jet fuel, 700,000 tpy of petroleum coke, 480,000 tpy of reformate, 420,000 tpy of mixed xylenes, 320,000 tpy of LPG and 160,000 tpy of sulphur.

As with the feedstock for Petkim, most products are destined for the local market. The diesel production will go some way to replacing imports which last year reached 13.5 million tonnes, up 8.8% on 2016.

Similarly, the 700,000 tpy of Petcoke and the 320,000 tpy of LPGs are expected to be sold locally. Demand for petcoke is driven by Turkey’s cement sector, which currently relies heavily on US imports, while LPG has to fulfil a combination of rural demand for bottled cooking fuel, and use as a transport fuel by converted gasoline vehicles.

Only the jet fuel produced by STAR is anticipated to be exported in any volume, although the opening of Istanbul’s new main hub airport later this month should herald an increase in transit flights from the Far East and hence demand from refuelling.

This is all good news for Ankara, which in the wake of the sharp devaluation of the lira over the first nine months of the year has been calling for a cut in imports to help the country’s current account deficit.

Crude analysis

If the market for the bulk of STAR’s production is clear, what is considerably less clear is where it will source its crude feedstock.

When the refinery project was first unveiled it was meant to be constructed close to Turkey’s Mediterranean oil hub at Ceyhan and to refine mainly Azeri light crude arriving via the Baku-Tbilisi-Ceyhan (BTC) oil line.

With the decision to site the plant adjacent to Petkim and with Azeri light commanding a premium on global markets, the choice was made to switch to designing the plant to handle all regional crudes.

Having received an initial “symbolic” cargo of Azeri crude, STAR sourced its second cargo from Russia, subsequently announcing that parent company SOCAR had negotiated a longer-term deal with Rosneft for 1 million tonnes of crude, with deliveries starting in December.

STAR officials confirmed to NewsBase Intelligence (NBI) at the opening ceremony that a third crude cargo was due in November but declined to name the source. They confirmed only that the refinery had a long-term deal with SOCAR’s trading division to source crude and that no further long-term deals like the Rosneft one were currently planned.

Keeping options open would seem to be a wise strategy given the volatile nature of Turkey’s relations with regional crude suppliers and Washington’s continuing plans to impose stringent sanctions on Iran.

Turkey’s existing refiner Tupras, which imports the crude processed by three of its four refineries, has long had to tailor its buying strategy to international events.

Having been forced by the US to reduce purchases of Iranian crude during the last round of sanctions, Tupras turned to Iraq – buying crude arriving at Ceyhan via the Iraq-Turkey (Kirkuk-Ceyhan) Pipeline, from fields controlled by both the Iraqi central government and the Kurdistan Regional Government (KRG).

Those imports were cut sharply last year following the KRG’s decision to hold a referendum on independence from Iraq, a move Ankara opposes, fearing further insurrection by Turkey’s own Kurdish population. While the KRG’s move appears to have backfired, with Baghdad re-asserting control over its northern oilfields, imports from Iraq remain low. 

Now with Turkish-Saudi relations at a historic low following the murder in Istanbul of Saudi journalist Jamal Khashoggi, questions are being asked over whether imports of Saudi crude will also be “dissuaded”. 

Coupled with continuing pressure from Washington for Turkey to reduce crude imports from Iran, this significantly reduces the range of crudes easily available for both Tupras and the newly opened STAR refinery.

Tupras has regularly sourced crude from a number of other suppliers, notably Russia, Kazakhstan, Egypt, Libya, Kuwait and even Colombia, but never at the same level that it has imported from Iran and Iraq.

SOCAR at least has the option of continuing to use its own crude at STAR, but where else it will turn to for supplies remains to be confirmed.

Edited by

Ryan Stevenson

Managing Editor

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