InterOil Corporation completed the construction of Papua New Guinea’s (PNG) first oil refinery early in 2004. Following an extensive commissioning and testing process the first shipment of crude oil to be processed at the facility arrived on 16 June 2004. BP Singapore is the exclusive agent for all of the crude oil to be supplied to the refinery. Previously, all the crude obtained from InterOil’s fields in this area was exported to Australia or Singapore for refining, with the refined products being imported back to PNG to supply the domestic market.
Following large new upstream discoveries, such as the Moose Prospect (estimated at 350 million barrels) and the Sterling Mustang Prospect (Simmons rig 3 is on site as of December 2003 drilling to 1,900m), it makes economic sense to have a dedicated refinery near to the field.
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The refinery will process 32,500bpd at full capacity and will be able to supply the PNG domestic market, leaving 35% of its output for foreign export. The refinery has export contracts worth more than $1.4 billion with Shell Overseas Holdings Ltd. The refinery has been constructed across the harbour from Port Moresby and is part of InterOils’s new regional development plan for PNG; the company announced plans for the largest exploration program in the region in the final quarter of 2003.
The finance for the refinery project has come from an investment made by InterOil of $214 million ($114 million goes to the refinery project and the rest is for other regional developments) and by funding obtained from the Overseas Private Investment Corporation (OPIC), a US Government agency, of $85 million. In addition, Koch Petroleum Group has provided $3 million of investment for the construction in return for the provision of crude oil supply services to the completed refinery. The refinery will employ between 75 and 100 people in the area for operations and maintenance.
INTEROIL CORPORATION DEVELOPMENT AND EXPANSION IN PNG
InterOil is building a fully-integrated energy company in PNG, with its core asset being the refinery. As part of the development plans for the operations in PNG, InterOil agreed to purchase the entire retail and commercial distribution network owned by Shell in PNG. There are 70 distribution outlets including terminals, depots, retail service stations and commercial refuelling facilities.
The network is to be leased back to Shell as the two companies have formed a strategic alliance in the PNG area. InterOil also agreed a deal with BP in the first quarter of 2004 to buy out the BP PNG operation in its entirety including the distribution network, other operations and $7.3 million of refined products. The deal is estimated to be worth $113.3 million and, following a down payment in March 2004, should be closed by March 2005. InterOil will have greatly increased the value of their investment in the refinery by the consolidation of the downstream distribution network in PNG. Their alliance with Shell will combine the strengths of the two companies, i.e. InterOil’s refinery and upstream projects with Shell’s downstream marketing and distribution expertise.
NAPA NAPA REFINERY CONTRACTORS AND CONSTRUCTION
The Front End Engineering and Design (FEED) contract for the refinery project was awarded to Kvaerner John Brown (now called Kvaerner Process) in 1997. Subsequently the Engineering Procurement and Construction (EPC) contract was awarded to Clough Engineering, working through their PNG subsidiary Clough Niugini Ltd. Clough Engineering will also be responsible for testing and commissioning the plant. Petrofac have been granted a facilities management contract for the refinery and will assist with pre-commissioning and commissioning activities prior to taking over the day-to-day running of the plant.
The National Capital District Commission (Physical Planning Board) gave concept approval for the refinery in late 2000 and preliminary construction work was started in early 2001. The refinery site was specifically situated in an areas surrounded by hills in order to screen it from the city of Port Moresby and for environmental reasons.
The initial engineering involved foundation works for the refinery columns and vessels, drainage systems and utilities, piling operations for the jetty and the procurement of steel for the storage tanks. The construction project included a 1.9 million barrel storage tank farm, a 32,500bpd crude distillation unit, a 5,000bpd hydrodesulphurisation (HDS) unit, a 3,500 catalytic reforming unit, a docking jetty with ship loading and off-loading facilities, a reverse osmosis desalination plant for the provision of fresh water from sea water, a road tanker loading system and utility systems for steam and power generation, and other site infrastructure and support facilities such as workshops and administration building, a state-of-the-art waste water treatment plant and a fire station.
PORT MORESBY HARBOUR FACILITIES
The harbour of Port Moresby has definite advantages for the import and export of oil products in that it is the only sheltered deep water harbour in the region and so will reduce shipping costs (avoiding previous costly demurrage problems). The harbour is deeper than either Brisbane or Sydney.
The refinery jetty has been designed to accept vessels of all sizes up to 110,000dwt. The refinery will be served by three new tankers from PNG including two 40,000dwt tankers and one 20,000dwt tanker. These will deliver crude oil to the refinery and distribute petroleum products to PNG and overseas markets. In addition, the refinery off-gas will supply a power station situated close by to serve Port Moresby with a much needed additional electrical supply.
NAPA NAPA REFINERY PRODUCTS
The refinery has been configured to process Kulubu crude, a light sweet crude found in PNG. The refinery will avoid the need for expensive processing such as hydrotreating, catalytic cracking or coking. The refinery process will only require atmospheric distillation and a light catalytic reforming to produce the gasoline blending stocks for fuel production (a simple hydroskimming process). The type of crude oil used will predispose to an excess of naptha, which will be exported in two grades – one for petrochemical feedstock and another for ethylene production. Other products will include propane, butane, gasoline, jet kerosene, diesel and low sulphur fuel oil.
