Chechnya due 6 million-tpy refinery

OJSC Grozneftegaz, a jointly owned enterprise of Russia’s OJSC Rosneft 51% and the government of the Chechen Republic 49%, has signed a $50-billion letter of intent with Genoil Inc., Calgary, for development and construction of crude oil production, refining, and logistics assets in Chechnya in Russia’s North Caucasus Federal District.

Genoil will design and construct a 6 million-tonne/year grassroots refinery to be equipped with Genoil’s proprietary GHU hydroconversion upgrading process technology to produce 3.5 million b/d of low-sulfur fuels that will be exported to China through secured long-term contracts of up to 30 years, the service provider said.

Under terms of the LOI, Genoil will be responsible for organizing a large consortium of Chinese engineering and services companies to provide all the necessary support and project guarantees, as well as for arrangement of an unidentified Chinese insurance company to insure the project, which alongside development of the refinery, includes development of oil fields in the region.

The parties involved additionally are exploring the possibility of linking the refining and oil-field development project to existing pipeline networks in the region as part of a future leg of the project that, if approved, would be financed in full from Chinese banks and the Russian companies involved, Genoil said.

The Chechen project marks the first time Genoil will act both as service provider and technology provider, the Canadian-based firm said.

Last year, Hebei Zhongjie Petrochemical Group Co. Ltd., a subsidiary of China National Offshore Oil Corp. (CNOOC), entered into a $700-million agreement with Genoil establishing a joint venture for the construction of a heavy oil refinery at Zhongie Industrial Park, Hebei Province, China (OGJ Online, Feb. 2, 2015).

While a timeframe regarding commissioning of that project has yet to be revealed, the planned 1 million-tpy Hebei refinery will use Genoil’s heavy upgrading process to convert low-grade atmospheric and vacuum-distillation bottoms from heavy oil into lighter distillates and finished transportation fuels, such as C5, C6, naphtha, and light diesel fuel for distribution to Chinese and international markets, Genoil said.

Refinery at last?

This latest proposal for a refinery in Chechnya follows a series of delayed attempts by the territory for help from federal government agencies to build a refinery in the region after the destruction of the 389,600-b/d Grozny-former Lenin refinery during the Chechen War (OGJ Online, Dec. 18, 2000).

In 2013, Rosneft launched a tender inviting bids for construction of a 1 million-tpy refinery in Chechnya, which was to be built and in operation by 2018, the government of the Chechen Republic said in a Nov. 29, 2013, release.

While Rosneft’s proposed refinery failed to materialize amid rising construction costs as well as favorable economic returns for crude exports out of Russia at the time, Ramzan Kadyrov, head of the Chechen Republic, has reiterated his commitment to moving forward with building a new refinery in Grozny, even if it must be funded by private investment, according to a series of releases from the Chechen government between December 2015-November 2016.

It remains unclear whether the Genoil project comes as part of Kadyrov’s original plan for a 1 million-tpy refinery that, most recently, was to be sited in Grozny.

Contact Robert Brelsford at rbrelsford@ogjonline.com.

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