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Algeria cancels $1.3bn refinery contract and makes new award

6 December 2024

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Algerian state energy producer Sonatrach has cancelled its $1.3bn contract with South Korea’s Samsung Engineering for the planned $3.7bn Hassi Messaoud refinery project in Algeria, and replaced it with China’s Sinopec.

Samsung Engineering confirmed the contract’s cancellation on 28 November without specifying the reason.

Sonatrach officially signed the main contract award for the Hassi Messaoud refinery with the consortium of Samsung Engineering and Tecnicas Reunidas in January 2020.

Since then, little progress has been made on the project due to various factors, including the Covid-19 pandemic, which caused significant disruption to the project.

Spanish newspaper CincoDias reported that China’s Sinopec has replaced Samsung Engineering on the project.

Spain’s Tecnicas Reunidas is still participating in the project, according to industry sources.

In August this year, MEED revealed that only some preliminary engineering work had been finished and the project was about 5% complete.

In 2023, Sonatrach restarted talks with the consortium that won the contract to execute the Hassi Messaoud refinery project to get it moving, but they were unsuccessful.

Talks were reinstated in 2024, but these were also unsuccessful.

In August, MEED revealed that Samsung Engineering and Tecnicas Reunidas had asked for amendments to the original deal due to the significant increase in building material prices since the original contracts were signed, which implies the project cannot be completed with the same budget.

At the time, a source said that the consortium wanted more money to account for inflation since 2020, when the contracts were signed.

In July this year, the vice-president of refining and petrochemicals at Sonatrach, Slimane Slimani, said that his company aimed to bring the facility online before the end of 2027.

Industry sources say this target will be difficult to achieve given the extensive delays and disruption that the project has suffered.

Speaking on Radio Algerienne Chaine 3 in July, Slimani said that Sonatrach had officially revived the project, and its execution was aligned with the company’s broader strategy for the country’s downstream sector.

He said the refinery project is estimated to produce an extra 2.7 million tonnes of diesel fuel and 1.2 million tonnes of gasoline a year.

When Sonatrach first announced the project, it was part of Algeria’s $14bn strategic downstream capacity expansion programme, which included the construction of five new refineries.

Under the terms of the original contracts signed in 2020, contractors were required to execute the works on a lump-sum turn-key basis.

Prior to the delays, the work was expected to be completed in about 52 months and conclude in the first quarter of 2025.

The scope of work includes building process and utility units; a crude distillation unit/vacuum distillation unit; a continuous catalytic reforming unit; an isomerisation, naphtha hydro-treating unit; a hydro desulphurisation unit; and a hydrocracker unit, as well as utility systems.

In recent years, Algeria’s $14bn strategic downstream capacity expansion programme has been scaled down and delayed.

Initially, Sonatrach awarded the front-end engineering and design contract for three refineries to London-based Amec Foster Wheeler in 2016.

These three refineries were located in Hassi Messaoud, Biskra and Tiaret.

Under the original $14bn plan, a further two refineries were to be added later.

Budget issues in 2017 put the Biskra refinery on hold so that Sonatrach could focus on moving forward with the Hassi Messaoud and Tiaret refineries.

Then, in 2018, Sonatrach cancelled the tendering process for the Tiaret refinery following a major downstream review.

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Wil Crisp

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