IRAQ - Refining & Petrochemical Sectors.

With Saddam Hussein's Baathist regime having collapsed in April, the whole oil refining sector should be rebuilt eventually. Most of the petrochemical sector will have to be rebuilt as well. Rehabilitation of the existing refineries to meet domestic demand for gasoline and LPG has so far proved

In the long run, Iraq could have a large export refining capacity on its Persian Gulf coast and in joint ventures on the Mediterranean, the Red Sea and Aqaba coasts, as US and Asian demand for oil products is expected to rise substantially in the next two decades (see OMT of this week).

Iraq now is producing more crude oil than the local market can take. But more than a month after the country came under US-British occupation, success in restoring output is bringing its own problems. Nearly all of the pipelines and all of the storage tanks have been full of unwanted heavy fuel oil. Iraqis are still queuing outside petrol stations to obtain precious gasoline, of low quality, for their cars. Domestic cooking gas - butane or propane (LPG) - is also in very short supply.

The Office for Rehabilitation and Humanitarian Assistance (ORHA), a US-led body leading a socio-economic reconstruction of Iraq and functioning on behalf of the Pentagon, is yet to prove to the Iraqis that it can deliver on basic services. The country has been chaotic since the fall of Baghdad on April 9, with Saddam's regime having distributed millions of arms to the people weeks before US-led forces marched north from Kuwait.

Heavy fuel oil, the bottom fraction from a barrel, is used mainly in power generation. Iraq's refineries in recent weeks could not produce more gasoline and LPG without producing more fuel oil. As a result they might even have to cut back on gasoline production. Sameer As'ad, under Saddam's regime head of the state-owned Oil Products Distribution Co., says: "Oil is an integrated business. You cannot separate one part from the other. It's a chain. We must push out the fuel oil from the tanks - and for that we need the power stations to go up".

As a result of the fuel oil backlog, Baghdad's Daura refinery is running at less than 20% of its capacity, processing about 20,000 b/d when it is ready to run 110,000 b/d. As'ad said in late April the nearby Musayib power station was only producing at 10% of its 1,000 MW capacity. The problem at Musayib is with distribution. "It has problems with cables", As'ad said.

US Energy Secretary Spencer Abraham admitted in late April "significant infrastructure problems" remained to be addressed before Iraqi oil production could be brought to pre-war levels. Abraham said the US hoped restoration would "take a matter of months". ORHA officials in Baghdad say are taking steps to improve the situation. Under the Baathist regime, Iraq used to dilute illegal exports to Turkey with heavy fuel oil. Now that exports to Turkey have been closed off, one of the outlets for fuel oil has gone with it. As for the LPG, the main source of domestic fuel for ordinary Iraqis, increased production seems some way off. Dather Al Khashab, manager of the Daura refinery, says production from the northern and southern oil fields would need to reach 500,000 b/d in order to produce significant amounts of propane and butane. "These are huge plants and they need a lot of gas", Khashab adds. The gas associated with current oil production in the north and the south was not sufficient to turn out enough LPG.

Iraqis queue for their butagaz cylinders by the hundreds. "Don't ask us for a [full] gas cylinder. We have about 12m empty cylinders", As'ad said on May 1. Three people were killed on May 1 when a fuel tank exploded at a petrol station in central Baghdad. As with much else in post-war Iraq, the circumstances were disputed.

The refining and petrochemical sectors were severely damaged during the second Gulf war in early 1991. Refining capacity was cut from 550,000 b/d to about 60,000 b/d within weeks. After that war ended, the emphasis was on rehabilitating the refineries, in order to get power plants to function. Massive stores of spare parts and equipment stocked since the early phases of the Iran-Iraq war of 1980-88 were made available.