African independent Aiteo has signed a large engineering, procurement and construction (EPC) agreement for a new 240,000 barrel per day (bpd) refinery in Mozambique.

The project is expected to significantly increase domestic fuel production and turn Mozambique into a strategic energy hub in Southern Africa, as well as reduce the country’s dependence on foreign fuel imports – according to The Nation.

The EPC agreement also marks the beginning of a formal partnership between Aiteo and Mozambique’s government and reflects efforts by Mozambique to attract investment in its energy sector to help improve industrial infrastructure.

Although Mozambique seems set on developing its refining capacity, the country itself does not produce any oil, according to the US Energy Information Administration (EIA), meaning any feedstock used by the refinery will have to be purchased and shipped from abroad.

Until now, Mozambique has spent most of its resources on developing an energy sector reliant on natural gas – utilising large reserves discovered in the Rovuma Basin. With this, it is expected that liquefied natural gas will play a large roll in supporting the economy, with the country expected to become a major LNG exporter in the late 2020s, according to the International Trade Administration.

All of this places the refinery’s expected 240,000 bpd capacity into question.

With phased development in mind, the plant will begin operations with an initial 80,000 bpd and gradually increase to full capacity. The refinery will also utilise low-complexity modular technology to improve development time and operational stability, and will produce mainly petrol, diesel, naphtha and jet fuel – meeting local demand and export into fuel-short inland markets.

Construction will be carried out as a joint venture between Aiteo, and Mozambique’s state-owned company Petromoc. US engineering firm Deerfield Energy Services has been awarded the EPC – showcasing the project’s international reach.

Currently, Mozambique’s main fuel import is diesel, with the country receiving around 400,000 tonnes per year (tpy) of the commodity for use in rural areas and as an emergency supply in cities, according to Mozambique’s Ministry of Energy.

Although the plant has been expected to reach 240,000 bpd, feedstock procurement will play an important role in its competitiveness. Moreover, with total refined product consumption running at less than 20,000 bpd, roughly 220,000 bpd would be available for export. Oil imports will need to increase significantly to provide the necessary feedstock for the facility in this case. This will likely play a large role in deciding how much the refinery will be able to produce in any given year following completion, though recent history suggests that utilisation of refineries in East Africa are unlikely to be higher than 75% – suggesting an average of around 180,000 bpd of crude processed. Considering import volumes such as this, the expansion of Mozambique’s crude import infrastructure will be vital.

Replacing fuel imports with oil imports will not necessarily bring Mozambique the energy independence it desires, however, the decision to refine locally will certainly improve access and affordability for the local population, and will further solidify Mozambique’s role as a conduit for fuel into Southeast Africa.

Ransome Owan, group managing director for infrastructure at Aiteo, said regarding the project that “This EPC contract marks a defining milestone for Aiteo and Mozambique’s energy future,” adding: “It will reduce import reliance, create jobs and lay the foundation for Mozambique to become a leading hub in the region’s downstream energy sector”.

Construction of the refinery’s first phase is expected to be completed in around 24 months – and according to The Nation – will become the largest plant of its kind in the Southern African Development Community (SADC).