Due to ageing Arab refineries, the 10 nation Organisation of Arab Petroleum Exporting Countries (Oapec) is struggling to cope with the rising local consumption. Oapec controls over 60% of the world's recoverable crude resources. Arab countries will need to make massive investments in an overhaul of their ageing refining industry incapable of meeting the steady rise in local consumption. According to Kuwait-based Oapec, the upcoming new projects in the region are slated to add over 5 bln bpd to existing Arab refining output capacity within the next five years. Many regional hydrocarbon exporters could become net importers of petrol and other petroleum products because of inefficient refineries. Since most refineries here are Government-owned, it leads to discouraging initiatives and keeping profitability low, making them incapable of meeting domestic demand and strict environmental standards. These government institution-owned refineries heavily subsidise their products, and thus weaken any interest in improving profitability or competitiveness. Most of these refineries, built about 40-50 years ago, are relatively smaller units with operational costs almost double that of refineries in industrial countries, along with high maintenance cost. Over 50% of the Arab nations’ 60 refineries are relatively small units, with an average production capacity of around 41,000 bpd. About 26% of them are medium refineries with a capacity of 132,000 bpd, and 24% pump an average of 328,000 bpd. Consumption of fuel and loss of crude oil in Arab refineries are estimated at around 6-9%, as compared with 4-5% in the developing world. Oapec's figures showed the average costs of operation and maintenance of Arab refineries have peaked at US$2.5 (Dh9.18) to US$5 a barrel compared to US$1.5-2 a barrel in industrial nations. Oapec urged its members to co-operate with local and foreign research institutes to develop the technology needed for upgraded refining operations, particularly conversion and hydro-treating processes, so that Arab refineries can produce oil products that meet local and international environmental requirements. Changes include cutting the use of high-sulphur heavy fuel for environmental reasons, the availability of natural gas in some Arab countries, and the application of energy-saving measures in industry. However, several challenges will be faced due to persistent volatility in demand, fluctuating construction costs among other factors. The new projects face hurdles that include the uncertainty surrounding future demand trends for oil products on world markets making it difficult to predict the economic risks of investing in new projects, fluctuations in the cost of building materials which created wide disparities in project cost estimates. As per Oapec, new projects will boost total Arab refining output capacity by over 5 mln bpd to 12.42 mln bpd in 2015. Demand for petroleum in this region is projected to nearly double to over 2 mln bpd in 2015, consumption of gas oil and diesel could surge from about 2 mln bpd to over 3 mln bpd, while LPG (liquefied petroleum gas) is forecast to jump from less than 500,000 bpd to nearly 1.8 mln bpd. Production of fuel oil in the Arab world accounts for around 29.1% of the total refined output while domestic demand accounts for 21.9% of the total demand. In contrast, production of gas oil constitutes nearly 28.9% of the total refined output while it accounts for 35.1% of the local demand. In the absence of sufficient investments, which should cover new projects and the updating of existing units, Oapec warned Arab markets could face shortages in some refined products. In 2008, in UAE refining capacity grew to 798,000 bpd from 778,000 bpd in 2006, allowing the UAE to maintain its position as one of the largest refining producers, with its output accounting for over 10% of the total Arab refining capacity of 7.3 million bpd. Its capacity is set to rise further in the next years as new units come onstream and expansion of existing refineries is completed. Saudi Arabia accounted for nearly 27% of the total Arab refining production. Kuwait had the second largest refining capacity in the region, standing at 889,000 bpd. Other key GCC producers in this sector include Bahrain and Oman, with around 249,000 bpd and 222,000 bpd respectively. Iraq's refining capacity has remained unchanged at 597,000 bpd since 2003. Outside the GCC, Egypt had the highest refining capacity in the region, with around 726,000 bpd. It was followed by Algeria and Libya, with refining production standing at 463,000 and 378,000 bpd respectively. Saudi Arabia will account for the largest share of the capacity increase in the region, with an addition of 1.2 million bpd. Around 615,000 bpd would be added to Kuwait's capacity while the UAE is expanding output by 500,000 bpd. Qatar is adding around 250,000 bpd and Oman and Iraq are adding 150,000 bpd and 160,000 bpd respectively.