Morocco - Oil Shale Engineering Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7141 PROJECT COMPLETION REPORT MORCCCO OIL SHALE ENGINEERING PROJECT (LOAN 2114-MOR) February 24, 1988 Country Department II Industry and Energy Division EMENA Regional Office This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRUCY EQUIVALENTS (February 1981) Currency Unit Dirham (Dh) US$1.00 US$0.19 DH 1.00 Dh 5.30 WEIGHTS AND MEASURES 1 barrel 159 litres 1 gallon per short ton (gal/t) 4.2 litres per metric ton (equals about 0.4Z by weight) 1 dxetric ton 1,000 kilograms 1 ton of oil equivalent (toe) 1.5 toss of coal equivalent llSONm natural gas ABBREVIATIONS BRPM Bureau de Recherches et de Participations Minieres DMK Davy KcKee, Inc. ONAREP Office National de Recherches et d'Exploitations P4troli4res ONE Office National de l'Electricitk SAI Science Applications, Inc. bpd barrels per day toe metric ton of oil equivalent tpy metric tons per year MOROCCAN FISCAL YEAR January - December  FOR OFFICIAL USK ONLY TnE WORLD BANK Wa*sften. D.C. 2033 US.A. Opw&tku EVAhtmi February 24, 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Morocco Oil Shale Engineerirg Project (Loan 2114-MOR) Attached, for information, is a copy of a report entitled "Project Completion Report on Morocco Oil Shale Engineering Project (Loan 2114-MOR)" prepared by the Europe, Middle East and North Africa Regional Office. Further evaluation of this project by the Operations Evaluation Department has not been made. Attachment I Ths document has a nsricted dstribution and may be used by mcipients only in te pMfom of their ofical dutie Its contents may not otherwie be dbiowsed without Wodd Bonk authodutlon.  FOR OMCIAL USE ONLY PROJECT COMPLETION REPORT MOROCCO OIL SHALE ENGINEERING PROJECT (LOAN 2114-MOR) Table of Contents Page No. i i~~~~ AIDAASET....... ..... .......... ... i I * INRDCIN~....................... HI* PROJECT BACKGROUND.... .e... o ... ........ ..... .......... .. 2 Orig'in of Praoject... .....e.. .........s...e..e....e.... 2 Project Preparation and Appraisal..... .................. 3 Project Objectives and Scope.o...................... 4 III. PROJECT IMPLEMENTATION AND MANACEIEN....................... 2 Achievement of Objectives and Change in Project Scope... 5 Project Management .................................... 6 Time and Cssts 6 Procurement..... ... .............. 7 7 IV. INSTITUTIONAL PERFORMANCE...............R 7 The Boer o.e r 7 Consultants.... .. .... ... ......... 8 V. BANK PERFORMANCER F..........eO R M A N CE.................... 9 Timing of Involvement..v o lv... .e m e nt. ........... .... 9 Project Formulation and Designs i gn.....o...e...........e 9 Supervision...... . ... ...... . .............. ........ . .... . 10 C o v e n a n t s ~~~~~~~~~~~~~10 VI. CONLSONC LUooe*ooo***** I**ONSeooooooo 10 ANNEX Project Cost..... ..... , ..a . a,. . ,.,. . . . .12 ATTACHMENT Co!ments from the Borrower..................... . ,13 This document has a stricted distribution and may be used by recipients only in the perforance of their official duties. Its contents may not otherwise be disclosd without World Bank authorization.  - i - PROJECT COMPLETION REPORT MOROCCO OIL SHALE ENGINEERING PROJECT (LOAN 2114-MOR) PREFACE Oil shale is Morocco's major energy resource. Large deposits were discovered and explored after the First Oil Crisis of 1973. Soon after, preliminary tests and studies to evaluate the characteristics of the resource were carried out. Immediately after the Second Oil Crisis of 1979, the First Petroleum Exploration Project was launched and, in parallel, the Oil Shale Engineering Project was prepared. The Bank's involvement led to a rational, stepwise approach to Moroccan oil shale development at a time when inter- national oil companies were spending large amounts and the Moroccans had plans to develop rapidly an industry based on own technology. With the decline of the oil price in 1986, the Moroccans adjusted their oil shale activities to an appropriate level. Only the advanced and major components were completed. The project was terminated at the Government's request in 1986 with a total expenditure of US$11.3 equivalent, 56X below appraisal estimate. The Bank disbursed US$7.3 million; the remainder of the loan (US$12.7 million) was cancelled. This report was prepared by the EMENA Regional Office and is based on a review of Bank files, on a report prepared by the borrower (ONAREP) and on the result of a project completion mission carried out in June 1987. In accordance with the revised procedures for project performance audit reporting, this Project Completion Report was read by the Operations Evaluation Department (OED), but the project was not audited by OED staff. FollowinR standard Procedures, OED sent copies of the draft report to the Borrower for its comments. The comments which were received have been taken into account in preparing the final report and they are reproduced as an Attachment.  - ii - PROJECT COMPLETION REPORT MOROCCO OIL SHALE ENGINEERING PROJECT (LOAN 2114-MOR) BASIC DATA SHEET KEY PROJECT DATA Appraisal Estimate Actual Total Project Cost (US$ million) 25.7 11.3 Underrun () - 56 Cost of Fixed Assets (USS million) 10.5 7.4 Studies and Working Capital (US$ million) 15.2 6.9 Financing (USs million) IBRD 20.0 7.3 Moroccan Government 5.7 4.0 Loan Amount (US$ million) 20.0 7.3 Disbursed and Outstanding 20.0 7.3 Cancelled - 12.7 Pilot Plant Construction Completion July '83 Nov. '84 Test Program Completion July '84 Oct. '86 Oil Recovery (Z) 85 65 Institutional Performance - Satisfactory CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) As of June 30, 1982 1983 1984 1985 1986 1987 (i) Appraisal Estimate 0.4 7.4 15.6 18.1 19.9 20.0 (ii) Actual - 0.9 4.1 6.6 7.3 7.3 (iii) (ii) as Z of (i) - 12 26 36 37 37 OTHER PROJECT DATA Original Plan Actual First Mention in Files (date) - 10/26/77 Government's Application (date) - Jan. '80 Negotiation (date) 04/27/81 10/07/81 Board Approval (date) 06/23/81 03/25/82 Loan Agreement Date - 04/15/82 Effectiveness Date 07/14/82 02/25/83 Closing Date 09/30/86 09/30/86 Borrower BRPM ONAREP Executing Agency BRPM ONAREP  - ili - MISSION DATA Month No. of No. of Date of year weeks persons Manweeks report Identification 06/80 2.0 1 2.0 Preparation 10/80 2.0 6 12.0 12/31/80 Appraisal 02/81 2.0 3 6.0 02/23/81 Supervision I 04/82 1.0 3 3.0 05/04/82 Supervision II 08/82 1.0 1 1.0 08/24/82 Supervision III 04/83 1.0 1 1.0 Supervision IV 04/84 0.5 1 0.5 05/22/84 Supervision V 05/85 0.5 1 0.5 05/23/85 Supervision VI 07/86 0.5 1 0.5 08/19/86 PCR 06/87 0.5 1 0.5 11/23/87 Total 27.0 STAFF INPUT (Staff-weeks) Bank FY 1980 1981 1982 1983 1984 1985 1986 1987 1988 Total Preappraisal 6 30 36 Appraisal 48 48 Negotiations 4 12 15 Supervision 9 6 3 3 3 3 27 PCR 3 6 9 Total 6 82 21 6 3 3 3 6 6 136 CURRENCf EXCHUNGE RATES Name of Currency Dirham (Dh) Appraisal Year (1981) US$1 - Dh 5.3 Intervening Years Average US$1 - Dh 8.0 Completion Year (1986) US$1 - Dh 9.1  - iv - PROJECT COMPLETION REPORT MOROCCO OIL SHALE ENGINEERING PROJECT (LOAN 2114-MOR) HIGHLIGHTS The project constituted the initial phase of a possible commercial development of an oil shale industry in Morocco. The proposed project components were: (a) construction and operation of a test station, based on the T3 process, for recovery of oil from shale; (b) a comprehensive feasibility study of a commercial oil shale mine and plant; and (c) comparison of the economics of oil extraction with direct combustion of the shale in power plants. Only part (a) and portion of part (b) were completed, as a consequence of adjustments to the decline of the oil price. The project was terminated in December 1986 at a cost of US$11.3 equivalent, about 12 months later than estimated and at about 451 of budgeted total project cost (the completed portions represent about 701 of the original total scope). The project implementation did not present major problems and institutional performance was good. However, operating results (oil yields) of the test station stayed below expectations. The main lessons which can be derived for similar projects are: (i) Bank and Borrower should always be highly aware of the possible negative impact of boom periods on project design and cost; (ii) technology selection should only be based on rational, technical and economic grounds; and (iii) particular care must be taken not to oversize the components or prejudge in any way the results of a research project.  PROJECT COMPLETION REPORT MOROCCO OIL SHALE ENGINEERINC PROJECT (LOAM 2114-MOR) I. INTRODUCTION 1.1 Morocco has a wide variety of energy resources including: oil, natural gas, oil shale, coal, hydro, uranium, biomass, wind and solar energy. However, the currently known reserves are either small or have high per unit costs of production, with the result that there has been only limited domestic commercial energy development. Oil exploration has found only small reserves, and production is less than 20,000 tons per year. Limited reserves of natural gas have been discovered and production is almost negligible- Morocco has proven coal reserves of about 12 million tons in the Jerada coal basin; but because they are difficult to exploit, there i. no prospect for a major increase in production beyond the current project to increase output to about 1 million tons per year. The country's hydro power potential is estimated at 4,600 GWh per year (1.1 million toe) under average hydrological conditions. Of this potential 1,800 GWh have already been tapped and new projects with an annual production of 300 GWh are under construction. Imports (oil 95%, coal 5Z) supply about 882 of commercial energy demand and represent about 30% of total merchandise imports. Oil shale development, if economic, could reduce the import dependency: there is a vast amoutt of reserves at Timahdit in Central Morocco, and at Tarfaya, in South Morocco. In Timahdit alone the proven open pit mineable reserves of shale, with an acceptable grade (17 gal/t) and relatively good mining and processing conditions would be sufficient to supply the 17ountry for more than 30 years with about 50Z of its present oil consumption., 1.2 Since 1980, the Bank has been involved in financing energy projects aimed at reducing the oil import burden on the Moroccan e2nomy. There were two loans for exploration and development of oil and gas - totalling US$115.2 million, a US$27.0 million loan for modernization and expansion of the Jerada coal mine and the US$20.0 million loan for this project. The disbursements for oil shale development were limited to US$7.3 million and represent 5% of the Bank's loans for all Moroccan energy projects after 1980 and 0.3% of the Bank's disbursed and outstanding loan amounts for Morocco. 1/ This would require an oil production of about 50,000 bpd from about 40 million tpy of shale. 2/ First Petroleum Exploration Project (Ln. S-18), 1980, and Second Petroleum Exploration Project (Ln. 2271), 1983.  - 2 - II. PROJECT BACKCROUND Origin of Proiect 2.1 In 1974, immediately after the first oil crisis, the Bureau de Recherches et de Participations Minieres (BRPM) discovered the two large oil shale deposits at Timahdit and Tarfaya. Intensive drilling, in total covering about 60 drillholes at an estimated cost of about US$20 million, was carried out at that time. In 1976, preliminary mining studies were contracted to Tosco, USA, and Kloeckner-Lurgi of Germany. At about the same time preliminary studies of oil shale retorting processes were contracted to major known process holders, mainly in the US (Tosco, Occidental, Paraho and Union Oil), the USSR and Japan. In total, about 1,000 tonnes of shale were shipped to these firms for testing in laboratories. The total cost of studies and tests was aoout US$3.0 million equivalent, financed out of the Government's budget through BRPM. 2.2 Parallel to the outside contracting, BRPM started to develop its own testing facilities for oil shale retorting. Initially, a batch retort for a shale mass of 200 kg was built in BRPM's laboratory at Rabat. After its successful operation, a 3-tonne batch retort and thereafter a 50-tonne batch 'etort were built at the site of the Timahdit shale deposit. The equipment aWd instrumentation used in thse tests were crude. The idea of retorting shale in batch type reactors 3 is not new, and several efforts to apply this technology have been made, in p-rticular in Europe at wartime when other energy sources were restricted. The Moroccan engineers managed well to apply this technology to the Timahdit shale in a short time and without major difficulties. Despite their simple tools they were able to control the process reasonably well and succeeded in extracting about 30,000 liters of oil from auout 800 tonnes of shale. The cost of this testwork was about US$1.0 million equivalent. The successful work of that time led the engineers involved to search for ways of perfecting this or a comparably simple process. 2.3 Through its contacts with US companies BRPM learned that the US scientific consulting firm Science Applications Incorporated (SAI) had accumulated consterable experience in retorting shale in large underground in-situ caverns.- Contacts with this company were established, and in cooperatiton with the Moroccan engineers, the SAI experts developed and 3/ Oil shale is burned in a steel vessel filled with shale. The temperature and progress of combustion is regulated through the flow of air. The hot off-gass passing through the shale releases and carries away hydro- carbons, which are then distilled from the off-gas through cooling. 4/ This process was tested at that time by the Occidental Oil Company in Colorado. The principles of the process are quite comparable to the method used by the Moroccans.  promoted the idea of the T3 process,5/ an improved version of the batch retorting used by the Moroccans. With the background of the important shale discoveries in Morocco, the high level of international oil shale development activities at that time and the successful Moroccan retorting tests, the T3 proposal soon found support at a high governmental level and it was decided to develop this process to a commercial scale. It was at this point that the first contacts with the Bank were made for financing an oil shale development project. Project PreparAtion and Appraisal 2.4 In February 1980, BRPM contracted a prefeasibility study of a commercial T3 oil shale plant to SAI at a cost of US$0.3 million, financed from its own funds. As a result of this study, SAI and BRPM initially wanted to go ahead quickly with the engineering and construction of a demonstration prototype T3 unit of 5,000 t shale capacity, which would be a building block for a commercial plant. Bank staff from the Energy Department (EGY) and the Industrial Projects Department (IPD), cautioned about such an approach and BRPM decided to sign an additional contract with SAI in July 1980 for comparisor. of known retorting processes, design of a testing program for the T3 process and preliminary design of a T3 pilot plant. The July 1980 contract, valued at US$1.5 million, was Bank-financed under a special allocation within the First Petroleum Exploration Loan. 2.5 Because of the increased momentum of oil shale development in the world in general, and in Morocco in particular, mixed with a certain Moroccan pride and enthusiasm for developing a national, appropriate technology, there was a risk at the time that the Government would embark on an overly ambitious program in a technically/economically uncertain field with a pre-determined tachnology largely selected on political and emotional rather than scientific/technical and economic grounds. The Bank's efforts were aimed from the beginning at adopting a cautious stepwise approach to oil shale develop- ment. Bank staff also felt that the studies contracted to SAI in July 1980 were too limited in scope: they focused on retorting and did not include mining, infrastructure, oil treatment and other shale utilization. The Moroccan authorities came to accept this view, end agreement was reached on an oil shale engineering project, to be financed by the Bank, which would include in addition to studies also the construction of an oil shale retorting test facility. 2.6 An oil shale retorting test facility as part of the project was highly desirable for several reasons: (i) it would provide an opportunity to learn more about the characteristics of the Moroccan shale; (ii) it would provide an opportunity to train Moroccan eniineers; (iii) it would maintain the momentum in Moroccan oil shale developme&t at relatively low cost; and (iv) it would enable the Moroccans to improve their negotiating position 5/ So named for three main Moroccan oil shale deposits. The process con- sists of a pair of coupled batch retorts, with a burning and cooling retort. Water added to the combustion air evaporates to steam, aiding temperature regulation of the burning retort and preheating of the cooling retort.  - 4 - vis-a-vis foreign companies for a later commercial plant development. The Bank's technical staff were from the beginning skeptical about the appro- priateness of basing the test facility on any one process. Advice was obtained from independent oil shale experts, from well-known international engineering firms as well as from oil companies involved in oil shale development. It was established that no definite selection oi any of the more modern retorting processes could be made at the current preliminary stage of development and that a more universal plant which could test several processes did not exist and its development would be costly. All the experts consulted agreed that for the purposes of testing oil shale retorting, a small T3 unit would be one of the lowest cost options available. As for the size of the unit, it was determined that the grain size of shale to be retorted would range from about