Sonatrach Advances Plans for New Group II and III Base Oil Plant in Algeria.

Algeria’s state-owned energy company Sonatrach is moving forward with plans to develop a new base oil production unit at its Arzew refinery, targeting API Group II and Group III base oils. According to the Middle East Economic Digest, four engineering companies have been prequalified to bid for the project’s engineering design, technology licensing and project management.

The initiative is part of Algeria’s broader strategy to increase domestic hydrocarbon processing and develop higher-value petrochemical products. Under its $7 billion petrochemical investment programme for 2025-2029, the government aims to increase the share of hydrocarbons converted into higher-value products from 32% to 50%. This investment programme covers several projects and is not the specific budget allocated to the Arzew base oil facility.

Sonatrach already operates a Group I base oil plant at Arzew, with an annual production capacity of 50,000 metric tons. The proposed new facility would expand the company’s portfolio towards higher-quality base stocks. However, its planned capacity, investment cost and expected start-up date have not yet been disclosed.

The project’s contractor prequalification process was launched in August 2025. By October 2026, four companies had qualified to participate in the bidding process: China HuanQiu Contracting & Engineering Company, Egypt’s Engineering for the Petroleum and Process Industries (ENPPI), Spain’s Técnicas Reunidas and Wood Group. No contract award has been announced so far.

The development could strengthen the supply of Group II and III base oils to domestic lubricant manufacturers while creating potential export opportunities across Mediterranean markets. Its impact on regional supply will ultimately depend on the plant’s production capacity, selected technology, operating costs and export strategy.

The project also comes amid growing domestic lubricant demand. Algeria consumed approximately 150,000 metric tons of motor oil in 2024, representing a 14% increase compared with 2023, according to a January 2025 report citing Rachid Nadil, chairman of the Hydrocarbons Regulatory Authority.

With the planned investment, Sonatrach is seeking to move further up the value chain, potentially positioning Algeria as a more significant regional producer of higher-grade base oils.