The Kuwaiti government is set to become one of the world’s largest downstream oil and gas investors thanks to plans by state-owned Kuwait Petroleum Corporation (KPC) to diversify its oil products and boost petrochemicals output. Central to this strategy, which comes at a $50bn price tag, is the goal of more than doubling the country’s refining capacity to boost Kuwait’s standing in a highly competitive regional market. KPC’s overseas arm, Kuwait Petroleum International (KPI), is coordinating this expansion strategy with a number of undertakings around the globe, securing international refining and petrochemicals capacity from Oman to Vietnam.
Connect the Dots
Enlarging its downstream footprint is a key component of KPC’s long-term development plan. On the domestic side the plan aims to grow refining capacity from around 615,000 barrels per day (bpd) in early 2019 to 1.4m bpd by 2040. Beyond the numbers, the vision hopes to maximise the conversion complexity of KPC’s domestic refineries without impacting local energy demand, and provide petroleum products that meet local and international standards.
Internationally, the plan aims to significantly increase KPC’s overseas refining capacity by securing outlets for crude oil. Partnerships with international and national oil companies – particularly in Asia – are seen as the way forward. To create a stronger network the country will divest itself from overseas operations that have become less cost-effective, and open itself to mergers and joint ventures with competitors where there is a clear advantage to be gained from cooperation.
Emerging markets in Asia and elsewhere are being targeted as buyers of Kuwait’s petrochemicals. While domestic core business will continue to expand and integrate with international plans, high-growth products such as olefins and aromatics are set to be the focus of exports to these overseas destinations.
KPC subsidiary Kuwait National Petroleum Company (KNPC) runs the country’s refineries and is the lead agency for new projects. The 2040 vision calls for the merger of two domestic refineries, and creation of a new refinery and petrochemicals complex at Al Zour, 100 km south of Kuwait City. The merger is known as the Clean Fuels Project and is priced at around $12bn. Since 2014 KNPC has worked to join the Mina Al Ahmadi (MAA) and Mina Abdullah (MAB) refineries, located 45 km and 50 km south of the capital, respectively. As part of this, the Shuaiba refinery – the first national oil refinery built in the Gulf, which was set to close in 2017 and sits between the two facilities – now provides tanks and export support to the combined plant. Local crude will be refined there, with MAA having an eventual capacity of 346,000 bpd and MAB 454,000 bpd. Combined, it will substantially increase the quantity of crude being refined in-country before being sold on, yielding a much-desired increase in added value. Indeed, the project’s internal rate of return is expected to be around 11.5%.
As the name suggests, the merger sets out to transform production into more environmentally friendly fuels. The plant’s petroleum products will meet Euro-4 standards, meaning that, for example, the sulphur content in both the petrol and gasoil produced will fall from 500 parts per million (ppm) to 10 ppm. This addresses a key issue for Kuwaiti oil, which tends to be sour – an industry term that denotes elevated sulphur content, which makes it costlier to refine than sweeter crude.
The project is being carried out by a consortium led by the US’ Fluor Corporation, along with South Korea’s Daewoo Engineering & Construction, and Hyundai Heavy Industries. Fluor reported in November 2018 that first steam had been generated successfully, while KNPC announced that month that the project was 97% complete, with a 73,000-bpd, low-sulphur diesel unit ready to begin operations in December 2018. However, in May 2019 S&P Global Platts reported that the project was running about six months late and would likely be completed at the end of 2019 or in early 2020, with each month hoping to see an additional unit commissioned.
Meanwhile, work at Al Zour is advancing. The $25bn project includes a refinery, petrochemicals plant and liquefied natural gas (LNG) facility, with another KPC subsidiary, Kuwait Integrated Petroleum Industries Company (KIPIC), as the lead agency. The refinery is on a greenfield site and will have a capacity of 615,000 bpd of crude, along with storage for 6.5m barrels.
The refinery is being built by the same Fluor-led consortium. Fluor is carrying out much of the pipe manufacturing at its Zhuhai fabrication yard in China, via its partnership with China’s Offshore Oil Engineering. According to the Ministry of Oil, the refinery part of Al Zour was 76% complete in January 2019 and was expected to start operating in 2020. The Al Zour site will include a $3bn LNG processing facility, financed by Japan’s Sumitomo Mitsui Banking, with Hyundai Engineering & Construction and Korea Gas building the plant. In March 2019 it was reportedly two-thirds complete, with a commissioning date set for 2020.
The third component of the Al Zour complex is the integrated petrochemicals plant, which will use feedstock from the refinery. In January 2019 the Ministry of Oil reported that this was still at the front-end engineering design phase. The engineering, procurement and construction stage is expected to be completed in the third quarter of 2023, with subsequent operations at the plant due to start in early 2024. In April 2019 KIPIC announced that the US’ McDermott International had been awarded the contract to supply basic engineering, technology licensing and catalyst for an integrated low-pressure recovery and olefins conversion technology unit at the plant. The complex will receive power from the recently completed nearby Al Zour Power Station. This includes the new, 1500-MW Al Zour North gas-fired combined-cycle plant and the Al Zour South plant, which began KD20m ($65.9m) in renovations and upgrades in 2018.
The integration and expansion of domestic petrochemicals and refinery activities ties in with strategic overseas moves. A primary example is KPI’s acquisition of a 50% stake in Oman’s new $8bn Duqm refinery and petrochemicals complex. Being developed with Oman Oil Company via the Duqm Refinery and Petrochemicals Industries Company (DRPIC), the complex will have the capacity to process 230,000 bpd of sour oil, including Kuwaiti crude. Formal notice to proceed with the refinery was issued by DRPIC in June 2019, with a 42-month deadline for completion. KPI is looking to embark on refinery and petrochemicals projects in India and Canada in addition to its existing presence in Vietnam and China.
A international network of integrated refinery and petrochemicals complexes is emerging for Kuwait, with crude oil either being processed at home or at facilities in which an agency of KPC has a sizeable stake. The result should be that there will be a major surge in earnings for Kuwait, as the nation takes a larger share for the world’s higher-value-added petroleum products.
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