Interview: Mohammad Ghazi Al Mutairi
How are lower oil prices impacting the downstream segment in Kuwait?
MOHAMMAD GHAZI AL MUTAIRI: As in any other predominantly oil-based economy in the world, lower oil prices have impacted the overall state budget. KNPC, as a downstream arm of Kuwait Petroleum Company (KPC), handles crude processing at three refineries with a gas plant and liquefied natural gas (LNG) import facilities. KNPC does get the benefit of lower crude prices in its input cost; however, the product prices have also fallen sharply and there is not much improvement in crack spreads (the difference between a petroleum product and crude prices), which leads to subdued refining margins.
This is largely due to supply and demand imbalances because of the prevailing overall global economic malaise. As a result, the profitability of KNPC has remained under pressure – the challenge now is to optimise efficiencies in order to maximise profitability. However, during the last few months, we have seen some improvements in the refining margins, and we expect the profitability to continue to improve going forward.
What economic benefits will the completed Al Zour Refinery bring, and how do these complement the Kuwait Development Plan 2015-20?
AL MUTAIRI: With the commissioning of the Al Zour Refinery, Kuwait’s overall crude processing capacity will increase to 1.4m barrels per day (bpd) from its current capacity of 936,000 bpd. So as to maximise the disposal of heavy crudes within Kuwait (instead of exporting at a discount), the Al Zour Refinery will have the capability to process these heavy crudes, leading to economic benefits to the state and KNPC. The construction and maintenance of the refinery will provide new employment and economic opportunities to ancillary industries and contractors that should contribute to higher growth levels down the line. The Al Zour Refinery is part of the KPC 2030 Long Term Strategic Plan, and we are on course to commission it in mid-2019, within the five-year plan period of 2015-20.
Can the Al Zour Refinery act as a catalyst for private enterprise to enter the downstream market, and how will this benefit the sector?
AL MUTAIRI: As in any marketplace, privatisation leads to enhanced competition and, theoretically, the benefits are passed along to the consumer. A new KPC subsidiary, Kuwait Refinery and Petrochemical Company, is being established to manage the integration of the Al Zour Refinery with petrochemicals and LNG import facilities. The possibility of private sector participation in the petrochemicals complex is currently under study.
In addition, an LNG import facility with the aim of importing 300trn British thermal units per day is being set up near the Al Zour Refinery in order to meet increasing future demands, as forecast by the Ministry of Electricity and Water.
How will the Al Zour Refinery enhance Kuwait’s downstream prospects in foreign markets?
AL MUTAIRI: Upon commissioning the Al Zour Refinery and the Clean Fuels Project, our product volume will increase in line with crude capacity increases, and our main fuel products like gasoline, diesel and aviation-turbine kerosene would meet Euro 4 fuel specifications. KNPC will have the full capability to produce environmentally friendly ultra-low-sulphur diesel (with maximum 0.001% sulphur) for export markets, and bunker fuel with maximum 1% sulphur content would be available for our customers. As such, we will be able to maintain a competitive edge to meet the international fuel specifications and enter into new EU and North American markets with higher quality products.