Big spender: Major investments are planned across the sector

Despite the drop in global oil prices since 2014, Kuwait has announced ambitious plans to invest $100bn on oil and gas projects between 2015 and 2020. Investment will be split between upstream investments to raise Kuwait’s output capacity and downstream projects to increase the country’s share of the energy value chain globally. The investment programme is also in line with the country’s broader aim to increase oil output capacity. Diversifying and expanding crude oil production, which is currently heavily reliant on the ageing Burgan field, is of strategic interest for Kuwait.

Kuwait Petroleum Corporation (KPC) has indicated that approximately 60% of total investment, or $60bn, will be invested in upstream projects inside and outside of the country, while the remainder will be used to develop the company’s portfolio of downstream products and services, such as refineries, petrochemicals, aviation fuel and retail outlets.

EXPANDING REACH: Like all its competitors in the Middle East, Kuwait also has to tackle the challenge of declining production from its oilfields. The Burgan field, one of the biggest oilfields in the world, has served as Kuwait’s main source for. However, it is now more than 60 years old and now requires further investment in modern enhanced oil recovery (EOR) processes to maintain current production levels. The country has a longstanding goal of expanding its crude oil production capacity by almost a third, increasing total output from an estimated 3m barrels per day (bpd) in 2013 to more than 4m bpd by 2020. KPC has acknowledged the need to increase the participation of international oil companies (IOCs) in order to achieve this target.

Project Kuwait, initially proposed in 1998, marked a concerted effort to incentivise foreign investment into the sector and to leverage IOC expertise to meet these goals. The programme hit a number of obstacles, however, and finalisation on a series of projects that involved foreign partners was hindered.

The newly announced investment package is a strong indicator that the government is committed to meeting its output targets, with large investment in the development of upstream infrastructure expected. While KPC has not publicised a detailed list of specific projects that will be financed with this investment package, developments over the last few years indicate that a significant portion of investment will include reviving a number of projects that had previously been stalled. The government launched three large-scale projects in 2014 alone, including: a $12bn upgrade for two of its three refineries; a $4.2bn development to tap into the country’s heavy crude reserves; and a $15bn investment to build a greenfield refinery.

ADDING UPSTREAM CAPACITY: One of the main features of Project Kuwait includes developing output from the country’s heavy crude oil fields and to expand capacity from the four main northern oil fields of Raudhatain, Sabriya, Ratqa and Abdali by 1m bpd. The new investment plan will aim to bring some of these initiatives back on-line. The central tenders committee has already awarded its first engineering, procurement and construction (EPC) contract to develop new heavy crude oil production capacity in the northern fields in January 2015.

A consortium led by the UK’s Petrofac and Athens-based Consolidated Contractors Company won the $4.2bn contract in early January 2015. The investment is expected to increase the capacity from the oilfields by an estimated 60,000 bpd by 2018, with total production capacity expected to be expanded further during the second phase.

In addition to investment in heavy oil, KPC has also entered into a number of agreements with IOCs to implement EOR technologies to maximise output from existing sites, particularly in the Burgan field.

CLEAN FUELS PROJECT: The Kuwait National Petroleum Company (KNPC) is also currently implementing a KD4.68bn ($16.12bn) project to upgrade and expand existing KNPC refineries at Mina Abdulla and Mina Al Ahmadi. According to KNPC, the Clean Fuels Project is expected to “transform the two refineries into an integrated merchant refining complex that meets the diversified requirements of the world oil market”. Work is already in progress, with KNPC signing three EPC contracts in 2014.

In February 2014 Petrofac won a $3.7bn contract along with South Korea’s Samsung Engineering and CB&I Nederland. The contract is for the Mina Abdulla component of the project and some work at the Shuaiba refinery site. Petrofac’s share of the project will total $1.7bn, with the remainder split between the other consortium partners.

The scope of work under the contract includes building 19 new refining units at Mina Abdulla, upgrading five existing units at the Shuaiba refinery and building the network of pipes to transfer products between the two facilities. In April 2014 a joint venture led by Fluor Corporation with Daewoo Engineering & Construction and Hyundai Heavy Industries won the second $3.4bn contract for the Clean Fuels Project, while JGC Corporation and its partners GS Engineering and Construction and SK Engineering and Construction were awarded the third $4.9bn contract in March 2014. Overall, the EPCs outline a programme of work that is expected to be completed over a period of four years.

NEW REFINERY CAPACITY: In addition to upgrading its existing refineries, Kuwait is also investing in building a multibillion-dollar greenfield project to expand its total refining capacity. The 615,000-bpd Al Zour Refinery project will supply low-sulphur fuel to the country’s local power plants. The refinery development represents one of the largest and most complex oil refining plants globally, with four packages for the project already disbursed.

Media reports indicate that a consortium led by South Korea’s Hyundai Engineering and Construction made the lowest bid of $1.54bn for the for the fifth package of the project, which involves the construction of an export terminal, a submarine pipeline and a wharf for small vessels as well as other marine facilities. GS Group and Daelim, both from South Korea, made the second- and third-lowest bids of $1.56bn and $2.44bn, respectively.

At the end of July 2015 the contract was awarded to the joint venture lead by Hyundai Engineering and Construction. The Al Zour Refinery is also expected to be completed within the next two years.

INVESTING ABROAD: A significant portion of the Ministry of Oil’s $100bn budget will also target acquisitions and joint ventures abroad. KPC’s Kuwait Petroleum International, which operates under the brand name Q8, has invested in a $9bn Nghi Son Refinery in Vietnam and is in talks with the China Petroleum and Chemical Corporation to build a refinery and petrochemicals complex in Guangdong province.

KPC is also eyeing several deals in India, including two petrochemicals plants owned by Indian Oil and Natural Gas Corporation in Dahej and Mangalore, as well as acquisitions in Bharat Petroleum Corporation’s proposed chemical unit in Kerala.

OIL & GAS TRANSPORT: In addition to expanding upstream and downstream production, Kuwait is also investing in building out its distribution facilities. For example, the Kuwait Oil Tanker Company (KOTC), which manages all of KPC’s shipping and transport requirements, is currently investing over $1.75bn to expand its fleet of oil tankers.

In 2012 the company announced it had begun implementing the expansion plan in four phases, including the delivery of nine new tankers from South Korea under phases one and two in 2014-15. These include five crude tankers from Daewoo Shipbuilding and Marine Engineering and four from Hyundai Mipo Dockyard that will be used for the transport of petroleum products. Daewoo, which received an estimated $556m for the new ships, is also upgrading KOTC’s existing tankers as part of the deal. Going forward, KOTC will further expand the fleet with an additional five tankers for oil products as well as three tankers for liquefied natural gas under phases three and four between 2014 and 2018.

STRONG PROJECT PIPELINE: In addition to these mega-deals, KPC and its subsidiaries also have a number of smaller undertakings in the pipeline. KNPC alone has a total of 26 projects that have been approved. These include a number of upgrades at the two existing refineries, such as installing a new acid gas removal unit at the Mina Al Ahmadi Refinery, in line with KPC’s directive to cut down flaring at facilities in West Kuwait to 1%.

Furthermore, Kuwait is also developing downstream capacity in a number of related sectors, including power and water. The KD2.4bn ($8.27bn) Al Zour North Phase I independent water and power project, for example, is currently under development and is expected to add 1.5 GW of capacity when it is completed by 2017. The power and water plant will rely on natural gas supplied by KNPC.