Kuwait set to upgrade refineries

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The recent approval of bids worth more than $12bn has paved the way for a major overhaul of two of Kuwait’s refineries, following costly shutdowns earlier this year.

In February, the state-owned Kuwait National Petroleum Company (KNPC) announced that a consortium led by Japan’s JGC Corporation had won a bid to carry out $4.8bn of work at the Mina Al Ahmadi refinery. Capable of processing 460,000 barrels per day (bpd), the facility is the largest of Kuwait’s three installations.

In a separate development, two contracts were awarded to consortia led by the UK’s Petrofac ($3.7bn) and US-based Fluor Corporation ($3.4bn) for work on the 270,000-bpd Mina Abdullah refinery. Petrofac will provide engineering, procurement and construction (EPC) services, including the provision of 19 new refining units at Mina Abdulla, revamping of five existing units at the Shuaiba refinery, and building the accompanying inter-refinery transfer lines.

Fluor, meanwhile, will provide EPC services as well as associated commissioning, start-up and testing support. Contracts will be finalised in April, with construction work due to begin soon after, according to the KNPC.

Meeting the demands of customers

Following the upgrade work, Mina Abdulla and Mina Al Ahmadi will be able to produce cleaner-burning fuels, including low-sulphur varieties (fuels whose sulphur content is equal to or less than 10 parts per million) and Euro IV fuel (a low emissions diesel petrol that complies with European emissions control standards). Capacity will also be expanded to reach a combined 800,000 bpd.

The new products will help Kuwait meet the demands of its established export markets. The country refines about one third of its crude oil production, of which around 660,000 bpd is sold abroad as refined products, according to OPEC.

The recent deals are part of a broader modernisation effort, known as the Clean Fuels Project, which includes plans to construct a new $14.5bn refinery known as Al Zour, with a capacity of 615,000 bpd.

The development of Al Zour has experienced several delays. In March 2009 the government suspended progress on the project in response to allegations by lawmakers that the construction contracts had been awarded outside the normal channels of approval. The Supreme Petroleum Council then approved the project in 2011, and in December 2012 international engineering and project management company AMEC was awarded a $528m project management consultancy contract.

This past December, Honeywell announced it had been selected by KNPC to provide the front-end engineering design for the Al Zour facility. The refinery, which will be the largest in the Middle East, is now expected to come on-line in 2018.

Stumbling blocks

The cost of delays to Kuwait’s development plans became more apparent in January, when a power failure led to a temporary shutdown of all three refineries, bringing production to a halt across the country. While reasons have yet to be given for the power cuts, experts have suggested that the state’s grid, rather than onsite technical faults, were to blame. An inadequate power supply system has often been cited as a challenge to boosting refinery output in Kuwait.

The February tender announcement is a positive sign that the state is committed to moving forward on enacting its development plans, but challenges persist. It is still unclear whether the Clean Fuels Project will include construction of backup power supply systems, or if proposed projects will be delivered on schedule, given previous delays.

More broadly, parliament’s recent decision to investigate government deals signed with GDF Suez and Airbus will do little to boost investor confidence.

Last year Kuwait awarded the Al Zour north independent water and power project (IWPP) to a consortium led by GDF Suez. The project, the first public-private partnership IWPP for Kuwait, has been considered a test for the country, which has faced challenges in attracting foreign investors.

“Ultimately, parliament and the government need to believe in the role of the private sector. If the law was reformed and projects were executed in a timely manner, opportunities for investors would be created, more Kuwaitis would be able to find stimulating jobs, and the private sector would be more productive and more competitive,” Faisal Al Ayyar, Vice-Chairman of Kuwait Projects Company (KIPCO), told OBG.

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