Chemicals production is one of the leading lights of Kuwait’s industrial sector, an important contributor to its economy and an export earner. It is at the centre of the country’s drive to diversify its earnings and boost the value it obtains from its mineral wealth. Output is expected to rise as the national petrochemicals company and international partners capitalise on a growing supply of oil and gas feedstock.
The chemicals industry accounted for 22.9% of Kuwait’s manufacturing added value, or $10.1bn, in 2013, the last year for which figures were available, according to the Gulf Petrochemicals and Chemicals Association. It employs 6000 people directly, 60% of whom are Kuwaiti, and generates three jobs indirectly for each employee, the association estimates. Output value totalled $4.35bn, having grown at an annual average of 5.9% between 2003 and 2013.
Petrochemicals
Kuwait produces a wide range of chemicals, including ethylene, polyethylene, urea, ethylene glycol and chemical catalysts. Production is due to grow over the coming years. Kuwait Direct Investment Promotion Authority (KDIPA) in its “Investment Guide 2016” forecast that output of Kuwait’s main petrochemicals products would rise from 7.57m tonnes per annum (tpa) in 2014 to 10.54m tpa in 2019. The authority expects ethylene production to rise from 1.7m tonnes in 2014 to 3.1m tonnes in 2019, that of polyethylene from 825,000 to 1.8m tonnes, and ethylene glycol from 1m to 1.6m tonnes. Production of other petrochemicals may stay steady for the time being. In 2014 Kuwait produced 1.04m tonnes of urea, 822,000 tonnes of xylenes, 765,000 tonnes of ethylene oxide, 370,000 tonnes of benzene and 160,000 tonnes of polypropylene. Output for these products is likely to remain the same in 2019.
Much of Kuwait’s petrochemicals output goes to Asia, including the world’s two most populous countries, China and India. While China’s growth has slowed in recent years, both countries – and Asia as a whole – should continue to grow over the medium to long term, their already substantial markets for chemicals expanding. Kuwait’s long-standing export ties to Asian markets and growing production mean that it is well placed to capitalise on this growth. Nonetheless, over the medium term Kuwait will seek new markets, as competition rises from within India and China and from shale-based alternatives from the US and elsewhere. By investing now to broaden its product range and increase output of value-added products, and by looking to form partnerships with leading international players who can bring both experience and technology, Kuwait’s petrochemicals industry should be in a strong position.
PIC
At the heart of Kuwait’s petrochemicals industry is the Petroleum Industries Company (PIC), a subsidiary of the national oil company Kuwait Petroleum Corporation (KPC). PIC produces and markets petrochemicals through a range of subsidiaries. It was established by Amiri decree in 1963 and constructed the first chemicals complex not only in Kuwait but the region, an early step towards economic diversification and building a value-added downstream component to the growing hydrocarbons industry. Fertiliser plants at Shuaiba Industrial Area were completed in 1966, and by 1989, PIC’s complex had the largest ammonia and urea capacity in the Middle East. The company continued to diversify in the 1990s, adding a new olefins complex in late 1997, producing ethylene and its derivatives polyethylene and ethylene glycol in Kuwait for the first time. A second even larger petrochemicals complex, Olefins II, opened in 2008.
Joint Ventures
While like most of its regional counterparts PIC remains state-owned, its joint ventures (JVs) have brought international partners into the Kuwaiti chemicals sector and at the same time expanded KPC’s global presence. For domestic production, the most significant partnership is Equate Petrochemicals Company, which was Kuwait’s first JV in petrochemicals when it was founded in 1995. The company produces more than 5m tonnes of petrochemicals a year, generating over 60% of Kuwait’s nonoil export earnings. PIC has a 42.5% stake in Equate, US-based Dow Chemicals another 42.5%, while the publicly listed Boubyan Petrochemical Company and Al Qurain Petrochemical Industries Company have 9% and 6%, respectively. Equate operates its Kuwaiti plants through shared infrastructure and owns the Olefins II plant via the Kuwait Olefin Company (TKOC). Some facilities have different ownership.
The Kuwait Aromatics Company (TKAC), which owns the Kuwait Paraxylene Production Facility, is a JV between PIC and KPC’s Kuwait National Petroleum Company (KNPC), both with a 40% stake, and Al Qurain. TKAC in turn owns 57.5% of Kuwait Styrene Company, which produces styrene monomer from benzene feedstock procured from TKAC and ethylene from TKOC. The remaining share is held by Dow Chemicals. In October 2015 Dow announced plans to reduce its holding in another JV with PIC, Canada-based ethylene glycol producer MEG lobal, in which both firms have a 50% stake, by selling it to Equate.
TKAC’s CEO, Mahmoud Al Qattan, believes the global market is reaching a point of equilibrium. “Competition for the supply of petrochemical products worldwide is strengthening from major producers including China, India and Saudi Arabia, causing margins to shrink as volumes grow. However, the market is nearing an equilibrium point following which oversupply may drive many out”, he told OBG.
Investments Continue
PIC continues to seek opportunities for investments to boost its geographical diversification, particularly in high-growth emerging markets, including through partnerships. The company is also investing in its core olefins portfolio with a view to increasing its market share. Central to this programme is a third olefins plant in Kuwait, known as Olefins III. An economic pre-feasibility study on the plant was completed in 2009 and a detailed feasibility study followed in 2011. The proposed unit would have a 1.4m-1.6m-tpa flexi-feed system cracker, producing 1m tpa of polyethylene and 400,000-600,000 tpa of polypropylene, with a primary market of Asia and potential further exports to the Middle East and Europe. PIC is analysing possible feedstock options including off-gases, ethane, propane, and other combinations with liquefied petroleum gas, naphtha and condensate.
The company had hoped that the new plant would be operating by 2017 or 2018, but a delay is expected, with the regional press suggesting that a tender is unlikely before December 2016. When the KD2.12bn ($7bn) project does go out to tender, PIC is likely to be keen to attract experienced players for construction and operation of the plant, given Kuwait’s emphasis on knowledge and technology transfer.
Feedstock
The medium-term growth of the petrochemicals sector will be supported by the expansion of feedstock supply. Despite the drop in the global oil price, Kuwait awarded a reported KD6bn ($19.8bn) of contracts in the oil and gas sector in 2015, according to MEED Projects, and more are expected.
In October 2015 KNPC awarded contracts to a range of international players for the construction of the long-awaited Al Zour oil refinery 90 km south of Kuwait City, which is planned to be integrated with the Olefins III complex. The $16bn project will add 615,000 barrels per day (bpd) to Kuwait’s refining capacity, more than doubling it to 1.4m bpd. It will be fed by heavy oil from newly developed fields in Kuwait, and will also produce fuel oil for power plants.
The Mina Al Ahmadi refinery and another refinery at Mina Abdullah are also being overhauled under KNPC’s KD3.7bn ($12.2bn) clean fuels project, which aims to increase output and improve the quality of Kuwait’s refined petroleum products. The project is due for completion in the first quarter of 2018, and will raise the refineries’ joint capacity to 800,000 bpd.
New feedstock supply will also come from imports. In May 2016 a $2.93bn contract to construct a liquefied natural gas (LNG) complex at Al Zour was awarded to a consortium headed by South Korea’s Hyundai Engineering and Construction. The complex will include a regasification plant with capacity of 3bn cu metres of gas a day, and eight 225,000-cu-metre storage tanks, as well as docking facilities for LNG vessels. The project is due to be completed by 2020. While Kuwait has abundant gas reserves and is committed to investing in developing them, the complex will allow it to tap into growing global supply of LNG, prices of which have fallen as production has risen.
The global petrochemicals sector is growing more competitive as emerging market consumers and rival hydrocarbons producers increase their production capacity. Kuwait’s experience and its partnerships with major players and domestic equity investors put it in a stronger position than most. By investing now in supply and production capacity and broadening its product portfolio, Kuwait can stay ahead of the game.
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