Kuwait is pumping investment into its own downstream sector, while simultaneously ploughing capital into an Asian refining empire.
Kuwait was the first country in the Middle East to focus on the downstream industry, after it constructed its first refinery and a fertilizer plant in the 1960s, aiming to diversify its economy as well as taking advantage of the abundant feedstock.
To reach its objective, the Kuwaiti government established Kuwait National Petroleum Company (KNPC) to develop the downstream sector. In this regard, KNPC created Petroleum Industries Company (PIC) to boost investment in petrochemicals and fertilizer sectors, while KNPC focuses mainly on the refining business.
KNPC operates three refineries in Kuwait. “We have three complex refineries in Kuwait with a total capacity of 936,000 bpd,” explains Bakhit Al-Rashidi, deputy managing director of KNPC and chairman of Kuwait Aromatic Company.
“The Shuaiba refinery is the smallest refinery with a capacity of 200,000 bpd, followed by the Mina Abdullah refinery with 270,000 bpd and the third refinery is Mina Al-Ahmadi refinery with 460,000
bpd,” he explains.
It is also in charge of gas processing operations in the State of Kuwait operating three trains.
“We have three identical trains with a capacity of 560million cubic feet per day, which together have a capacity of 1.6bn cubic feet of gas processing, plus two gas treating plants for sulfur removal,” says Al-Rashidi.
These gas-treating plants are located in Shuaiba with a processing capacity of 150 million cubic feet per day, while the second one is located in Mina Al Ahmadi, with a capacity of 200 million standard
cubic feet per day.
The company is also in charge of the construction of the fourth refinery Al Zour, with a capacity of 615, 000 bpd. After awarding the contracts in 2009, the company came under fierce attack from media and parliament members who accused the company of breaking the law in awarding a contract to Fluor without tenders.
The government bowed to pressure and asked the audit bureau to investigate whether the tender process showed irregularities. Consequently, the company cancelled all the contracts worth $8.4bn awarded to Japanese and South Korean contractors as well.
However, due to the increasing demand on refined products, mainly fuel oil for power generation, the government is expected to give a green light for the project. “The fourth refinery is an approved project.
However, we are reviewing the project with the supreme Petroleum Council,” Al-Rashidi noted.
In addition to the fourth refinery project, KNPC is also studying the Clean Fuels Project (CFP). The project will integrate and expand two of Kuwait’s existing refineries, at Mina al-Ahmadi and Mina Abdullah, while retiring the older Shuaiba refinery.
In the petrochemical industry, PIC is intensifying its petrochemicals investments inside Kuwait and outside the country.
Despite the collapse of the K-Dow $17bn joint venture with the Dow Chemical Company in December 2008, PIC investment policy is based on partnering major international petrochemical companies.
“Our strategy in petrochemical investments is based on partnering major players, as the decisions of the Supreme Petroleum Council, and our parent company KNPC,” says Maha Mulla Hussain, Chairman and Managing Director, Petrochemical Industries Co. (PIC).
PIC is involved in various joint venture projects with The Dow Chemical Company, including Equate and MEGlobal. “Our joint venture projects are excellent, and they encourage us to go ahead with this strategy,” she explains.
The ethane feedstock availability in the State of Kuwait is similar to other GCC countries. “Our current production facilities are based on ethane gas,” says Hussain. “For future projects, and as Kuwait Petroleum Company (KPC) is developing new fields as part of its strategy to increase crude production, we expect to have associated gas,” she says.
In addition to the associated gas, PIC also looks for its share from the non associated gas. “We are also looking for our share of the non associated gas, as KPC has plans to develop gas fields,” she explains Currently, PIC is working on two major projects, the Olefin 3 project in Kuwait, and the petrochemical project in China.
“The Olefin 3 project in Kuwait is still under study with our main shareholder KPNC,” says Hussain. “We are coordinating with KNPC regarding the feedstock availability along with the type of feedstock to be used in the project,” she explains.
Hussain says that the Olefin 3 project will be based on mixed feed. “It will be a multi type feedstock, including gas and other liquid feeds,” says Hussain.
The project is still under the initial study stage, which is set to be completed by the first half of 2011. “By the first half of 2011, we will finalise the feedstock split,” says Hussain. “Upon the completion of the feedstock split, we will move to the front end engineering and design (FEED) study,” explains Hussain.
Outside Kuwait, the company is involved in an integrated project in China. “In China, we are involved in an integrated refinery petrochemical project in cooperation with Kuwait Petroleum International Company (KPIC),” says Hussain.
“KPIC is responsible for the refinery part and we will be responsible for the petrochemical part of the project, which needed the approval of the The National Development and Reform Commission (NDRC),” she explains.
The National Development and Reform Commission (NDRC), China’s top economic planner, granted final approval on March 4 for Kuwait to build a long-awaited refinery and petrochemical complex on Donghai Island of Zhanjiang in Guangdong Province.
The joint venture between Kuwait and Sinopec entails a 15 million-tonne-a-year (300 000 barrels per day equivalent) refinery, a one million-tonne-a-year ethylene plant and related utilities, as well as support facilities such as a crude jetty, product oil and chemical jetties, a bulk jetty and oil product pipelines to an initial station, the Chinese government has said previously.
In addition to these projects, PIC is considering expanding its polypropylene capacity, starting from 2012. The new plant will have a capacity of 55 000 t/y of polypropylene; currently, PIC produces 140,000 t/y of polypropylene.
Despite the ongoing projects, the Kuwait downstream sector suffers from a major issue; the involvement of parliament in economic decision-making, which is unusual for political systems in the region, yet it is common in Kuwait.
This frequently exasperates the specialist technocrats and industrialists who run the upstream and the downstream sector. “It is our system and we have to live with it,” says Al-Rashidi. “I think that after some time people will understand this especially as it is a multibillion dollar projects,” explains Al-Rashidi.
Meanwhile, other downstream players in the State wish the sector to get autonomy. “I wish KPC would get autonomy from the Oil Ministry to avoid politicisation,” says Hamad Al-Terkait, president and CEO of Equate. “This would enable it to operate as an independent commercial entity.”
