Competition for gas feedstock with power generation companies is forcing ambitious Kuwaiti companies to build bridges with the Far East
As is the case with all GCC members, the Kuwaiti downstream sector is suffering from a shortage of feedstock which is hampering the development of a strong petrochemicals sector, mainly due to the lack of free gas, in addition to the stiff competition from other industrial sectors including power generation.
“Gas supply in Kuwait is very limited, as the majority of it is associated with oil production,” says Hamad al-Terkait, president and CEO of Equate Petrochemical Company. “There are some new discoveries of non-associated gas, but these discoveries are mainly directed at power generation,” he adds.
In addition, ethane gas is sold to petrochemical companies in Kuwait at a higher cost compared to other GCC members, according to a report by Goldman Sachs.
The Goldman report showed that Kuwaiti petrochemical companies receive ethane gas at a cost range between to $2-3 per million British thermal unit (Btu), compared to $0.75 per million Btu in Saudi Arabia and $1 per million Btu in Qatar.
Kuwait Oil Minister Dr Mohammed al-Basiri, said recently that his country faces a gas shortage, but revealed that Kuwait has a capital investment projects to reach self-sufficiency in gas. “Our current gas associated production is about 1.1bn cubic feet, while our free gas is 130 million cubic feet,” the minister says.
“The investment projects we are launching will increase free gas production capacity to 1bn cubic feet by 2016,” he adds.
“We also expect to increase production from the divided zone known as the Doura field by 500 million cubic feet in 2015,” Dr al-Basiri adds.
In addition to the increase of upstream investment to meet the 2020 strategy to produce 4 million bpd of crude oil, Kuwait’s Supreme Petroleum Council (SPC) has approved construction of the long-delayed Al-Zour refinery, al-Busairi says.
Kuwait’s fourth refinery had been expected to start up in 2016 at an estimated cost of about $14.56 billion, with a processing capacity of 615 000 bpd.
The SPC approval is a major step forward for a project that has been repeatedly delayed by a stand-off between Kuwait’s parliament and government.
“We hope that the regulatory procedures and approvals are clear within the next months,” the minister says.
Kuwait National Petroleum Company (KNPC), the downstream arm of Kuwait Petroleum Corporation (KPC), operates the country’s three existing refineries which together can process 936 000 barrels a day.
“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.
Petrochemical Industries Company (PIC), the petrochemical arm of KNPC, has completed the feasibility study of Olefin III project. “KNPC has completed the initial feasibility study of the Olefin III project and we expect the start of works on the project soon,” says al-Baseeri.
“Currently PIC and KNPC are discussing the type of the feedstock to be used in the plant, whether it will be a 100% liquid or mixed feedstock. They are discussing the percentage of the feedstock,” al-Terkait says.
“The olefin III project will produce ethylene, PE, MEG, and if there is naphtha cracking, there may be production of polypropylene,” al-Terkait notes.
The cost of the project is estimated to be in the rather broad $3-5 billion.
Equate also plans to expand its production capacity.
“All expansion projects that we may conduct will be within the existing footprint of Equate, and mainly related to the optimisation of the current production unit to go to the maximum of the unit,” says al-Terkait. “Which means going up to the design capacity of the unit,” he adds.
While state-owned firms are boosting their operations in the country, privately held companies are seeking investment opportunities abroad.
Qurain Petrochemical Industries Company (QPIC) is progressing ahead with the development of the billion-dollar petrochemical complex in Saudi Arabia, with the appointment of IHS Inc. to advise on the planning and development of the scheme.
QPIC would lead the development of the integrated polyethylene terephthalate (PET) plant to be located at Al-Jubail industrial city in Saudi Arabia.
“The complex will benefit from paraxylene feedstock to be sourced from a local refinery and comprise purified terephthalic acid (PTA), polyethylene terephthalate (PET) and downstream investments to serve the local, regional and international packaging markets,” says Sheikh Mubarak Abdullah al Mubarak al Sabah, Chairman of QPIC.
The project is expected to produce 800 000 tonnes per year of PET and one million tonnes per year of PTA. “whereas part of the PTA will be offered to local markets, the bigger part to be transferred for downstream conversion into PET resin,” says al Sabah.
“The complex will support the downstream conversion industry in Saudi Arabia in the production of bottle performs, sheet and films for the packaging of food and consumer goods,” he adds.
In addition to regional investments, Kuwaiti companies are looking for investments in Asia, where KPC is joining hands with Sinopec to construct a $9 billion joint refinery and petrochemical project in China. Works on the project have already started, with expected start up by the end of 2014.
Kuwait became the second Arab oil producer to build a refinery in China after Saudi Arabia, which finally put a refining and petrochemical joint venture into operations in 2009 in neighbouring Fujian Province after more than 10 years of negotiations with the Chinese authorities.
In addition, KPC and Sinopec have agreed to draw up strategic plans in the both immediate and long-term.
“The immediate strategic plan will focus on enhancing crude oil trade volumes between the two companies and develop further the state-to-state relations, while the long-term strategic plan will call for new business opportunities between KPC and Sinopec,” says KPC Chief Executive Officer Farouk Al-Zanki.
In addition to organic growth, Kuwaiti petrochemical companies are also seeking for expansion through merger and acquisitions (M&A) opportunities outside of the Middle East because of gas feedstock shortage in the country.
“We are looking for M&A opportunities outside Kuwait, but it should be in the same product mainly olefin,” says al-Terkait.
Equate’s criteria does not include technology, but the company will look at production facilities which are economical to complement its current olefins, polyethylene (PE) and ethylene glycol (EG) portfoilio.
“Now is a good time for merger and acquisitions (M&A). The price of assets is getting really reasonable. It is now our new strategy” concludes al-Terkait.
