More than $75 billion of investment is earmarked for Kuwait’s energy sector in the next five years, but will low oil prices spook those in charge?
In January, Kuwait Oil Company (KOC) handed a contract worth more than $4 billion to develop heavy-oil fields in the north of Kuwait to a consortium led by British company Petrofac. The contract is part of the first phase of Lower Fars heavy-oil development programme and covers the construction of a central processing facility and associated infrastructure.
The size of the contract is significant for those involved, but of wider significance is the fact that it was awarded at all. Oil was trading at below $50 a barrel for much of January, its lowest level for six years, but the slide in prices which began in June last year does not seem to have disrupted the investment plans of Kuwait Petroleum Corporation (KPC) or its subsidiaries. Hashem Hashem, chief executive officer of KOC, which is in charge of upstream activity in the country, said in October that his firm’s five-year plan involved investment of KD12 billion ($40.7 billion).
“The one part of the spending plan that could come under review, as it has in some other GCC states, is petrochemicals projects”
In April, Mohammad Ghazi Al-Mutairi, CEO of Kuwait National Petroleum Company (KNPC), which is focused on downstream activities, told an oil and gas conference that his company planned to invest $35 billion over the coming five years. For now at least these plans appear to be on track, and are leading the way for overall state spending. “The major projects that have progressed recently are in the energy sector and financed by the national oil company,” says Paul Gamble, director of the sovereign ratings group at Fitch Ratings.
Lower Fars is just one of several large projects that Kuwait is undertaking in an effort to ramp up its oil output. The country’s production capacity was around 3 million barrels a day in 2013, but it wants to increase this to 4 million b/d by 2020. Hitting that target will require work on many fronts, including the use of enhanced oil recovery techniques, increasing the output of reservoirs that are already being drilled, developing new, deeper reservoirs, as well as developing its heavy-oil potential.
As with Lower Fars, the cost of these projects is often large. In August 2014, KOC finalised deals to build three gathering centres in the north, as part of a plan to increase oil production in that part of the country from 700,000 b/d to 1 million b/d by 2019. The combined cost of the deals, which were signed with Petrofac, India’s Larsen & Toubro and Dubai-based Dodsal Group, was $2.2 billion.
In the downstream sector, the major schemes include the Clean Fuels Project (CFP), which will upgrade and expand the refineries run by KNPC at Mina Abdulla and Mina Al-Ahmadi. Contracts worth a total of $11.5 billion were signed with consortiums led by Japan’s JGC Corporation, US-based Fluor Corporation and Petrofac in April 2014. The work is due to be completed in 2018 and will see the total refining capacity climb by 264,000 b/d to 800,000 b/d.
Kuwait is also planning to build a new, 615,000 barrel-a-day refinery at Al-Zour, to the south of Kuwait City. This project has been on the drawing board for more than a decade but may now finally be moving ahead. The Supreme Petroleum Council gave the green light to the project in early 2012 and a five-year, $528 million project management consultancy contract was awarded to the UK’s Amec in December that year. The main construction contracts are expected to be awarded in the first half of this year.
On top of that, there are also plans for a fifth natural gas train at Mina Al-Ahmadi and a new liquefied natural gas (LNG) import terminal. The LNG terminal is due to be operational by 2020, with capacity of 1,500 million cubic feet per day of gas.
All this will help to meet rising domestic energy demand—Kuwait has had to import natural gas since 2009—but the country is also hoping that the likes of the CFP will give it access to a broader customer base too.
However, despite the bravado about pushing ahead while oil prices are low, some schemes could yet be delayed. Kuwait has a well-earned reputation for letting deadlines slip when it comes to large projects. The price pressure has already put on hold projects elsewhere in the Gulf, most notably the Al-Karaana petrochemicals scheme by Qatar Petroleum and Shell.
Another KPC subsidiary, Petrochemical Industries Company (PIC), also has some major projects in the pipeline, including a third olefins cracker which would produce 1 million tonnes a year of polyethylene and up to 600,000 tonnes per year of polypropylene. If it goes ahead it is likely to be built close to the new Al-Zour refinery, but planning is still at an early stage. “The one part of the spending plan that could come under review, as it has in some other GCC states, is petrochemicals projects,” says Giyas Gokkent, senior economist at the Washington-based Institute of International Finance. “Could they also be delayed or postponed in Kuwait? They could be.”
Aston Martin’s $240,000 Rapide
Review: Porsche’s 911 Turbo Cabriolet
Elvis’s Omega Watch Fetches $1.8m in Auction
Driven: 2019 Aston Martin DB11 Volante
The Man Who Spent $1m to Update a Classic Ferrari
Copyright: UMS International Fz LLCTheme