KNPC To Invest $30B In Kuwait Refining Sector
Thursday, June 26, 2008

Kuwait National Petroleum Corp., the downstream arm of state-run Kuwait Petroleum Corp., will spend as much as $30 billion by 2012 on building a new refinery and upgrading two others, the company's chairman said.

Kuwait National Petroleum, also known as KNPC, will spend $15 billion each on building its new refinery at Al Zour and on upgrading and expanding the existing refineries at Mina Abdulla and Mina Al Ahmadi to produce environmentally friendlier fuels, Farouk Al Zanki told Dow Jones Newswires in an exclusive interview earlier this week.

KNPC is close to awarding five contracts worth at least $15 billion to Japanese and South Korean companies to build the country's fourth refinery, Al Zanki said, speaking at the KNPC headquarters at Al Ahmadi.

"The letters of intent will be issued very soon," he said.

The project covers the construction of a 615,000-barrel a day refinery at Al Zour that will mainly produce low-sulfur fuel oil for the country's power plants.

Al Zanki confirmed that SK Engineering and Construction Co., Daelim Industries, Hyundai Engineering and Construction Co. (000720.SE) and a team of Japan's JGC Corp. (1963.TO) and South Korea's GS Engineering and Construction Corp. (006360.SE), will receive the letters of intent, adding that the value of the contracts may eventually exceed $15 billion.

The amount "could rise depending on the progress of work and the situation of the global economy and inflation," he said.

ESCALATING COST

Kuwait last year decided to more than double the budget for the Al Zour project after bids came in at more than double the original $6.3 billion budget in December 2006 due escalating cost for contractors, raw materials, equipment and qualified labor.

Al Zanki said he still expected the project to be delivered on schedule.

"Plans for 2012 completion are still on track. All projects could face delays but we believe work on the fourth refinery will be accomplished by 2012," he said.

KNPC is also moving ahead with its clean fuel project, which involves modernizing the country's two largest refineries at Mina Abdulla and Al Ahmadi, Al Zanki said.

"Our clean fuel project is huge. The cost will also amount to about $15 billion and the objective is really to produce high-value products such as kerosene, naphtha and gasoline that is friendly for the environment," he said. "It will upgrade existing refineries and add new units."

The company has almost finalized the project's engineering designs, with construction tenders expected to be announced in August once necessary approvals are obtained, he added.

Kuwait, the fourth largest oil producer in the Middle East, presently operates three refineries at Mina Al Ahmadi, Mina Abdulla and Shuaiba.

The country's total refining capacity stands at about 930,000 barrels a day.

RETIREMENT OR UPGRADE

However, KNPC may shut down its 200,000-barrel a day Shuaiba refinery, Kuwait's smallest, although a final decision has yet to be made, Al Zanki said.

"We are mulling two options right now, either to send it to retirement or to upgrade it. We requested a study to see which option is more economically viable," he said.

While a decision is expected soon, shutting down Shuaiba won't happen before the fourth refinery at Al Zour is up and running.

Zanki, who took over at the helm of KNPC last November after heading Kuwait Petroleum Corp. for many years, said the main challenges facing Kuwait's downstream industry were lack of expertise, old technologies and environmental issues in particular.

"We are facing this concern as we move forward on projects. Both the fourth refinery and the clean fuel project are taking the environment into consideration, and we are trying to use technologies that limit green house emissions as much as possible," Al Zanki said.

Source: Dow Jones Newswires

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