Kuwait to sink $100bn in energy sector over 5 years

Published May 27th, 2013 - 09:38 GMT
(Getty Images photo)
(Getty Images photo)

Kuwait is planning to invest $100 billion in energy projects over the next five years, much of it on upstream projects at home and abroad, as it revealed plans to build a permanent floating LNG storage and regasification terminal to cope with rising demand for gas in the Organization of the Petroleum Exporting Countries (Opec) member state.

The emirate is currently producing 3 million barrels per day (mbpd) of crude oil and plans to increase capacity by an additional 1 mbpd by 2020 through enhanced and improved oil recovery, Farouq Al Zanki, former CEO of state-owned Kuwait Petroleum Corporation says.

“Achieving our oil production growth target of nearly 1 mbpd by 2020 and maintaining it through 2030 depends on the successful implementation of advanced technology improvements in crude and enhanced oil recovery,” Al Zanki says.

“Furthermore, our spending...in less than five years will average $100 billion, of which 60 per cent will be spent in upstream projects expansion inside and outside of Kuwait.

This is in addition to the escalating operation costs with time as our fields mature.” Al Zanki says that in order for Kuwait to achieve its targets, it would need to bring in foreign oil companies but he did not say whether involving international oil companies in the emirate would be approved by Parliament, which has in the past blocked attempts to bring in oil majors to help develop Kuwait’s heavy oil fields in recent years.

“These challenges cannot be met and overcome alone by ourselves.

We believe that by establishing partnerships with international oil companies on a one to one basis, we can derive the technological innovations and deliver our production growth,” he says.

Several other major energy projects have been held up as a result of constant political wrangling between Parliament and a succession of governments, preventing any movement on such megaprojects as a planned 615,000 bpd refinery and a clean fuel project.

Political life in the Gulf state has been in virtual paralysis as a result of these disputes, which came to a head in 2006.

The Kuwaiti government has had to resign nine times and Parliament has been dissolved on six occasions since then.

Kuwait is scheduled to hold snap polls on December 1, which almost all opposition groups have announced they will boycott.

Some opposition members have called for a civil disobedience campaign that they say would also target the vital energy sector – though there has been no formal call for action yet, sources in Kuwait City says.

Kuwait is producing an estimated 2.8 mbpd, according to the latest Platts survey of Opec‘s output.

The emirate has set a strategic goal of boosting its production capacity to 4 mbpd by 2030, the bulk of which will come from heavy oil developments in the north.

Current oil production capacity is put officially at 3.1 mbpd.

But while Kuwait is a major oil producer holding 6 per cent of global crude oil reserves, it remains short on gas and has had to resort to imports of LNG in order to make up the shortfall until it can boost its natural gas production.

However, Kuwait National Petroleum Co (KNPC), KPC’s downstream division, says that it now planned to replace a temporary floating LNG facility offshore the Mina Al Ahmadi oil terminal with a permanent facility, suggesting that Kuwait does not expect to meet all domestic demand by developing its indigenous gas reserves.

KNPC spokesman Mohammed Al Ajmi says that three companies have been asked to submit a feasibility study to build a permanent floating LNG storage and regasification terminal.

He says KNPC hopes to commission the plant by 2017.

Ajmi says the permanent facility would replace a temporary floating LNG terminal at the Mina Al Ahmadi oil terminal and would not be a second regasification terminal.

“KNPC issued a tender October 21 for three pre-qualified companies to submit bids for a feasibility study to determine specifications and value and benefit of building a permanent liquefied natural gas storage and regasification terminal to replace the existing temporary one,” Ajmi says.

“We are fast-tracking this project,” he says.

Bids closed on December 2 and the contract for the feasibility study was awarded.

He identified the pre-qualified companies as: Excelerate Energy of the US; Bermuda-registered Golar LNG; and Norway’s Hoegh LNG.

“We want to commission the project in 2017-2018.

The consensus among industry experts at KNPC is that we need the project but the feasibility study has to be done to determine where it will be put, how much to spend on it,” Ajmi says.

The new terminal’s capacity will be 550,000 million cubic feet per day (mmcfd), rising to 700,000 mmcfd at peak demand, which in Kuwait runs seven months of the year.

The existing terminal, which was built by Excelerate, has capacity of 500,000 mmcfd.

“The consensus among KNPC is that the terminal should be at Mina Al Ahmadi,” he says.

“We are looking for commissioning in 2017 but we need it before 2018.” “We cannot release a big tender until we do the feasibility study.

The larger tender for constructing the pier will depend on the feasibility,” Ajmi says, adding that “everyone is in agreement that the new pier will be built but we have to go through the steps of a feasibility study.” Kuwait started importing LNG in 2009 to meet soaring demand for natural gas for power generation, desalination and a growing industrial sector.

Meanwhile, KNPC plans to invest KD10.7 billion ($32 billion) in major projects in the years to 2019.

KNPC acting corporate planning manager Khaled Al Khayyat says that the projects will include raising Kuwait’s refining capacity to more than 1.4 mbpd from 936,000 bpd at present.

This will involve delivering the long-planned clean fuel and new refinery projects, he says.

Its expansion plan will also include building a permanent LNG import facility in phases with ultimate possible capacity of 3 billion standard cubic feet a day (bscfd).

The temporary facilities at present can handle 500 mscfd.

He says the company also expects to raise the number of its employees to 7,500 from 5,800 at present.

At the same time, Kuwait Oil Company (KOC), the upstream division of the Kuwait Petroleum Corporation (KPC), plans to invest about $40 billion in five years from 2013, a senior executive says.

Mazen Al Sardi, KOC deputy managing director for technical services, says the move would raise Kuwait’s sustainable oil production capacity in one of the world’s largest upstream crude oil programmes.

He adds that bids will be invited to three major gathering centres in northern Kuwait in the first quarter of 2013.

Al Zanki says that Kuwait aims to lift sustainable oil production capacity by 1 mbpd in 2020-30. Kuwait is producing about 3 mbpd at present.

Kuwait is likely to keep producing around 3 million barrels of oil a day over the next few months due to strong demand, the head of state-run Kuwait Oil Company (KOC) says in September.

Opec price dove Kuwait raised its production by around 600,000 bpd from July to around 3 million of crude oil in August.

The producer is likely to keep pumping around current levels of 3 mbpd due to more demand, KOC director Sami Al Rushaid says.

Oil output by the big three Gulf producers rose by around 400,000 bpd in August from July as the sharp rise in Kuwaiti output outweighed cuts by Saudi Arabia and the UAE.

Meanwhile, Vietnam has signed a deal with firms from Japan and Kuwait to build an oil refinery complex worth nearly $9 billion.

The Nghi Son refinery, which is due to start operating by 2017 in Thanh Hoa province, about 200 kilometres (125 miles) south of Hanoi, will turn Kuwaiti oil into petrol and other petroleum products.

It will be able to process 10 million tonnes of crude oil a year, the government says.

State-owned PetroVietnam will own a 25.1-per cent stake in the joint venture while Japan’s Idemitsu Kosan and Kuwait Petroleum International will each hold 35.1 per cent.

Mitsui Chemicals of Japan will own the remaining 4.7 per cent.

KPC’s unit Kuwait Petroleum International (KPI) established the joint venture in April 2008 with PetroVietnam, Japan’s Idemitsu Kosan and Mitsui Chemicals.

Speaking at the signing ceremony, Vietnamese Prime Minister Nguyen Tan Dung hailed the project as “very important” for country’s economic and social development, according to a government statement.

Al Zanki says that the project was very important to Kuwait and “they have done and will do everything to make the project happen.” The Nghi Son refinery will be Vietnam’s second.

The country’s first refinery Dung Quat – which cost about $2.5 billion and has a capacity of 6.5 million tonnes of crude a year – opened in central Vietnam in 2009.

Back home, KNPC has awarded UK-based AMEC a $528 million contract to build the emirate’s fourth refinery with a capacity to process 615,000 bpd, AMEC announced on its website.

Once completed in 2018, the engineering, project management and consultancy will have constructed the biggest refinery in the Middle East and provided 300 jobs for AMEC employees, the company statement says.

The new greenfields plant “will be a key part of Kuwait’s long-term strategy, producing cleaner fuels to meet its electrical power generation growth and demand while adhering to the latest environmental standards,” the statement says.

The long-awaited award is a welcome advancement to Kuwait’s oil sector, industry executives say.

In 2009, Kuwait’s opposition-dominated parliament halted the overall refinery project, then estimated at $16 billion, after it objected to the way KNPC had handled the tender and economic assessment.

A refinement of the tender, the ironing out of bureaucratic roadblocks and winning political favor for the project were some of the obstacles KNPC faced in moving the venture forward, sources say.

Senior oil executives have estimated the total cost of the project at Dinars 4.5 billion ($16 billion), and earlier executives says the contract would most likely be a lump-sum, turnkey type.

Kuwait aims to boost its refining capacity from 936,000 bpd to 1.415 mbpd by 2016, a goal outlined in the state’s current four-year development plan.

But the state also needs to build the fourth refinery to provide low sulfur fuel to its electrical power stations, desalination plants and a growing petrochemical industry.

The new plant is envisioned to also produce 375,000 bpd of high-quality low sulfur oil products for export, including naphtha, benzene and kerosene, according to industry sources.

Kuwait’s largest refinery, Mina Al Ahmadi, processes 466,000 bpd, Mina Al Abdullah processes 270,000 bpd and Shuaiba processes 200,000 bpd.

The new refinery project is expected to include a total of five bid packages: two to build and equip the two main processing plants; a third for construction of a storage tank farm; a fourth for installing utilities, wastewater plants, general offsites and buildings; and a fifth for the construction of marine facilities, sources say.

KNPC is also embarking on another refining megaproject, a clean-fuels project that will entail upgrading Mina Al Ahmadi and Mina Al Abdullah.

KPC is a state-owned integrated energy company, that has operations throughout oil and gas value chain including, exploration, production, development, refining and marketing, and transportation business activities related to petroleum products.

KNPC ...investing $32 billion Its significant focus on research and technology has enhanced its business operations.

Moreover, its supply agreements with Ethiopian Petroleum Enterprise (EPE) and Pakistan State Oil Company (PSO) coupled kwith prospects in northsea would enhance its operations further.

However, volatility in oil and gas prices, rising capital cost and exploration and development risks would affect its operations.

KPC is one among the world’s largest integrated oil companies.

The company operates through its subsidiaries in all aspects of the hydrocarbon industry, from onshore and offshore upstream exploration through production and refining, marketing, retailing, petrochemicals, and marine transportation.

KPC’s domestic upstream operations are carried out by its subsidiaries KOC and Kuwait Gulf Oil Company.

Its subsidiary Kuwait Foreign Petroleum Exploration Company (Kufpec) carries out upstream exploration and production activities in regions outside Kuwait.

The company’s domestic downstream operations includes, refining, gas liquefaction, chemicals and fertilisers, petrochemicals, marine transport and aviation fueling.

Its domestic refinery operation is carried out by KNPC, which has three integrated refinery.

Petrochemical Industry Company, a subsidiary of KPC, operates the domestic petrochemical complex.

Kuwait Oil Tanker Company operates KPC’s marine transport segment and Kuwait Aviation Fuelling Company operates its aviation fueling segment.

Its international downstream operations includes, crude oil refining, petrochemicals and international marketing.

Kuwait Petroleum International, its international subsidiary operates the international refinery business.

Moreover Oil Services Company, its subsidiary provides support services to its operations such as fire, security and consultancy.

Oil Development Company oversee and regulates the development of the northern oilfields, known as Project Kuwait.

The company’s integrated business operations has enabled the company to optimise its operations.

The company’s presence in various countries where there is demand for its products helps it expand its business further and increase its revenues.

The company operates in various location in the world including, Kuwait, Pakistan, India, the US, China, Japan, Singapore and the UK.

The operations of the company are strategically located either near the raw material or an important market for the product.

The company operates in the US through its office in Houston, Texas, which is known as oil capital of the world, and in emerging economies like India and China, where the demand for oil is on the higher side.

The worldwide presence of the company gives it strategic advantage over its competitors. The company has a significant focus on research and technology.

In 2010-2011, the company was conducting a feasibility study for establishing a research centre for the Kuwaiti oil sector, that would provide research services in the fields of exploration, production, refining and manufacturing.

The aim of this project is to enhance and raise the quality at the technical and environmental levels in the oil sector.

It has completed a preliminary study on means to utilise solar energy technologies in order to diversify the oil sector’s sources of energy.

Moreover, the company is working to implement three research projects with Kuwait University at an overall cost of KD 0.43 million.

Also the company has received approval for five new research projects with Kuwait Institute for Scientific Research for the benefit of KNPC at an overall cost of KD1.5 million.

In 2010-2011, the company has signed a memorandum of understanding (MoU) with Jogmec of Japan for cooperation in the field of extraction and injection of carbon dioxide and its uses in enhancing oil production.

In 2010-2011, it has increased its investment in the new energy investment funds by $ 6.5 million, bringing the total amount invested in the new energy programme to $ 37 million.

The company’s significant focus on research and technology has enhanced its position in the competitive market.

In January to April 2012, the company has signed two new contracts with Ethiopian Petroleum Enterprise (EPE) and Pakistan State Oil Company (PSO) for the supply of jet fuel and diesel.

The company’s contract with EPE is for the supply of Jet Fuel and Diesel for a period of three years starting from January 2012 to December 2014.

This agreement will cover the majority of the republic of Ethiopia requirement for Jet Fuel and approximately one third of their national Gasoil requirement with potential to increase in the future.

This contract with EPE, is part of the company’s strategy to open a new market outlet in the African continent.

EPE is the national oil company of the republic of Ethiopia and is the sole entity authorised to import petroleum products to fulfill the national demand of oil products.

Ethiopia is considered a safe and promising market in the East African continent with high growth rate and a sustainable outlet for Kuwait hydrocarbon in the future.

KOC ...investing $40 billion In March 2012, the company signed an contract extension with PSO for the supply of diesel for a period of three years.

KPC is one of the major suppliers of the Islamic Republic of Pakistan for over three decades and is considered the largest contract for supply of diesel covering over 90 per cent imports for diesel into Pakistan.

The long term supply contracts with Ethiopia and Pakistan could enhance its operational base and improve its revenue.

In 2012, Kufpec, its wholly owned international upstream subsidiary entered into a farm-out agreement with Enquest.

In this agreement, EnQuest will farm out a 35 per cent interest in EnQuest’s Alma and Galia oil field developments (‘Alma/Galia’) in the UK North Sea to Kufpec.

Kufpec will invest a total of approximately $500 million, comprised of a $182 million development carry for EnQuest and Kufpec’s direct share of the development costs.

The Alma field, was the first oil field to be developed in the UK North Sea.

Alma was previously abandoned at a relatively low water cut of 70 per cent, using the technology available at the time.

Kufpec anticipates its first production from this field in Q4 2013, with peak gross production of over 20,000 boepd.

Alma/Galia is estimated to contain a net proved and probable reserve (2P) of 29 mmboe.

The development will consist of 7 production wells and 2 water injection/disposal wells connected to a FPSO vessel.

The development plan is designed to be capable of processing high water cut levels up to 95 per cent.

The estimated redevelopment cost is expected to reach $1 billion.

In December 2012, Kufpec agreed to acquire an additional 34.3 per cent interest in the Yacheng gas field in the South China Sea from British Petroleum.

After the interest acquisition Kufpec’s interest in Yacheng gas field increase to 49 per cent.

New farm- out agreement coupled with interest acquisition agreement could further expand the company’s upstream business operations.

KPC’s domestic refining and marketing focus includes, to operate domestic refineries in an effective and flexible manner that is in line with changes in international oil markets and achieve maximum added value; to meet international markets demand of petroleum products and upgrade petroleum products quality to meet the future required product specifications and to develop and upgrade petroleum product export facilities.

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