Al-Zour awards puts Kuwait in downstream spotlight

15 May 2008

The award of the five main packages on the 615,000-barrel-a-day (b/d) Al-Zour refinery has thrown Kuwait’s massive downstream investment programme into the spotlight as the country prepares to spend more than $30bn over the next four years to increase its refining capacity.

After years of living in the shadows of other, higher spending, Gulf oil producers, the state hit the headlines on 11 May when it confirmed the award of more than $10bn worth of contracts to build the grassroots Al-Zour facility, the largest single-phase refinery project every built.

As revealed exclusively by MEED in mid-April, the engineering, procurement and construction contracts were awarded mainly to South Korean contractors, with JGC Corporation of Japan and the US’ Fluor Corporation also winning work (MEED 18:4:08).

The total value of contracts announced by KNPC is just over $10bn, well below the $14.5bn budget. However, high-ranking sources involved in the project say that the figures announced are just baseline figures because each of the contracts has been awarded on a cost-reimbursable basis. The final lump-sum cost of each deal will not be known until the scheme is nearly complete.

“The final total is likely to be 30-50 per cent higher,” says a source. “The figures given are just indicators and will not reflect the final price. If that is the case the end cost will more precisely reflect the projected budget.”

Under the current bidding schedule, letters of intent are likely to be be issued to the successful contractors before the 25 May deadline for them to place their performance bond.

With Al-Zour awarded, contractors are now turning to KNPC’s Clean Fuels Project (CFP) to upgrade its Mina al-Ahmadi and Mina Abdulla refineries. The government recently announced that the CFP’s budget had increased to KD4-5bn ($14.8-18.5bn), which would make it larger even than the Al-Zour scheme.

Due to the delays in the Al-Zour selection process, KNPC has again extended the deadline by a month to 16 June for the submission of prequalification applications. Contractors must form consortiums before they submit prequalifications, but have been reluctant to do so until the winners of Al-Zour are announced (MEED 15:2:08).

Unlike Al-Zour, the lead on each of the three main packages on offer on the CFP is likely to be taken by European, US and Japanese contractors such as KBR, CBI Lummus, Bechtel, Technip, Snamprogetti and Chiyoda Corporation. This is primarily because the South Korean firms will already be burdened by the massive Al-Zour workload.

The Al-Zour and CFP schemes will increase Kuwait’s total refining capacity to more than 1.4 million b/d, just over half its total crude production capacity of about 2.6 million b/d.

Increasing refining capacity is not KNPC’s only target. The UK’s Amec is carrying out a feasibility study on the state’s fifth gas fractionation train at Mina al-Ahmadi to process Kuwait’s new-found gas deposits. An acid gas removal plant is also planned (MEED 11:4:08).

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