The official opening in November of the $2,000 million Equate polyolefin unit in the Shuaiba industrial area marks the start of a new era for the Kuwaiti economy as the memory of Iraq’s 1990 invasion slowly fades. Petrochemical Industries Company (PIC), the petrochemical development arm of Kuwait Petroleum Corporation (KPC), has finalised a long-term strategy for the sector which has now been submitted to KPC for approval.

Contractors and financiers meanwhile, are gearing up to bid for opportunities that will emerge in three more major petrochemical schemes likely to go ahead within 12 months.

The Equate project is a landmark for several reasons. It is the first joint venture in Kuwait between local and international investors. Union Carbide Corporation (UCC) has 45 per cent of Equate’s equity and an equal amount is held by PIC. Equate also reflects the US company’s strategy of developing a global network of petrochemical companies using its proprietary technologies that supply UCC’s international marketing system.

Equate is the first heavy industrial scheme in Kuwait part-financed by a public share offering. Bubiyan Petrochemicals Company, floated on the Kuwait Stock Exchange in 1996, has 10 per cent of the firm. The financing was innovative in other ways. The initial $1,200 million syndicated loan signed in September 1996 was amended in a refinancing deal completed a year later (MEED 26:9:97, Kuwait). There was an Islamic financing element.

Most important for Kuwait, Equate is concrete evidence of a new effort to diversify the economy away from dependence upon oil production and refining. It is the first major project to be completed since Iraq was driven from the country. To celebrate these facts, the plant was officially opened on 12 November by the emir Sheikh Jaber al-Ahmad al-Sabah. In attendance were Crown Prince and Prime Minister Sheikh Saad al-Abdullah al-Salem al-Sabah and first deputy premier Sheikh Sabah al-Ahmad al-Jaber al-Sabah. Oil Minister Issa al-Mazeedi was prominent throughout the event, hosting a lavish dinner for Halliburton chairman and former US Defence Secretary Richard Cheney and other top executives that night.

The facts about Equate are well-known. It has nameplate annual capacity to manufacture 650,000 tonnes of ethylene, 450,000 tonnes of polyethylene, produced using UCC’s UNIPOL process, and 350,000 tonnes of ethylene glycol, a raw material used to make a wide range of products including antifreeze. The Equate complex also accommodates a polypropylene unit which is 100 per cent owned by PIC. The whole plant is supplied with ethane from a neighbouring gas plant. Construction was done by a team of international firms: Fluor Daniel (managing contractor and infrastructure), Brown & Root (ethylene plant), Foster Wheeler Italiana (ethylene glycol plant) and Snamprogetti (polyethylene plant).

Equate products are being sold into international markets through Equate Marketing, a Bahrain-based unit that was taking orders for Equate-branded products before operations started. Robert Nelson, Equate’s president for marketing, says the company is principally aiming for Asian, Middle East and European markets. Charles Kline, Equate’s president and chief executive officer, says it is estimated the market for ethylene glycol is now about

9 million tonnes, and this will grow by

600,000 tonnes a year for the indefinite future. Polyethylene demand is expected to be sufficiently buoyant to absorb Equate’s output.

Less well-known is the cost to Equate of its gas feedstock. Equate executives and Kuwaiti officials decline to disclose how much the company is paying, but indicate the supply contract is flexible allowing adjustments. PIC chairman Abdellatif al-Haddad, who sits on the Equate board, says that Kuwait has a policy of pricing gas at world levels, but concessions are made initially. It is understood that Kuwait will apply discretion to any future projects and will avoid being tied into an inflexible pricing structure as has happened in Saudi Arabia, where methane and ethane will be priced at $0.75 a million British thermal units from 1 January.

The gas pricing system is the key incentive for other international firms to invest as heavily in Kuwait as UCC has. It will also determine what kind of future the Kuwaiti petrochemical industry faces. The next project is a world-scale methanol unit that is to be developed out of a redundant ammonia plant in the Shuaiba area. PIC plans to maintain 100 per cent control of the firm. The cost of converting the plant from ammonia production to methanol is understood to be about KD 40 million-45 million ($133 million- 150 million). Invitations to bid for the scheme are expected by the end of the first quarter of 1998.

A far more ambitious scheme will be a $1,500 million aromatics plant planned for a site adjoining the Equate complex. Negotiations between PIC and Amoco Corporation about a joint venture to build and operate the new unit have foundered, but Al-Haddad forecasts the new company will be established during 1998. Next on the list is a further polyolefin plant. This will differ from the Equate scheme in several respects, analysts say. Crucially, it will be fed using naphtha rather than ethane. The use of gas in petrochemicals will be made up for by converting power stations now fed by gas into burners of low-value fuel oil.

PIC, which is 100 per cent state-owned and plans to stay that way, declines to say how far the company will develop the Kuwait petrochemicals system. The key limiting long-term factor is that all Kuwait’s gas is produced in association with crude oil, which is constrained by the country’s OPEC allocation. Nevertheless, plastics and other petrochemical products will play a growing role in the Kuwaiti economy in the years ahead. Hopes and confidence are high.