The new plant is just one element of a multi-pronged strategy to modernise the local hydrocarbons sector that will ultimately result in a doubling of the state’s crude output capacity to 4 million b/d by 2020. Producing low-sulphur fuel oil (LSFO) to meet future power generation requirements, the refinery will substantially increase the state’s refining capacity to more than 1.3 million b/d, as well as reducing the notorious smog produced by its oil-burning power stations.
‘Improving the environment was one of the key objectives of the new refinery,’ says KNPC’s executive assistant to the managing director for projects Hatem al-Awadi. ‘Our own environmental regulations dictate that sulphur content must be less than 1 per cent, but our three existing refineries [at Shuaiba, Mina al-Ahmadi and Mina Abdullah] don’t meet this target.’
Despite containing just below 10 per cent of the world’s proven oil reserves, Kuwait produces very little natural gas, and for years the state has had to rely on oil-fired power generation. Unlike other refineries being built in the region, Al-Zour will not initially be export-oriented. However, in the event that a source of gas is secured – either through a gas supply deal with one of the state’s neighbours or through utilisation of associated gas – the refinery will be able to switch easily from fuel oil to export crude.
‘The ability to switch if necessary is a key facet of the new refinery,’ says Al-Awadi. ‘Of course we prefer to burn gas, so if we find a source, making the transition will be easy. Will we find a source? Yes, I believe either the import deal with Qatar or an agreement on the offshore Dora field with Iran can happen soon.’
Originally, the refinery was planned to have capacity of 450,000 b/d, and to be built in the Shuaiba industrial complex, adjacent to existing facilities. However, after completion of the front-end engineering and design (FEED) work, carried out by the US’ Fluor Corporation, it was decided to increase capacity to meet the requirements of the atmospheric residue desulphurisation (ARDS) unit. The decision to relocate the refinery further south in Al-Zour was taken in response to political pressure to move the plant further from the capital and its suburbs.
The relocation will be costly. Unlike Shuaiba, where all the necessary infrastructure is in place, Al-Zour is almost entirely greenfield. ‘Shuaiba was better economically, but the area was too small – it was impossible for it to fit,’ says Al-Awadi. ‘Locating the refinery at Al-Zour will cost us an extra KD 200 million [$690 million] as it will require extra export facilities and pipelines to be built, but it will be independent and we will be able to carry out a better design.’
Unusually for Kuwait, the project has attracted strong interest from engineering, procurement and construction (EPC) contractors, which normally give the state a wide berth. Almost 25 companies are understood to have prequalified for the handful of EPC packages that will be tendered in the first quarter of 2006, including several major firms which have not bid for work in the state for several years.
It is not hard to see why. Building one of the world’s largest stand-alone oil and gas projects looks good on any curriculum vitae, while the local hydrocarbons sector over the past two years has gained a reputation of not letting rising costs get in its way.
However, KNPC is keen to ensure that tier-one contractors do not team up to focus on one particular package, leaving th