Korean firm in line to build Kuwaiti gas facility

05 October 2009

SK Engineering submits lowest price of $725m for deal to enhance Kuwait’s gas distribution network

South Korea’s SK Engineering & Construction has emerged as the frontrunner for the biggest oil and gas construction deal to be completed in Kuwait for four years after submitting the lowest price in a September bid round.

SK Engineering submitted a bid of KD208m ($725m) to state energy giant Kuwait Oil Company (KOC) on 29 September for the contract to build a new gas booster station in northern Kuwait. SK’s price was about 5 per cent lower than the second lowest bid of KD218m submitted by the UK’s Petrofac.

If KOC awards the contract it will be the biggest deal since South Korea’s Hyundai Heavy Industries won the $1.24bn contract to build a new crude oil export terminal at Mina al-Ahmadi in the fourth quarter of 2005.

Although five $1bn-plus construction contracts were awarded to build a new refinery at Al-Zour in April 2008, they were cancelled in March 2009 after Kuwaiti parliamentarians called into question the way they had been awarded (MEED 16:3:09).

The use of a ‘cost-plus’ contract structure, where the contractor charges the client directly for all of its manpower and materials costs and adds on its profit margin afterward, was at the centre of the debate.

A source close to SK says that similar issues are not likely to come into play with the booster station, which is being negotiated on a classic lump-sum turnkey basis, although it could be as long as six months before the contract is formally awarded.

“This is a pretty easy contract to review,” the source says. “The contract structure and the kind of deal it is means that there won’t be any real conflict over the project. With that said, KOC has to review the bids, the prices and the technical details and that could take anywhere up to six months.”

The contract covers the construction of a booster station, BS-132, with a single gas train of 250 million cubic feet a day (cf/d), including high and low pressure compressors, each with a separate gas turbine driver and a gas dehydration unit.

Booster station 132 will work in tandem with an existing booster station 131 (BS-131), drawing gas from gathering centres 15, 23, 24 and 25, and redistributing it countrywide.

The contract also involves enhancing booster station 131 by installing low pressure and high pressure separators and flaring systems.

Other firms bidding for the deal included the South Korean firms GS Engineering & Construction, with a bid of KD232m, Daelim Corporation with a bid of KD233m; and Italy’s Saipem, with a bid of KD234m.

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