Kuwait delays Al-Zour refinery decision

06 April 2010

Kuwait National Petroleum Company to reassess fourth refinery costs

Kuwait’s Supreme Petroleum Council (SPC) has delayed the decision to issue fresh tenders for contracts on the $15bn Al-Zour refinery, also known as the fourth refinery project.

The SPC, which is the highest decision-making body in the country’s hydrocarbons sector and formulates the country’s general petroleum policy, has delayed the decision while it waits for new cost estimates, a source close to the project tells MEED.

State-refiner Kuwait National Petroleum Company (KNPC) has also decided not to tender a feasibility study for the refinery as expected.

MEED reported in February that the SPC and members of KNPC met on 22 February to discuss the fate of the Al-Zour refinery. A decision was expected to be made by the end of March (MEED 16:2:10).

In March 2009, the SPC told KNPC to cancel five engineering, procurement and construction (EPC) contracts to build the refinery, after parliamentarians questioned the way the contracts had been awarded a year earlier. No construction work had begun when the deals were cancelled (MEED 16:3:09).

Since then, KNPC has been planning to retender the deals but cannot do so without the SPC’s approval. With EPC and material costs as much as 20 per cent lower than in early 2009, the refiner stands to capitalise on the delay.

Once approval is given KNPC could take a further three months to prequalify contractors for the EPC contracts and prepare tender documents. It will take at least another four months for contractors to prepare and submit bids on the deals.

The US’ Fluor Corporation was awarded the project management services (PMS) and front-end engineering and design (Feed) contracts for the refinery in 2004.

The refinery was originally designed to refine about 615,000 barrels a day (b/d) of heavy crude oil. However, Kuwait’s projected production of heavy crude may not satisfy this demand, and KNPC may change these plans to allow it to refine lighter crude oils.

Meanwhile, Kuwait Oil Company (KOC) has drastically cut its heavy oil production target to only 250,000 b/d, according to sources in Kuwait. It had previously targeted as much as 900,000 b/d by 2020.

Kuwait has an estimated 13 billion barrels of heavy crude oil reserves, located primarily in the north of the country.

As part of its plans to develop heavy oil production facilities at its northern oil fields without assistance from international oil companies (IOCs), KOC invited local and international firms on 21 March to prequalify for an estimated $2bn deal to design, build, operate and maintain early production facilities.

KOC had originally planned to develop the fields with the help of an IOC under its long-stalled Project Kuwait scheme. The company signed a heads of agreement with the US’ ExxonMobil to work on the fields in October 2007, although no progress has been made since.


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