Kuwait says shrinking margins will not affect New Refinery Project

25 November 2014

CEO of state refiner says volatile oil prices could result in future schemes being put on hold

State-owned downstream operator Kuwait National Petroleum Company (KNPC) has warned that some of its projects may be put on hold over coming months due to oil market volatility.

Significantly reduced refining margins would lead to some schemes in the pre-tender phase seeing delays, said Mohammad Ghazi al-Mutairi, CEO of KNPC, speaking in an interview on the sidelines of the MEED Kuwait Projects Conference held in Kuwait on 23-25 November.

“The biggest challenge [for KNPC] going forward is the stability of the market,” he said. “What is very important is both the crude market and the refined product market.

“There will be a review. There will be screening for projects. [If refining margins shrink], the more important projects will [still] move [ahead]. The less important projects will see delays.”

The review of projects will be an ongoing process, according to Al-Mutairi, with judgments on project approval being made on an individual basis with reference to refining margins.

KNPC’s strategically important schemes, such as the Clean Fuels Project (CFP), the Al-Zour refinery and plans to build a new liquefied natural gas (LNG) import terminal in the Al-Zour area, will not be reviewed or put on hold.

“The government is committed and KNPC is committed, and we are moving forward with the LNG import facilities and the Al-Zour refinery,” said Al-Mutairi.

Global oil prices have lost nearly 30 per cent of their value since peaking in June. The slump is one of the biggest price drops in years and more volatility is expected in the wake of the upcoming meeting of oil producers’ group Opec, due to take place on 27 November.

The latest warning on projects from KNPC comes days after Saudi investment services company Jadwa Investment warned of increased pressures on the global refining sector due to increased refining capacity in emerging markets, shifting demand growth and the US boom in shale gas.

“India and China have seen a huge growth of refining capacity, which has contributed to creating a global surplus, leading to decreasing refining margins and utilisation rates,” Jadwa Investment said in a report released earlier in November.

“Regardless of the apparent oversupply of global refining capacity, a plethora of refining projects will add about 7 million [barrels a day] b/d of highly complex capacity between now and 2020.“

KNPC currently operates three refineries. The Shuaiba refinery is currently due to be decommissioned, while, as part of the CFP, the Mina Abdullah and Mina a-Ahmadi refineries are due to be upgraded and expanded, bringing their joint refining capacity up to 800,000 b/d.

The Al-Zour refinery project will see a new 615,000-b/d facility built on a greenfield site.

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