Kuwait takes action on Al-Zour

16 July 2015

Budget decision increases confidence in the Kuwaiti oil sector

At Kuwait Petroleum Corporation’s (KPC) meeting on 14 July board members voted to approve the request from the state-owned downstream operator Kuwait National Petroleum Company (KNPC) to increase the budget of the Al-Zour New Refinery Project by $2.8bn.

The decision comes at a crucial time for the multibillion-dollar scheme, which has struggled to see progress over 2015 due to budget problems and a deterioration in relations between the CEO of KPC, Nizar Mohammad al-Adsani, and the oil minister, Ali al-Omair.

The collapse of oil prices over the second half of 2014 has slashed government revenues, increasing pressure to reduce spending on government projects, and over the first half of 2015 a move by Ali al-Omair to increase his influence over KPC by personally appointing members to its board led to a stand-off between himself and KPC CEO Nizar Mohammad al-Adsani.

As a result of these problems none of the five main packages of the Al-Zour New Refinery Project have been awarded, despite the initial bids for the packages being submitted more than six months ago.

The delays to this flagship project have had a hugely negative impact on sentiment, decreasing confidence in the Kuwaiti officials that are responsible for the management of its oil and gas sector.

The uncertainty that has surrounded the project has caused anxiety amongst the many companies that have a vested interest in the scheme going ahead, with some even planning for the possibility of layoffs if the delays continued, according to industry sources.

KPC’s relatively swift decision to make extra funds available for the Al-Zour New Refinery Project has sent a strong message to those with a stake in the project and helped to ease concerns about delays.

Both the CEO of KPC, Nizar Mohammad al-Adsani, and Oil Minister Ali al-Omair sit on the board of KPC and their cooperation was needed to give the budget extension the green light.

The outcome of the board meeting on 14 July shows that, though there may continue to be tensions between these two key figures in Kuwait’s oil sector, they are still willing to work together to push key strategic projects forward.

Many industry insiders have been pleasantly surprised by the decision, which follows the disastrous retender of the project’s tankage package.

The retendered package, known as package four, came back with a low-bid worth KD68m ($225m) more than the original low-bid.

“The failure of the retender may have served as a wake-up call for Kuwaiti oil officials and spurred them on to take action,” said one industry source.

“It sent the message: delays won’t make things cheaper. The longer this is dragged out for, the more it is going to cost.”

Though approval is still needed from the Supreme Petroleum Council (SPC), the government agency charged with oversight of the country’s energy sector, the quick decision from the KPC board has created optimism that the SPC decision will follow over coming weeks.

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