KPC has a programme for investment in new energy technology that targets technologies of strategic importance to future demand for oil. We have allocated $100m to serve this purpose. Also, we are proceeding with establishing a research centre inside Kuwait to implement research and development plans.
We are planning to double our current overseas upstream production in the next five years to reach about 140 million barrels of oil equivalent a day as a result of new drilling discoveries, in addition to the impact of new acquisitions planned for that period.
As for downstream, currently we have two refineries and about 5,000 retail stations in Europe. We have a plan to grow our international downstream business by targeting new joint venture opportunities in the Far East that will use Kuwaiti crude.
Towards that we have already reached an agreement to build a grassroots refinery integrated with a petrochemicals complex in Vietnam with a capacity of 200,000 barrels a day (b/d), and we are in the negotiation stage with a Chinese partner to build a grassroots refinery in South China with a capacity of 300,000 b/d. This refinery is integrated with a petrochemicals complex including a 1 million tonne-a-day ethylene steam cracker.
As for petrochemicals, we have a joint venture partnership with Dow Chemicals in a purified terephthalate acid/polyethylene terephthalate (PTA/PET) business in Europe and an ethylene glycol business in Canada. We recently signed a memorandum of understanding with the US’ Dow Chemicals to form a 50/50 joint venture that will be a market-leading, global petrochemicals company, and the due diligence for this deal is under way. The expansion of petrochemicals opportunities overseas to capture market share, especially in growth markets such as Asia and the Middle East, through joint ventures are also being aggressively pursued.
Oil and gas production
KPC as a major oil producer plans to invest more than $25bn in upstream projects over the next five years. These investments will increase our production capacity to about 3.3 million b/d and we are planning to increase the production capacity to 4 million b/d by 2020. With regard to gas, we are concentrating heavily on our free gas production, which is expected to reach 600 million cubic feet a year by 2011, and we have ambitious plans to further increase that number in the long term.
Exploration and reserves replacement
KPC has set an aggressive drilling programme over the next five years in the various production areas in Kuwait to meet our production targets. With regard to the reserves replacement, our target is to reach a 100 per cent reserves replacement ratio, and several initiatives and programmes have been set to achieve that target.
Attracting foreign partners
KPC is heading towards substantial growth in all segments of the oil industry inside and outside Kuwait. We believe that our strategic directions are going to be challenging and require immense efforts on our part, as well as support from international oil companies (IOCs), to achieve them.
Since 1992, we have had technical relations agreements with IOCs in the domestic upstream area. These agreements are still working, but we are working to improve and strengthen such relations.
Also, we have several international oil and gas services companies providing their services and expertise in both upstream and downstream operations in Kuwait, and partnerships with both IOCs and national oil companies (NOCs) in our overseas upstream and downstream operations.
Meanwhile, we are looking to expand globally our upstream partnership with IOCs and NOCs, and we are targeting new joint venture opportunities in Asia in refining and marketing.
In the petrochemicals sector, we have signed a strategic alliance with Dow Chemical Company. Under the umbrella of this alliance, the first petrochemicals complex, Equate 1, was established in Kuwait and some petrochemicals assets in Canada and Europe were purchased. We also partnered with Dow in the Olefins II and Styrene projects, which are under implementation in Kuwait. Other endeavours are still taking place to seize petrochemicals opportunities in the high-growth areas of the world with foreign partners.
IOCs’ technology and expertise would certainly be of great benefit in developing our businesses with high efficiency, in order to reach the targeted growth strategy. Moreover, they would offer valuable learning opportunities to our national manpower.
Evidently, the Kuwaiti oil sector has numerous opportunities and we genuinely seek to build stronger relationships and closer communication channels with IOCs and NOCs all over the world to mutually benefit in running our business and moving forward.
Managing delays and cost increases in the current contracting environment
Programmes to manage the cost increases were initiated and we are focusing on partnerships and alliances with major IOCs and NOCs inside and outside of Kuwait to transfer expertise, knowledge and skills that facilitate implementing and managing huge projects, and to share the risks of implementing the projects.
Minimising delays in payment to international partners
We always have strong relationships with our partners so we have not experienced those kind of issues.
We are targeting to expand our refining capacity up to 1.4 million b/d by 2012/13 in Kuwait. We are in the process of implementing two major projects to increase our refining capacity and enhance the quality of our products and make it more environmentally friendly. These are the clean fuels project, which is a large-scale upgrade of the existing refineries in Kuwait to enable them to produce cleaner petroleum products that meet future fuel specifications, and the new refinery project, which is a grassroots refinery of about 600,000-b/d capacity to provide clean fuel to Kuwait’s power stations, with minimum sulphur content.
As mentioned earlier, we also have plans to expand our international downstream business, which will be integrated with petrochemical production. Therefore, we are targeting 600,000-b/d refining capacity in Asia in the next five years, focusing on countries with promising local market demand such as Vietnam, India and China.
Development of human resources
Having a skilled and motivated workforce is becoming increasingly important as a competitive advantage and is increasingly challenging. The human resources, learning and development departments are therefore also increasingly important.
The need for talent is growing as projects become more complex and management becomes more difficult. For example, production from increasingly difficult reservoirs is driving the need for the use of new technology, which can only be successful if people are trained on how to use this technology correctly.
KPC is therefore developing extensive training and development programmes based on the competencies needed for its businesses for its current and new employees. We are focusing on enhancing the technical skills of our employees in the areas related to our business challenges, such as reservoir management, gas and deep conversion.
KPC has a petroleum training centre that is used for training employees. The centre has obtained an ‘Investor in People’ certificate accredited by the UK government, the British Labourers Union and the Human Development Institute. It is the only such centre in the region to have obtained these international certificates.
KPC Training Centre has valid qualification to issue the UK’s NVQ (national vocational qualification) certificate for refinery operators, and KPC continues to provide about 30 grants and scholarships to the public every year to pursue BA, MA and PHD degrees.
KPC aspires to develop the skills and capabilities of the Kuwaiti manpower and reach the uppermost level of performance, through a series of training programmes. The number of external/internal training programmes planned for 2008/09 is 5,735.
Furthermore, KPC is using its different partnerships with IOCs and service companies to ensure knowledge and expertise transfer.
KPC acknowledge the importance of the environment, which is incorporated in its strategic directions. We have emphasised in our mission and vision that our role is to be proactively managing the environment, as well health and safety aspects related to KPC’s businesses, and to become a regional leader in health and safety performance.
For this purpose, KPC has developed and implemented throughout its subsidiaries a comprehensive health and safety management system, which is in line with international standards.
Furthermore, within the Kuwait government’s guidelines to KPC, we take environmental issues as a high priority. This means: minimize gas flaring; supply low-sulphur fuel oil for Ministry of Electricity & Water power stations; and supply unleaded gasoline and low sulphur gas oil for the local market.
As for gas flaring policy, our strategic directions call for adopting a zero-flaring policy for both onshore and offshore operations, targeting 1 per cent gas flaring. We have adopted this policy since 2002 and have been working since then to reduce flaring. We expect to reach the target in 2011. We are implementing various projects in this respect and investing heavily in achieving our target. These projects include emission reduction and zero ammonia.
Also, huge projects-related waste management and oil-spill management have been done, and we have studies and plans that are related to other areas such as carbon capture and storage.
Health and safety
Besides implementing the health and safety management system in KPC and its subsidiaries, which is a step towards our target to become a regional leader in health and safety performance, many policies have been set and many programmes have been and are being done in line with international standards to improve the health and increase the health and the safety awareness of our employees – such as the occupational health programmes, office and home safety programmes and periodic medical checking.