Quality first in plans for steady growth

23 February 1996

EXPAND and diversify are the watchwords for the oil industry in Kuwait. Current crude production of 2 million barrels a day (b/d) is in line with Kuwait's OPEC quota, but plans are underway to boost sustained production capacity to 3 million b/d by the start of the next century.

Domestic refineries are also being upgraded while new joint venture refining projects in Europe and Asia will provide secure outlets for Kuwaiti crude in the future. In the petrochemical sector, work has begun on the new Equate complex and plans are being drawn up for a $1,000 million aromatics plant.

'We expect by 2005 that the call on Kuwaiti crude will be 3 million b/d,' says Abmad Al-Arbeed, executive assistant managing director for planning and development at Kuwait Oil Company (KOC). 'We can maintain that rate with our existing reservoirs.' Last summer KOC suspended its onshore exploration work to concentrate on a KD 38 million seismic survey which will provide a more definite picture of the future potential of oil resources. Survey work is due to begin in February. The US' Western Geophysical is to conduct a two-dimensional survey of onshore and offshore tracts over three-five years. The UK's Geco Prakla will take about three years to do a three-dimensional survey, the first ever in Kuwait. In the Neutral Zone, the US' Texaco and KOC have begun a three-dimensional survey of the Wafra oil field and the Humma prospect with a view to doubling production from the area. 'Once we get the data from the surveys we will be in a better position to do more exploration.' Arbeed says.

Forging partnerships with foreign oil companies is another priority for KOC. In July 1992, it signed a technical services agreement with the UK's British Petroleum Company (BP) for assistance with a number of oil field studies. A similar agreement was signed with the US' Chevron in August 1994 and studies of Rawdatain, Sabriyah, Burgan, Umm Gudair and the Western oil fields were completed in 1995. KOC and BP are now negotiating a three-year extension to their contract, which expires at the end of February. In September, KOC signed a contract with the Royal Dutch Shell Group which will carry out an 11-month survey of Kuwait's offshore areas.

Foreign influence

Deeper foreign involvement in the Kuwaiti upstream sector is still a possibility. The Supreme Petroleum Council is reviewing the issue, but few industry insiders believe they will accept any foreign participation that goes further than the current technical co-operation agreements. Kuwait has ample proven reserves and does not need foreign assistance to develop them. 'It is too easy for them. There's no risk as they know there is oil here.' says one KOC official.

The production sharing agreements being offered by other OPEC states, such as Algeria, Iran and Venezuela, are unlikely to be offered by Kuwait.

Kuwait's current capacity will get its first boost from the construction of gathering centres (GCs) 27 and 28 in the western fields of Umm Gudair and Minagish. In December, China Petroleum Engineering & Construction Corporation (CPECC) was awarded the $390 million contract to build the two GCs which will lift capacity from 110,000 b/d to 500,000 b/d.

The project has had a chequered history with KOC determined to contain costs. The UK's Foster Wheeler Energy was low bidder when the project was first tendered in 1992.

The scheme was then redesigned to reduce costs. Japan's Mitsubishi Heavy Industries (MHI) submitted the low bid of $391 million for the revised contract in April 1994. Using the MHI bid as a benchmark. KOC then negotiated an even lower price with CPECC which took the award in the end.

Construction of GC 25 in the Rawdatain field is expected to be tendered in 1996 as are a number of enhanced oil recovery projects. Basic designs for gas lift schemes to cover the Sabriyah and Bahran fields have already been completed but final approval is still awaited. KOC is also considering new water injection facilities at Rawdatain and Minagish to increase reservoir pressure.

In the domestic refining sector, which was severely damaged during the Iraqi occupation. production was 839,000 b/d in December. Shuaiba, Mina Abdullah and Mina al-Ahmadi refineries processed 158,000 b/d, 254.000 b/d and 427,000 b/d respectively. In the wake of extensive repairs only two units, the pre-flash unit and the hydrocracker on the Shuaiba refinery, still need replacing. Kuwait National Petroleum Company (KNPC) says the work, which will raise production at the refinery by a further 45,000 b/d, will be done by the end of 1997.

Quality rather than quantity is the priority for the refining sector. Current production rates are already close to the target of 900,000-1 million b/d set by Kuwait Petroleum Company (KPC) for the end of the decade. 'The aim is to maintain this capacity but with high conversion,' says Sami al-Rushaid, executive assistant managing director at KNPC. 'To do this we will need new units.' KNPC is planning to produce a slate of lighter products, to meet demand which is rising more strongly than for more traditional output, such as fuel oil.

It is currently conducting a market survey to determine which products have the best growth potential before drawing up the final specification for the purchase of new units.

Contractors are still waiting for KNPC to move on two major projects. Fresh tender documents are expected for the Mina alAhmadi acid gas removal plant (AGRP) for which South Korea's Sunkyong Engineering & Construction Company was low bidder at KD 40.5 million in August 1994. However, the Sunkyong bid was subsequently rejected on technical grounds. Contractors are also waiting for a decision on the Mina Abdullah steam revamp system. Japan's Mitsui Engineering & Shipbuilding Company was low bidder in November 1994 but a contract award has not been forthcoming.

KPC has stepped up its efforts to secure guaranteed outlets for its crude. The present target is to develop refining capacity of up to 300,000 b/d in Europe to support KPC's retail network. Current refining capacity in Europe is 150000 b/d, mostly from KPC refineries at Rotterdam in the Netherlands and Gulfhaven in Denmark. In September. KPC reached an agreement with Italy's Agip to take a 50 per cent stake in the 300,000 b/d Milazzo refinery in Sicily. The transaction, thought to be worth $500 million, was expected to be finalised at the start of 1996.

Asian ambitions

KPC is also advancing towards its target of 400,000 b/d of refining capacity in Asia. In September, it signed a memorandum of understanding with Indian Oil Corporation (IOC) to set up a refinery at Daitari in the north-east Indian state of Orissa. The plant will have an initial capacity of 120,000 b/d which can be expanded to 180,000 b/d.

KPC and IOC will each have a 26 per cent stake in the project, with the remainder being offered for public subscription in India. KPC will supply 50 per cent of the refinery's crude. In January, the US' Fluor Daniel was awarded the contract to provide engineering services for a feasibility study on the project. Similar joint venture refineries are planned in Thailand and China.

In Pakistan, a memorandum of understanding has been signed for the construction of a 90,000 b/d joint venture refinery in Baluchistan. KPC will take a 26 per cent stake with its Pakistani partner, with the remaining shares being offered to local and foreign investors. There are also tentative plans to set up an additional refinery in India. In July, the Indian government approved a proposed $600 million joint venture between KPC and Cochin Refineries for a refinery in the southern Indian state of Kerala.

Petrochemicals produced the most lucrative opportunities for foreign firms in Kuwait in the course of 1995. The largest construction contracts were awarded on the $2,000 million Equate petrochemicals complex (see page 13). PLC is also pressing ahead with plans to build a $1,000 million aromatics plant. As with the Equate complex, PlC is seeking a foreign partner. Negotiations with the US' Amoco Corporation are understood to be well advanced.

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