Record oil and gas contract awards expected in Kuwait

06 January 2015

Project contracts worth $21.5bn due to be awarded over 2015

Kuwait is due to see record oil and gas project awards over 2015, with contracts worth $21.5bn set to be signed over the twelve month period.

If the contracts are awarded as planned the value of contracts signed in 2015 will be 30 per cent higher than the $16.5bn in contracts that was awarded in 2014, which was also a record-breaking year.

Over 2015 the record awards are expected to be driven by the $14bn Al-Zour New Refinery Project, with five packages worth a total of $11.5bn set to be awarded over the year.

The scheme will see a fourth Kuwait National Petroleum Company (KNPC) refinery constructed on the Kuwaiti side of the Divided Zone that is shared by Saudi Arabia and Kuwait.

Another oil and gas megaproject that should see a significant contract awarded is the Kuwait Oil Company (KOC) scheme to develop heavy oil reserves in Kuwait’s northern deserts.

The contract to carry out the first phase of the Lower Fars Heavy Oil (LFHO) development project was expected to be awarded in the fourth quarter of 2014, but the decision has been delayed by KOC for unknown reasons and is now expected to be signed off in early 2015.

Currently the UK’s Petrofac is the low bidder with a price of $4.3bn.

In 2014 the driving force behind the record-breaking oil and gas contract awards was Kuwait’s long-delayed $16bn Clean Fuels Project. The scheme to upgrade and expand Kuwait’s Mina Al-Ahmadi and Mina Abdullah refineries saw three packages worth a total of $12bn awarded over the year.

The two years of record-breaking awards come after a long period of underperformance in the oil and gas project sector due to difficulties in gaining political approval for large projects.

The average annual sum of awards between 2006 and 2013 was just $1.7bn, twelve times less than the expected total for 2015.

Kuwait’s current benign political environment should help the country’s oil and gas projects to progress as planned, according to industry insiders, but there are still challenges to be overcome.

The size of Kuwait’s boom in project activity has prompted concerns that the country will run into capacity problems as it sees rapidly increasing demand for workers and materials.

Engineering, Procurement and Construction (EPC) contractors are also worried that some oil and gas projects may be put on hold due to the recent slump in oil prices.

These concerns were exacerbated on 4 January when Saudi Arabia’s $3bn Ras Tanura Refinery Clean Fuels Project was put on hold, becoming the first casualty of lower crude prices.

So far there has been no sign of any slowdown in oil and gas projects in Kuwait and senior Kuwaiti officials have said that, while smaller projects may see delays, large strategic projects like the Al-Zour New Refinery Project will still go ahead.

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