On 24 December, international engineering, procurement and construction (EPC) contractors will find out how serious Kuwait is about pushing ahead with plans to overhaul and expand its downstream oil refining industry.

The date is the deadline for commercial proposals for the three packages that make up the Clean Fuels Project (CFP), which involves a major revamp of Kuwait’s three existing refineries to improve their efficiency and meet higher international fuel standards.

The scheme involves upgrades and expansions of the Mina al-Ahmadi and Mina Abdullah refineries to increase their combined capacity to 800,000 barrels a day (b/d), from 736,000 b/d currently. The Shuaiba refinery, which sits between the two, will be retired as its rehabilitation has been deemed economically unfeasible.

Postponed deadlines

The CFP deadline has been pushed back from the 10 November date that was set in early May, when the project was finally launched. Although the client is state refiner Kuwait National Petroleum Company (KNPC), the whole bidding process will be overseen by the Central Tenders Committee.

The delay came after requests for more time from some of the seven prequalified contractor groups. Assuming there are no further extensions, details on pricing and the frontrunners for the three contracts could emerge before the end of this year.

After waiting since 2007 for the scheme to be launched, a few extra days will not worry contractors too much. The CFP has suffered extensive delays, hit by bureaucracy and the increasingly tense relationship between the government and parliament. It only received approval from the Supreme Petroleum Council (SPC), the country’s highest hydrocarbons policy body, in the middle of 2011.

The Clean Fuels Project is on the right track; we had our third pre-tender meeting recently [with KNPC]

Executive at contractor bidding on project

But the project now appears to moving forward. Bidding consortiums have been formed and prequalified since the US’ Foster Wheeler was appointed in December last year as the project management consultant. Smaller schemes to support the CFP are also moving ahead. One of these is a $240m deal with Germany’s Siemens to supply high-voltage substations to feed power to the electrical drives and auxiliary systems for the contractors working on the CFP.

Firms prequalified for clean fuels project
Lead contractor Consortium partners Number of packages
KBR (US) China Huanqiu Contracting & Engineering Corporation (China) 2
Petrofac (UK) Samsung Engineering (South Korea)/CB&I Lummus (Netherlands) 2
JGC Corporation (Japan) SK Engineering & Construction (South Korea)/GS Engineering & Construction (South Korea) 2
Saipem (Italy) Hyundai Engineering & Construction (South Korea)/Hyundai Heavy Industries (South Korea)/Daelim Industrial (South Korea) 2
Chiyoda Corporation (Japan) CTCI (Taiwan)/Larsen & Toubro (India) 1
Tecnicas Reunidas (Spain) Sinopec Engineering (China)/Hanwha Engineering & Construction (South Korea) 1
Fluor (US) Hyundai Heavy Industries/Daewoo Engineering & Construction (South Korea) 2
Source: KNPC

Firms have grown accustomed to hearing KNPC officials promising a tender ever since the project was approved, so this level of progress has been welcome. The company will have to work hard to maintain the momentum, to ensure the scheme makes it off the drawing board.

“The CFP is on the right track,” says an executive at one international contractor, which will be submitting bids in December. “We had our third pre-tender meeting recently, where all the bidding consortiums attended face-to-face meetings with KNPC. It has been encouraging to see them.”

Driving progress

The project’s progress will also bode well for other major schemes in Kuwait. KNPC currently has about $40bn-worth of projects planned or under way. Running in tandem with the CFP is the nearly $15bn New Refinery Project (NRP), a scheme with an even more chequered history.

First planned in 2004, the 615,000-b/d NRP at Al-Zour in the south would be the largest refinery ever built in a single phase and is intended to supply low-sulphur fuel oil for power generation across the country. Five EPC contracts were awarded in 2008 by KNPC, and long lead-time items were also delivered, including six separators and 36 reactors for the planned atmospheric residue desulphurisation units, but they are still in storage in the Shuaiba Industrial Area.

With the management changes at KPC, there is a tremendous effort to move schemes quickly and securely

Senior KPC executive

The deals were cancelled in 2009 on the instructions of the SPC before construction could begin. This followed a series of questions in parliament over the manner in which the contracts had been awarded. Since then, contractors have viewed Kuwait with a certain amount of cynicism. International companies in Kuwait were given even more reason for concern in May, when the oil sector underwent a massive shake-up as Farouk al-Zanki, the chief executive officer of Kuwait Petroleum Corporation (KPC), was removed from his post, along with almost all of the firm’s senior executives.

Power shuffles

The reshuffle followed the decision that month by the International Chamber of Commerce to award the US’ Dow Chemical $2.2bn in damages relating to the collapse of the $17.4bn K-Dow Petrochemicals joint venture in December 2008.

Oil Minister Hani Hussein was given the choice of resigning or facing questions in parliament over the ruling. He chose to resign. Mustafa al-Shamali, the former finance minister, was appointed acting oil minister to replace Hussein, while Nizar al-Adsani was selected to head KPC.

New executives in Kuwait oil sector 
Name Position
Mustafa al-Shamali Oil minister and chairman of Kuwait Petroleum Corporation (KPC) board of directors
Nizar al-Adsani KPC deputy chairman and CEO
Hashem Hashem Kuwait Oil Company CEO
Sheikh Talal al-Khalid al-Sabah Kuwait Oil Tanker Company CEO
Mohammad al-Mutairi  Kuwait National Petroleum Company (KNPC) CEO
Bakhit al-Rishidi Kuwait Petroleum International CEO
Nawaf al-Sabah Kuwait Foreign Petroleum Company (Kufpec) CEO
Ali al-Shimmiri Kuwait Gulf Oil Company CEO
CEO=Chief executive officer. Source: MEED

The changes have been unsettling for some, but many contractors take the view that the reorganisation was necessary to get the country’s faltering oil sector back on track after years of underachievement. The sweeping reforms have been interpreted by the industry as a stark warning to high-ranking officials that a repeat of the K-Dow fiasco will not be tolerated.

However, the impact on oil schemes remains to be seen. Having so many new senior managers in charge could result in further delays and indecision. So far, though, the effects have not been felt any more keenly than would normally be expected in Kuwait. In fact, the CFP’s progress through the turbulence of the KPC reshuffle has been seen as evidence of renewed vigour in the sector.

“The [refinery] projects are moving ahead very quickly right now,” a senior KPC executive tells MEED. “With the new management changes at KPC and its subsidiaries, there is a tremendous effort to move schemes quickly and securely. This is showing on all levels, not just KNPC and the refinery projects.”

The NRP deal received approval from the SPC in February 2012, at the same time as the CFP, but has been slower to progress. The UK’s Amec has been awarded the $500m-plus project management consultancy contract, but a deal for the preparatory and dredging works at the Al-Zour site has yet to be tendered, and prequalified contractors have yet to be announced.

Developing the downstream oil sector is not KNPC’s only ambition. Along with the two refining megaprojects, it has a number of other schemes planned, including the construction of a fifth gas-processing column at the Mina al-Ahmadi refinery, a deal that could be worth as much as $1.5bn.

Gas processing

Firms were asked to submit prequalification documents for the gas processing scheme in early 2013, but so far, no further announcements have been made and tenders have yet to be released. The new train will increase Kuwait’s gas production capacity by 805 million cubic feet a day and 106,000 b/d of liquids.

The scheme will cater to associated gas and condensate production from existing facilities in southeast and north Kuwait belonging to upstream operator Kuwait Oil Company, as well as potential future non-associated gas supplies from the Jurassic and Dorra fields.

Kuwait is currently struggling to realise its gas production ambitions, however. The Dorra field’s development has been shelved amid disputes with Saudi Arabia, which shares ownership of the formation. The Jurassic gas development has also suffered long delays.

Given the gas scheme’s smaller size there is a chance it will be delayed as KNPC focuses on getting the CFP and NRP going, say some local sources. Nevertheless, tenders could be released before the end of the year. By the beginning of 2014, it will certainly be clearer whether Kuwait’s energy projects sector has found a new, lasting momentum.

Key fact

Kuwait National Petroleum Corporation has about $40bn of projects planned or under way

Source: MEED