Refining capacity boost to suffer delays in Kuwait and Saudi Arabia

18 July 2008
Labour and equipment shortages threaten plans to upgrade or build refineries in Kuwait and Saudi Arabia.

Plans to develop more than 1.5 million barrels a day (b/d) of additional refining capacity in Kuwait and Saudi Arabia are likely to face delays because of shortages of materials, equipment and experienced personnel, contractors tell MEED.

The countries are set to start building or upgrading a total of five oil refineries in 2009, prompting concerns among contractors.

Kuwait is planning to build a 615,000-b/d refinery at Al-Zour and upgrade its Mina Abdulla and Mina al-Ahmadi refineries. Saudi Arabia is developing 400,000-b/d refineries at both Jubail and Yanbu.

In total, the five projects will involve investment of more than $60bn.
The schemes will push contactor capacity to the limit. “Quite simply, you will have some problems with delays and shortages with such a large amount of work,” says one European contractor. “Even if you solve the problems of contractor capacity, you will still have issues with the vendors being able to deliver the equipment.”

The situation is further complicated by plans for smaller, less complex refinery construction and upgrade projects elsewhere in the Gulf and North Africa.

Perhaps the biggest issue for projects planned in Kuwait and Saudi Arabia will be manpower. Kuwait’s state refinery operator, Kuwait National Petroleum Company (KNPC), says its refinery projects alone will require a total of 120,000 engineering and labour staff.

The two Saudi projects will probably need a workforce of a similar size, and there are concerns that the labour pool will not be large enough to provide for these projects in addition to other work under way in the region.

“Labour is probably the greatest challenge,” says one South Korean contractor. “Contractors will have to look beyond their normal countries of recruitment, such as India, Vietnam and Cambodia.

“With Gulf currencies constantly losing value, it is increasingly hard to attract people to the region. It is also difficult to find experienced engineers to design the projects in the first place.”

Saudi Aramco and KNPC are aware of the huge task facing
them in developing their refinery schemes. Both firms have already procured many of the long-lead items needed for the projects.
However, other items still need to be procured by contractors and could become increasingly costly and difficult to source.

“Everyone will be trying to buy the same materials such as steel and rebar [reinforcement steel bars],” says one Saudi contractor based in Al-Khobar. “This will have the double effect of pushing up prices and making the material in question scarcer.”

Other construction firms are more sanguine. “As long as the pool of contractors selected for the work is big enough, there should not be too many problems,” says a source at one. “The problems will only occur if the work is awarded to just a handful of companies.”

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