State oil company requests bigger budget for Al-Zour

15 April 2015

Kuwait National Petroleum Company seeks permission to spend an extra $2.88bn

  • Budget approval process is likely to be lengthy and complex
  • Kuwait National Petroleum Company is still considering retendering the project
  • Project has gone over budget by $4.2bn
  • Since it was first announced in 2005 the project has been tendered three times

State downstream operator Kuwait National Petroleum Company (KNPC) is seeking permission to increase the budget for the Al-Zour New Refinery Project (NRP) by a KD870m ($2.88bn), according to sources close to the project.

“Requesting a bigger budget is a lengthy and complicated process,” says one source. “The numbers will have to be verified and they will be challenged.”

The request comes after the low bids for the project’s five unawarded packages and the associated feed pipeline came in $4.2bn over budget.

For the new budget to be implemented it will have to be approved by the board of KNPC, as well as the board of Kuwait Petroleum Company (KPC) according to the source.

The source also said the new budget may need to be approved by Kuwait’s prime minister and oil minister.

Though KNPC has started the process to expand the project’s budget packages may still end up being retendered.

“All options remain on the table,” said another source connected to the project.

These options include carrying out new front end engineering design (feed) for the project and retendering the scheme with a new scope that includes an integrated petrochemical facility, according to the source.

A feasibility study for the proposed petrochemical facility is currently being carried out by the US company KBC Technologies.

“Taking the project back to the design stage could be very painful for many of the entities that have a stake in the project,” he says.

According to data obtained by MEED, the combined budget for the project’s five unawarded packages and the associated feed pipeline is about $10.3bn.

The sum of the low bids for all of these six packages is $14.5bn, 40 per cent more than the budgeted amount.

If the project’s unawarded packages are retendered, it will be a major setback for the country’s plans to overhaul its refining sector, slash the sulphur content in its fuels and lift its refining capacity from 930,000 barrels a day (b/d) to 1.4 million b/d by 2020.

The NRP will see a 615,000-b/d refinery constructed on a greenfield site in the Divided Zone, which is shared with Saudi Arabia, and has a long history of delays and setbacks.

Since it was first announced in 2005, the scheme has been tendered three times. It saw contracts awarded on the second occasion, but they were cancelled before construction started by the Supreme Petroleum Council (SPC), a government agency that is charged with oversight of the country’s energy sector.

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