Kuwait is amongst the largest energy consumers in the GCC region [around 10toe (tonnes of oil equivalent) per head, 2.5 times more than the world average] with over 100 billion barrels of oil reserves (second largest in the region, after Saudi Arabia) and 65tcf (trillion cubic feet) of gas reserves.
Kuwait has managed to maintain prices for energy products, at around 30 US cents for gasoline and diesel per litre and $1.5 per million Btu (British thermal unit) of gas, a much lower level compared to other countries. What is more, Kuwait’s fiscal breakeven oil price is under $50/barrel – the lowest among GCC members, making the oil and gas industry attractive for investment although this was marginal during the 2016 crisis and revival period.
Out of 20 major projects in the GCC downstream sector, at least four are located in Kuwait and feature the national oil company – Kuwait National Petroleum Company (KNPC). The largest capacity additions are in delayed coking and atmospheric residue desulphurisation.
Petcoke production in Kuwait has been growing, as well as its export (i.e., net export from Kuwait to China in the first half of 2018 was over 300,000 tonnes). Of course, it is hard to compare this with the US and Saudi Arabia amounts – 2.2 and 1.5 million tonnes, respectively. Kuwait is the third largest exporter to India for petroleum coke. However, the recently announced limitations on coke imports by India and changes in fuel mix and refinery capacities will have an impact on this export market, and also on sales margins.
Environmental protection initiatives
Kuwait and Saudi Arabia have signed Kyoto Protocol, Basel Convention, United Nations Convention on the Law of the Sea and MARPOL Annex VI by International Maritime Organisation (IMO), and are the most advanced countries in the GCC in terms of environmental protection initiatives.
KNPC plans to increase the capacity of Mina Abdullah and Mina Al-Ahmadi refineries to 800,000bpd and to merge into an integrated refining complex. This expansion is part of the Clean Fuels Project 2020 and Kuwait is investing over $30bn in order to become the region’s clean fuels leader. This will come on line in time for the IMO regulation for bunker fuels.
Once completed, the complex will help decrease the levels of benzene, aromatics and sulphur in gasoline from 500ppm to less than 10ppm. Bunker fuel sulphur content will decrease to 1ppm. Whilst this is still not fully-compliant, it is easier to process, or blend to get the required specification and the maximum sulphur content of naphtha will be substantially reduced. This aspect, we previously discussed in more detail in the case of Duqm Refinery in our May 2018 comment piece.
Kuwait Integrated Petroleum Industries Company (KIPIC), a KNPC subsidiary, will build the grassroot Al-Zour Refinery Project/Kuwait New Refinery Project with 615,000bpsd (barrels per stream day) capacity of local light crude, or 535,000bpsd of heavy mix crude oil to produce low-sulphur fuel (250,000bpsd) to support the energy sector, water desalination, and growing petrochemical production. KIPIC have awarded $11.5bn worth of engineering, procurement and construction contracts for this project. The budget for the refinery, targeted for completion in 2019, has increased to $16bn.
Petrochemical Industries Company, a subsidiary of Kuwait Petroleum Company (KPC), is also developing the project named Olefins-3 with a capacity of 1.4mtpa (million tonnes per annum) (450,000tpa propylene plant, 940,000tpa polyethylene plant, and 550,000tpa polypropylene plant). The new petrochemical facility will be integrated with the Al-Zour complex.
Kuwait is also active in the area of international cooperation, especially outside the GCC – Canada-KPC joint project (Alberta PDH (propane dehydrogenation) and polypropylene plant) worth $3.2bn is now ongoing at the FEED stage. China’s Sinopec is building an oil refinery with the capacity of 300,000bpd in the southern province of Guandun in partnership with KPC and the investment for the project amounts to $9bn.
Kuwait Petroleum International (KPI), along with Idemitsu Kosan Co, Mitsui Chemicals, and PetroVietnam, plans to expand their petroleum product wholesale and retail businesses in Southeast Asia, alongside Middle East oil-producing countries, with a joint venture to construct Vietnam’s second refinery. The Nghi Son Refinery and Petrochemical Complex project in Vietnam will be the first refinery constructed overseas by one of Japan’s primary oil distributors. Commercial production began in 2017.
This project was to deepen bonds and alliances between the two oil-producing countries – Vietnam and Kuwait – and Idemitsu is playing a large role in ensuring Japan’s energy security.
However, in other regions, some projects are being cancelled, for example, KPC announced it was cancelling the investment in its Rotterdam refinery.
Looking in to the future, Kuwait has quite high potential for developing energy from renewables. The country has a compelling economic case when factoring in the external cost of air pollution and CO2, but action needs to be taken in order to proceed with initiatives and create a market that will attract potential investors.
About the authors: Colin Chapman is president and Ekaterina Kalinenko is project director at Euro Petroleum Consultants (EPC), which is a leading independent consulting company in the oil, gas and petrochemical sectors, as well as a producer of specialised annual international conferences and training seminars, focusing on market trends, technological advances and business strategies for the petroleum industry. EPC has offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. For more information, please visit www.europetro.com
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