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Spotlight on Kuwait Downstream Sector

Meeting Future Clean Fuels and Environmental targets and developing the Petrochemicals Sector

Kuwait is amongst the largest energy consumers in the GCC region (around 10 TOE per head, 2.5 times more than the world average) with over 100 bbl of oil reserves (2nd largest in the region after Saudi Arabia) and 65 Tcf 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 mln. BTU of gas, a much lower level compared to other countries. What’s more, Kuwait’s fiscal breakeven oil price is under $50/barrel – the lowest among GCC members, making the O&G 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 – KNPC. The largest capacity additions are in Delayed Coking and ARDS. 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 mln. Tonnes. Kuwait is the 3rd 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.

Kuwait, along with Saudi Arabia, signed Kyoto protocol, Basel Convention, UNCLOS and now MARPOL Annex VI, and are now the most advanced countries in the GCC in terms of environmental protection initiatives.

KNPC plans to increase the capacity of Mina Abdullah (MAB) and Mina Al-Ahmadi (MAA) Refineries to 800,000 bpd and to merge into an Integrated Refining Complex. This expansion is part of the Clean Fuels Project (CFP) 2020 and Kuwait is investing over $30 bln. 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 500 ppm to less than 10 ppm. Bunker fuel sulphur content will decrease to 1 ppm – 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. We previously discussed in more detail the case of DUQM refinery in our May article.

Kuwait Integrated Petroleum Industries Co. (KIPIC), a KNPC Subsidiary, will build a grassroot Al-Zour Refinery Project (ZOR)/Kuwait New Refinery Project (NRP) with 615,000 BPSD capacity of local light crude or 535,000 BPSD of heavy mix crude oil to produce low-sulphur fuel (250,000 BPSD) to support the energy sector, water desalination, and growing petrochemical production. KIPIC have awarded $11.5 billion worth of EPC contracts for this project. The budget for the refinery, targeted for completion in 2019, has increased to $16 billion.

Petrochemical Industries Company K.S.C., a subsidiary of the Kuwait Petroleum Company (KPC), is also developing the project named Olefins-3 with a capacity of 1.4 mtpy (450,000 tpy Propylene plant, 940,000 tpy Polyethylene plant, and 550,000 tpy 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 of the GCC: i.e. Canada-KPC joint project (Alberta PDH and PP Plant) worth $3.2B is now ongoing at the FEED stage. Chinese Sinopec is building an oil refinery with capacity of 300,000 b/d in the southern province of Guandun in partnership with KPC, the investment amounts to $9billion project.

Kuwait Petroleum International (KPI) with Idemitsu Kosan Co., Mitsui Chemicals, and PetroVietnam plan to expand their petroleum product wholesale and retail businesses in Southeast Asia, alongside Middle East oil-producing countries, with a JV 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 e.g. KPC announced it was cancelling the investment in its Rotterdam refinery.

Looking to the future, Kuwait has quite high potential for developing energy from renewables. They have 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.

We can see therefore that Kuwait is very active in upgrading its existing Downstream facilities and also has ambitious plans for new Complexes using state of the art technologies to meet the ever more stringent environmental targets.

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September 2018