KUWAIT - Hani Abdel Aziz Hussain.

As deputy chairman and CEO of KPC, Hussain has spent the nine months since his appointment to this post setting out his vision for the state's hydrocarbons sector. On May 17 he told a MEED conference in Kuwait: "We have a 2020 vision for KPC. We want to increase [oil] production to more than 4 million barrels a day. We have a large task ahead of us, but we know the market demands this and more. Our overall programme will cost $55,000 million and we hope to implement it with the help and assistance of international companies".

Since the last summer, Kuwait has seen major changes in the petroleum sector. It has announced development of the region's largest oil refinery, awarded or tendered a series of contracts to modernise the upstream sector, sold off non-core activities and assets and seen the state's landmark upstream initiative, Project Kuwait, come back on track (see above & OMT). Kuwait's oil production capacity has reached 2.7 million b/d, and the actual output now is over 2.6 million b/d. According to Hussain, this is only the beginning.

Steering through these changes is a new generation of executives. Last August, the top position at all three of the state's main oil firms changed hands, bringing in Hussain to the top at KPC, Farouk Al-Zanki as chairman and MD of KPC's upstream operator KOC and Sami Al-Rasheid as chairman and MD of its refining arm KNPC. Together with Energy Minister Shaikh Ahmad Al-Fahd Al-Sabah, appointed in 2003, they have provided much needed impetus for change.

High world demand for oil combined with Kuwait's status as a low-cost producer puts it in a strong position. However, it will not be able to go it alone. The state's oil fields are showing signs of age, and KPC and its subsidiaries recognise the need for additional technical assistance from the IOCs. "Kuwait will play a major role in supporting the world's economic engine and has the opportunity to develop [capacity of] 4 million-5 million b/d by 2020", Zanki said at the May 17 conference. "However, while we have been blessed by abundant, easy and low-cost oil, as with the rest of the world Kuwait's oilfields are now maturing. The era of 'easy oil' is coming to an end, and we are shifting from primary recovery to an era of enhanced oil recovery. Water injection is increasing and production rates are in decline. We must find ways and means of extending these fields' production life".

Rising water cuts are particularly worrying. Low reservoir pressures and water injection programmes are likely to see water cut rates increase from less than 10% today to 70% by 2020, while oil output diminishes. "We are producing 300,000 b/d of water", Zanki said, adding: "We project a 20-fold increase in water production to 6 million b/d by 2020. Water management is a growing concern".

Hussain has made clear that if Kuwait is to compete and retain its status as a major oil producer, it has to rely on IOCs. He told the May 17 conference: "People in the oil sector have a responsibility to our country and the people of Kuwait to produce in the best and most efficient way the crude oil we think the market will require. So we will do our best to implement Project Kuwait as it is best for our country. As for other areas, let us handle Project Kuwait first, then we will see. IOCs with their experience and expertise can complement us. They have a different way of doing things".

In addition to Project Kuwait, KOC has its own programme. By adding to proven reservoirs, implementing best practice to reservoir management and reducing gas-flaring and effluent water disposal, KOC believes it can significantly increase capacity. Zanki estimates that $20,690 million will be spent over the next 15 years on upstream projects, in addition to the $6,660 million of projects already under way.

The search for natural gas is a priority. The state requires 1,000 MCF/day of natural gas to meet its requirements, but has no non-associated gas fields. "We must have gas", Zanki, said, adding: "I believe we will find gas and I believe it will be commercial. We are very optimistic about future requirements. Maybe we need to start more aggressive development of the deep wells in northern Kuwait. We've got just as much gas from oil wells as from gas wells". The search for a long-term gas supply partner continues in parallel, although agreements initialled over the past five years with Doha, Baghdad and Tehran show few signs of proceeding as planned.

Hussain said: "Of course we would prefer to burn gas [rather than crude oil] to generate electricity. But if we do reach a [gas supply] deal, we can switch to allow our refineries to process more crude. On Dorra [the unexploited offshore gas field on the maritime border of the Divided Zone between Iran, Kuwait and Saudi Arabia], we have reached an advanced stage in discussions with our counterparts in Iran. If we get this agreement we are hoping they will have pipelines built to Kuwait in two-three years".

The gas issue has implications right across the downstream sector. The $3 bn Olefins II complex currently under construction at Shuaiba is likely to be the last in Kuwait unless new feedstock sources can be found. Hussain said: "We in KPC are very happy with Equate [Petrochemical Company], it is well run and produces good results. It's a successful venture which we in the oil industry can learn from. The problem for us in Kuwait is the availability of gas and especially ethane, so we are looking at using other feedstocks and other countries where gas is more plentiful".

The announcement in 2004 that the state would go ahead with construction of a new oil refinery, the first for more than 20 years, has been seen as a sign by some that Kuwait does not believe it can find a long-term gas supply partner. The new 600,000 b/d refinery, to be on stream in 2010, is aimed at serving both domestic power generation needs and the burgeoning refined product export market. Finding a Western or Asian strategic partner to take a 20% stake in the refenery is a central element of its development strategy. "We are not short of funds", Hussain said, "so we are not looking for firms to provide financing. It should be a partner who recognises the risks and who can add value, expertise and profitability to the project".

KPC is looking to cement its position overseas with international partners. It has recently signed memoranda of understanding (MoUs) with BP and Shell to exploit overseas sales opportunities. Hussain said: "The Chinese and Indian markets are very interested in a linkage with producing countries. The presence of international companies that understand these markets could give us an advantage. There are also opportunities to link these opportunities with integrated petrochemical and refining complexes in those countries".

In an effort to remain focused, KPC's non-core activities are likely to be jettisoned. In the past seven months, KPC has sold off its stake in French pharmaceuticals giant Sanofi-Aventis and seen some of its local petrol station network privatised. KPC subsidiaries Kuwait Foreign Petroleum Exploration Company (KUFPEC) and Kuwait Oil Tanker Co. (KOTC) may also be sold. Hussain said: "We have been involved in a lot of activities that we thought we should not be involved in, such as lube oil, coke calcination, petrol stations, etc. The private sector plays an important role in the economy and we have taken steps to hand over these non-core areas to it".

Hussain is overseeing a massive re-organisation of KPC and its subsidiaries from functional to asset-driven companies. Management is being streamlined to allow for more rapid and effective decision-making, while departments are being merged to prevent overlap.

For the first time, allowances are being made to increase project costs. The majority of tendered projects have come in substantially above budget, including the $1.9 bn facilities upgrade and flowlines replacement project, which was up to $500m above KOC expectations. Hussain explained: "What's happening in terms of costs and whether there is a capability in the engineering and contracting companies to do larger projects is an issue. We have seen our costs rise by 30-40%, sometimes by more than 70% and even more than 100%. We are actively looking at what can be done with the engineering industry".

For the first time, KOC has recently inserted a steel price escalation clause into a contract, which will allow the successful contractor to claim additional costs should prices rise.

Sami Al-Rushaid: As head of KNPC since last August, Rushaid is overseeing a number of new projects at his company. His aides are firming up plans to have a fourth liquefied petroleum gas (LPG) train built at the Mina Al-Ahmadi refinery. Fluor Corp. of the US has completed pre-front-end engineering and design (FEED) work on the train as part of its umbrella FEED contract covering the revamp of KNPC's three refineries. KNPC now is considering whether to tender the FEED contract competitively. The train is expected to have a capacity to process 550 MCF/day through gas compression, acid gas removal, gas drying, pre-cooling and fractionation. A tender for the $300m engineering, procurement and construction (EPC) contract is expected to be issued early next year, with a view to the train coming on stream in 2008.

KNPC has launched its $3.5 bn refineries upgrade programme, inviting international contractors to submit expressions of interest (EoIs) by end-June for a contract to upgrade the tank farms at its three refineries. Invitations to bid (ITB) for the EPC contract are due to be issued in early July, with the bid submission deadline scheduled for late August. An award is expected by end-2005. The stipulated construction period is 21 months. The tank farm package involves relocation of existing tanks, installation of an interface detection & transfer (ITR) and blenders and pipeline interface detection systems, and installation of new tanks for the slops systems and pipeline interface collection. It also covers supply and installation of 24-inch pipelines, shipping systems, new pumps, and instrumentation and electrical works. The project is the first of several packages on the modernisation and upgrade programme covering the Mina Al-Ahmadi, Mina Abdulla and Shuaiba refineries.

In tandem with the upgrade programme, KNPC is to have a 600,000 b/d refinery built at a cost of about $5 bn, either at Shuaiba or at Al-Zour. Fluor is the FEED contractor and project management consultant on both projects.

Hamad Al-Terkait, president and CEO of Kuwait's Equate Petrochemical Co., told MEED's Gulf Petrochemicals 2005 conference in Bahrain on June 8 plans to set up the Gulf Petrochemical Producers Association (GPCA) are moving ahead with its creation expected by end-2005. Similar to the European Petrochemicals Association (EPCA), the GPCA will be a non-profit organisation created to exchange information between upstream petrochemical producers.

The GPCA will initially have five main members: Equate, Saudi Arabia's Tasnee Petrochemicals, Qatar Chemical Co. (Qapco), Iran's National Petrochemical Company (NPC) and Bahrain's Gulf Petrochemical Industries Co. Saudi Basic Industries Co. (SABIC) has indicated its interest in joining the organisation. The GPCA's headquarters are likely to be in Dubai, where producers will meet to discuss prevalent issues within the industry. A databank for all producers will be available and producers with capacity of more than 100,000 tons/year will be welcome to join.

Once established, the GPCA will look to invite Egypt, Iraq and other regional countries into the fold. The EPCA will be an honourary member and downstream companies will also be invited as associate members.

Equate Partners Moving To Qatar: KPC's Petrochemical Industries Company (PIC) and its main partner in Equate, Dow Chemical of the US, have signed a letter of intent with Qatar Petroleum (QP) to carry out a pre-feasibility study to have another major petrochemical complex built at Ras Laffan. This will centre on a 1.2m-1.6m t/y ethane cracker - the third olefins complex planned at Qatar's northern industrial city.

QP's director for downstream ventures Ali Hassan Mohammed Al-Sidiky said on June 7 at MEED's Gulf Petrochemicals 2005 conference in Bahrain: "It [the project] is in the early stages. It could be done in several phases and come on stream for 2010/11". Details of the new complex are expected to be finalised by end-2005.

PIC and Dow have an extensive relationship. In Kuwait, they are shareholders in the existing Equate venture and the olefins II complex which is under construction. In 2004 PIC and Dow formed global joint ventures for ethylene glycol and polyethylene terephthalate (PTA).

The two other planned olefins complexes at Ras Laffan, both at the feasibility study stage, are being promoted by the ExxonMobil and Shell. As on the PIC/Dow project, the two ventures will centre on 1.2m-1.6m t/y ethane crackers. In addition, Technip of France has been selected to build the standalone 1.3m t/y cracker for Ras Laffan Ethylene Co.. QP is also planning a naphtha cracker-cum-aromatics complex at Mesaieed, for which FEED bidding is under way. The proposed project will be integrated into the existing Mesaieed refinery and will produce ethylene-derivative units, polypropylene and an aromatics complex, including a styrene unit. QP is looking to bring an international partner on the project as well as offering a percentage of the company shareholding to locals through an IPO. "We are looking to have 6m t/y of ethylene production capacity by 2011", Sidiky said. QP was at an early stage of evaluating methanol-to-olefins (MTO) and methanol-to-polypropylene (MTP) projects, as well as investing in upstream and downstream capacity overseas.

The private Kuwait Finance House (KFH) and partners are having an integrated petrochemicals, power and water complex built in Bahrain. An invitation to bid (ITB) for the project management consultancy (PMC) contract on the project is due to be released in August. The project sponsors are also considering an expansion to the project which would see the addition of polyvinyl chloride (PVC) and vinyl chloride monomer (VCM) capacity. KFH is planning to take a 10% equity stake in the venture, which will be about 70% debt financed. The complex will have a capacity of 315,000 t/y of ethylene dichloride (EDC), 167,000 t/y of caustic soda, 1,000 MW of power and 30m gallons a day of water. Offtake agreements for EDC and caustic soda are in place with Japan's Mitsubishi Corp. of Japan and Bahrain Natural Gas Co.