KUWAIT - The European Market.

Most of KPC's west of Suez operations are located in Europe, where KPI has a network of almost 5,000 service stations rationalised and improved in recent years, compared to almost 7,500 stations in 2000. These give KPI a 6.8% share of the West European market: 24% in Denmark, 17% in Belgium, 12% in Sweden, over 11% in Italy, and 4.5% in the Netherlands. KPI has 50% in a 300,000 b/d refinery in Italy, plus closed refining plants converted into storage facilities, a revamped and upgraded refinery at Rotterdam, and seven lubricants plants.

West Europe provides an outlet for a big part of Kuwaiti oil exports, with KPI's network trading 400,000 b/d of its Q8 brand of gasoline and other products. KPC's is to raise KPI's European retail network to 500,000 b/d and a wholly Kuwaiti-owned refining capacity of 300,000 b/d.

It was in 1986 that KPI introduced the Q8 logo for its service stations and oil products marketed in Europe. KPI became one of the 31 founding members of the European Petroleum Industry Association (EPIA), established in September 1989. Its lubricants business is important, supplied by KPI's lubricants plants - with two in Rotterdam, and one in each of Antwerp (Belgium), Milan (Italy), Redmoelen (Sweden), Gulfhaven (Denmark) and Leeds (Britain).

KPI has an International Diesel Service (IDS) which operates a network of over 280 truck-servicing units on Europe's motorways. Kuwait Petroleum France, set up in 1988, opened its 10th truck centre in September 1992. Since then KPI has been actively pursuing new markets for its IDS in Europe, while keeping its focus on the company's Q8 brand of gasoline on the continent.

In March 1983 KPI bought Gulf Oil Corp's refining and retail interests in Sweden and Denmark. This included the 60,000 b/d Gulfhaven refinery in Denmark, two lube oil blending plants, storage facilities for up to 6m barrels of crude oil and refined products, eight terminals and a 50% interest in 30 terminals in Sweden.

(A partnership of BP and Gulf Oil had the main oil concession in Kuwait, with its KOC accounting for the bulk of oil production in the emirate, until it was nationalised in late 1975).

In August 1985 KPI bought 53 of the 350 service stations in Belgium from Elf Aquitaine. The deal brought the total of KPI stations in Belgium to 400, and some of them were enlarged. KPI added 25 more stations to its network in Luxembourg in late 1983, purchasing them from BP. That raised the number of KPI outlets in Luxembourg to 57, making it the largest oil distributor there.

Later KPI scrapped a number of old retail outlets in West Europe. It modernised the port facilities of its Europoort refinery near Rotterdam at $46m. The refinery at the time had a capacity of 75,000 b/d. But this has since been expanded. New units were installed to increase the plant's gasoline output by 11,000 b/d to help KPI meet a growing demand for high-octane and lead-free gasoline. They included a 6,200 b/d Penex/Molex recycle isomerisation unit, a 30,000 b/d naphtha hydrotreating unit and a 20,000 b/d continuous catalyst regeneration (CCR) platforming unit. The work was completed in mid-1990.

KPI upgraded and expanded the refinery further to meet EU diesel specifications in 2005. Foster Wheeler Italiana had revamped a vacuum facility and the hydro-desulphurisation units in a project completed in October 2004. In recent years, KPI has considered a further upgrade and expansion of this refinery to 150,000 b/d. Now the refinery has a capacity exceeding 80,000 b/d.

In October 2006, KPI abandoned a plan to sell the Rotterdam refinery to LUKoil Holdings of Russia, because the plant was making good profit. Energy Minister Shaikh Ali al Jarrah was then quoted as saying: "In past years the refinery was in a losing position, but now and since four years ago the refinery started to generate profits. Kuwait will not give up a refinery that is making it profits".

In May 2006, KPI received 15 bids for the refinery. In October press reports in Europe said LUKoil had been confirmed as the final buyer of the refinery, while the Russian company had not commented on any deal. The minister said the Russian firm's offer was dated, adding: "The price submitted by the Russian firm was from six months back, so it is better that we put the brakes on this matter and take care of the investments that we have and which are generating profits".

Shaikh Ali said Kuwait wanted to keep the refinery within the KPI system because it was in the Amsterdam-Rotterdam-Antwerp regional refined petroleum products hub.

KPI expanded its Danish operations in April 1987 through the purchase of most of the interests of BP's subsidiary in Denmark, BP Olie Kompaniet A/S (BP OK). The deal brought KPI an additional 389 filling stations together with a nationwide home-heating, boiler and burner service company, a company distributing motor spares and a wholesaler supplying goods to service stations. But the refinery in Denmark was shut down in April 1997 and the site now is being used as a terminal and storage facility.

The Belgian Market: In September 1998, BP sold its Belgian network of 157 gasoline stations to KPI. Their ownership was transferred in the following month, when the Q8 brand was introduced. This boosted KPI's share of the Belgian market from 7% to more than 8.5%.

The BP network was small and did not fit in with BP's new strategy of market leadership in chosen areas of operations. But it was a very efficient and profitable network.

KPI in June 2000 bought 205 Belgian service stations from Aral, then Germany's second-largest fuel retailer. The purchase was in line with what KPI called a "strategy to focus on the North-West European market". The purchased network included motorway sites, service stations with shops, and a lubricants business, which KPI took over on July 1, 2000.

The stations, converted into the Q8 brand, raised to 517 the number of its retail outlets in Belgium and increased its market share in this country to 17%. Thus it became the second largest retailer in Belgium, next to Shell which has had a market share of 18%.

The British Market: KPI entered the UK market in October 1986 when it purchased a 10.3% stake in Hays Petroleum Services, giving it control of 821 service stations (although later it reduced its holding to 2.96%). At the same time, KPI took over another retailer Pace Petroleum.

In March 1987 KPI purchased the retail unit of Ultramar for $80m which included Golden Eagle with 465 service stations, as well as a company specialised in the distribution of domestic fuel oil and a unit which supplied diesel to shipping. In May 1987 it purchased the 53 UK stations operated by then Soviet oil trader Nafta, which boosted the total of KPI's retail outlets in the UK to 1,339.

In late 1987, KPI set up Kuwait Petroleum Great Britain (KPGB) to manage its British distribution network. In July 1990 KPGB bought a small firm, Kamper Services, which had 20 stations in the eastern UK. In late 1990 it bought the East Anglia oil terminal of King's Lynn Storage (KLS), with a capacity of 16m litres. The deal provided for the terminal to be revamped and for KLS to continue operating it on behalf of KPGB.

In addition to its main Q8 network, KPGB later had 100 independent stations under the Pace brand. But the sale of KPGC's UK network in September 2004 helped KPI retionalise its British operations (as reported earlier on in this DT).

KPI had acquired a small retailer of lubricating oils, Carless Lubricants, in 1989 for $52m, reinforcing its position in that segment of the market. Carless had annual sales of 38,000 tons of oils and greases, representing 4.2% of the UK lubricants market.

Then KPI embarked on major restructuring and rebranding of its UK lubricants business, bringing them together in a unit called Kuwait Petroleum Lubricants (KPL), which started marketing products under its own name in October 1990.

In October 1998, KPGP launched a new dealer package for a 400-strong UK network of sites. This was to reduce dealer overheads by using the group's buying power to secure discounts for Q8 dealers.

Also in October 1998, the group distributor unit Q8 Fuelcare announced plans to invest [pounds sterling]400,000 in its "super-small" fuel tankers fleet. This was to bring its fleet to eleven 26-tonne rigid chassis vehicles, among the shortest six-wheel tankers ever built. Each tanker featured a highly compact design and small turning circle which provided Q8 Fuelcare manoeuvrability in tight spots.

The vehicle was ideally suited for deliveries of fuel oil to locations such as farms, small industries and domestic customers. The vehicle has a more environmentally friendly approach to fuel transit, storage and delivery.

KPGB in March 1999 unveiled plans to increase its network of UK sites providing an International Diesel Service (IDS) from 75 to 86 by August of that year. The ISD is a fully automated refuelling service for truck drivers in the UK and Europe and this now constitutes an important part of the KPI system in Britain.

In Europe, KPI and its units now have what in 2001 they claimed was the industry's first euro invoicing and information service as well as the first European assistance helpline for truckers.

At the beginning of 2000, KPGB started marketing City Petrol at four of its stations. This was an ultra-low sulphur fuel. Legislation in the UK and the other EU countries was to mean that lower emission fuels such as City Petrol was to become standard by 2005.

There will be further emission reducing refinements before the decade is out. KPI wants its various retail units in Europe to be in a key position in ultra-clean products.

In May 2001, KPGB acquired BP's direct fuels operation in central and southern England, doubling its market share in these areas and increasing the company's overall business in the UK by 25%. Thus expanding Fuelcare's network, the acquisition involved four fuel distributor depots at Banbury, Cambridge, Evesham and Braintree, as well as BP's Heating Services division. Together, these businesses service more than 40,000 household, agricultural and commercial customers and 45 retail service stations.

KPGB's takeover of BP's Heating Services business was a new departure for the Kuwaiti company in the UK. This allowed it to service and maintain customers' heating appliances in addition to providing heating oil.

KPGB has been one of the first to link up with supermarket brand in the UK as supermarkets have tried to maximise valuable trading space by opting for compact, fully automated forecourts. These take up 25% of the space of conventional forecourts.

KPGB's marketing experts have said that, as consumers' familiarity with the technology increases, the number of automated forecourts will grow substantially during this decade.

It is still not clear as to how the September 2004 sale of KPGB's UK gasoline retailing and wholesale business to Refined Holdings have affected KPI's system in North-West Europe. (Refined Holding groups three British companies: Malthurst, the William Pears Group and Winston Group). Ernst & Young was the financial adviser to KPI on the sale of KPGB's gasoline retail service network and direct fuel distribution operations.

The Italian Market: In January 1984 KPI bought Gulf Oil's downstream assets in Italy, consisting of 1,500 stations and a closed oil refinery in Sarni. The retail outlets gave KPC a 3% share of the Italian market and doubled the size of KPI's European network. The refinery had been closed by Gulf Oil in 1982. It has been converted into a storage facility. KPI has expanded its Italian operations in through the following phases:

In early 1988 its Kuwait Petroleum Italia (Kupit) got 25% in the Genoa-based Continentale Italiana, which operated a distribution centre in Lacchiarella with a capacity of 3m t/y of crude oil and products. Kupit has since used this network under a long-term deal.

In 1988 Kupid bought Roloil, a leading lubricants firm in Milan. In December 1989 it bought the independent distributor Pisa SpA, giving it a further 24 outlets.

In March 1990, Kupit bought most of Mobil's downstream assets in Italy, for which it paid around $300m. (Mobil's lubricants and chemical businesses were not included in the deal). Kupit renamed the company Kuwait Oil Italiana (KOI), and on Jan. 1, 1991 the two were incorporated into Kupit. But Kupit lost 55 bn liras (about $50m) in the year to June 30, 1992, and was restructured, with four-fifths of its aromatics capacity in Naples eliminated. The plant's capacity was cut from 300,000 t/y to 50,000-60,000 t/y and its production was limited to cohexane. The benzene, paraxylene and orthoxylene lines were scrapped.

Kupit's poor performance was partly due to the high costs of the Naples refinery, which had negative margins through the year, although the company increased its sales by 10%. The refinery continued to operate at a loss, contributing to the company's deficit of $45m in 1992/93. The refinery ceased operating in September 1993 and the site was converted into a storage depot for refined products.

In October 1996, KPI and Agip Petroli finalised a 50-50 JV giving the Kuwaiti company a half share in the 300,000 b/d Milazzo refinery in Sicily plus 336 service stations for about $550m. The deal, with anti-trust approval obtained in late 1996, relieved Agip of excess refining capacity as at the time the margins were negative - with refining losses having mounted - and gave it a good injection of capital. It boosted Kupit's presence in Italy.

Kupit in 2003 was the third largest oil distributor in Italy after Agip Petroli and ExxonMobil, with its 3,868 stations since reduced to less than 2,750 but a market share of more than 11%.

Kupit has 11 subsidiaries and affiliates, merged into it in December 1993: F. Ili Casella Carburanti Sri (100%); F. Illi Casella Carburanti e Lubrificant (100%); Kuwait Raffinazione e Chemica Spa (100%); Sassuolgas Sri (100%); Pisa Petrolifera Immobiliare Spa (100%); Carpi Gas Sri (100%); and Italoil Sri (95%); Tullia 89 Sri (75%); Racoon Sri (75%); Iside Spa (50%); and the new 50-50 venture with Agip Petroli in Sicily. In addition, Kupit has minority interests in 14 other companies, not all of them in the oil sector.

The German Market: KPC has invested very little in the German oil market, which is the biggest in Europe. Its products retail business in Germany is insignificant. But KPC has invested in Germany's petrochemical sector through a stake in the chemicals giant Hoechst AG.

Hoechst and France's giant Rhone-Poulenc (RP) were merged in late 1999 to create a colossal life sciences company called Sanofi-Avantis with annual sales of $20 bn and 95,000 employees. KPC gave its approval of the merger in May of that year. In September 2004, KPC sold almost half its stake in Sanofi-Avantis for 2,300m ($2,778m), in a placement managed by UBS and Morgan Stanley.

Through the London-based Kuwait Investment Office (KIO), the state's Kuwait Investment Authority (KIA) acquired an important stake in the German-US car manufacturer DaimlerChrysler. On Feb. 21, 2001, KIA denied that it had increased its stake in DaimlerChrysler from 7% to 9.3%. The 7% stake was confirmed on April 9, 2002 by DaimlerChrysler's top management, with a KIA spokesman saying: "Kuwait is a long-term investor and we are going to be in DaimlerChrysler for some time. There is a solid business in the company". KIA then was said to be the second-largest shareholder after Deutsche Bank, which owned 12% of the company. But now the situation is not clear as there have since been drastic changes in this and other companies in Europe and the US (see background in gmt24KwtTransJun13-05).

East Europe: In March 1990, KPI signed a preliminary agreement with the Hungarian government for up to 100 service stations in that country and to assist with the revamping of a Hungarian oil refinery. A deal was signed in January 1991 between KPI and state-owned Hungarian companies, Afor and Technoimpex, to set up an oil distribution JV called Kuwait-Afor. KPI paid $6.5m for 50% in the JV. Afor held 45% and Technoimpex 5%. Kuwait-Afor took over 17 service stations in Hungary, which it modernised and upgraded to sell products under the Q8 name.

However, KPI sold all its Hungarian retail assets in 1996. By May 1991, KIO had acquired about 8% in Technoimpex for $4m. In December 1991 Kuwait and Budapest signed a protocol covering the development of the Hungarian oil and gas industry and the reconstruction of the Kuwaiti oil industry.

Kuwait also held talks with the government of Poland in 1990 about the possibility of participating in various downstream ventures in that country, including equity for KPI in one of the Polish refineries. But no agreement was reached.