Kuwait Is Spending Over $44 Bn To Upgrade Petroleum Sector.

The Kuwaiti government has earmarked more than $44 billion over the next 15 years to upgrade its petroleum industry and expand its oil production capacity from 2.7m b/d to 4m b/d. Units of the state-owned Kuwait Petroleum Corp. (KPC) are to be partners in an integrated oil refining and petrochemicals mega-venture in China (see down24-SaudiPetchm-Dec12-05).

As Kuwait prepared to host OPEC's ministerial conference on Dec. 12, Agence France Presse quoted the emirate's Energy Ministry Under-Secretary Issa al-Aoun as saying: "Total estimated investments in the oil sector from 2005 to 2020 will exceed $44 billion. We aim to modernize the sector and boost output to 4 million b/d". The money will be spent on mega projects, such as a 600,000 b/d refinery and upstream projects to raise output, in addition to a number of large petrochemicals plants.

Kuwait, a desert emirate which sits atop 10% of the world's proven oil reserves of nearly 100 billion barrels, has the fifth largest OPEC quota at 2.227m b/d but its actual production is around 2.5m b/d and it has a spare capacity of 200,000 b/d.

Boosting production capacity 4m b/d by 2020 will cost Kuwait an estimated $20 bn. Projects for this include upgrading the production facilities, pipelines, gathering centres, booster stations and export terminals.

This year, KPC's local upstream unit Kuwait Oil Co. (KOC), awarded three major contracts worth $3.3 bn to two South Korean companies and a British-based firm. It ordered a $1.25 bn oil terminal from Hyundai Heavy Industries with oil storage tanks and offshore pipelines for al-Ahmadi Port, Kuwait's main oil export terminal. KOC signed a $1.2 bn contract with SK Engineering for 10 oil gathering centres and a gas booster station. British-based oil services firm Petrofac won a $680m contract to install hundreds of kilometres of pipelines above the ground to replace old underground pipes. In addition, KOC has signed $125m worth of upstream maintenance deals.

All these projects are due to be completed in 2008. Despite political controversy, the emirate appears to be forging ahead with Project Kuwait, an $8.5 bn investment to develop four oilfields in the north with the help of international oil companies (IOCs) including some of the world's biggest majors. This aims at raising production from the fields from 530,000 b/d to 900,000 b/d over a 20-year period.

The National Assembly (parliament) is scheduled to debate Project Kuwait on Jan. 16 amid fears by opposition MPs that it would give foreign companies control of the emirate's vital oil wealth. The project, if approved, would be the largest foreign investment in the country's upstream oil sector since its nationalisation in late 1975.

A number of projects are in the pipeline to raise production at oilfields in south and south-east of Kuwait. As in the case of the four northern fields, these will be developed by IOCs under long-term service contracts in which the companies will be given extra fees if they exceed their contractual commitments in terms of boosting production capacity and finding additional oil reserves.

Almost two-thirds of Kuwait's oil output now comes from Greater Burgan field, the world's second largest after the Ghawar axis of fields in Saudi Arabia. The new upstream development projects aim at easing pressure on Greater Burgan, which consists of large fields (see survey of Kuwait in Vol.64, Nos. 21-25).

Kuwait Oil Tanker Co. (KOTC) - another unit of KPC, which is likely to be partly privatised - this year signed contracts to build seven oil tankers of different sizes to modernise its fleet at the cost of more than $600m.

The 600,000 b/d refinery will cost $6.3 bn and will be on stream in 2010. KPC's local unit, the Kuwait National Petroleum Corp (KNPC), has planned to upgrade two of its three refineries at a cost of $3-4 bn. The third plant at Shuaiba will be closed down when the projects are completed in 2011. They will boost Kuwait's refining capacity from 920,000 b/d to 1.2m b/d.

A number of giant petrochemicals plants, at a cost of $10 bn, are under way with the help of foreign companies led by the Dow Chemical of the US. In addition, Kuwait has offered to build a modern refinery in the US at an estimated cost of around $10 bn. The US has become a premium market for refining as the sector is acutely short of capacity. There has been no new grassroots refinery built in the US since 1976.