(Updates with plant capacities in last paragraph.)
June 28 (Bloomberg) -- Kuwait may seek private investors to help build its largest oil refinery after a government council revived the 4 billion-dinar ($14.5 billion) project, which stalled two years ago amid political opposition.
The Supreme Petroleum Council, the emirate’s highest decision-making body for oil policy, approved construction of the 615,000 barrel-a-day Al-Zour facility, Oil Minister Mohammad al-Busairy said today in a telephone interview in Kuwait City.
The council authorized the plan yesterday, along with proposals to upgrade two of the country’s three existing refineries so that they can produce cleaner-burning fuels, the minister said. Kuwait is trying to attract more private investment to help pay for costly industrial improvements and infrastructure as part of a 30.8 billion-dinar development strategy to boost energy output and modernize transport links.
“The public will own a minority share” in the new facility, and the ministry may also seek a foreign partner, Kamel al-Harami, an independent oil analyst, said today by telephone from London. “This is the direction of the Kuwait parliament and government,” he said, echoing a view expressed earlier by some officials.
The Gulf nation may require that part of the Al-Zour refinery be reserved for non-government investors, the chairman of state-owned Kuwait Oil Co., Sami al-Rushaid, told reporters in London on June 22. Kuwait suspended the project in March 2009 after opposition lawmakers said the leadership had circumvented the law in awarding contracts with foreign companies without going through the Central Tenders Committee.
In its first phase, the new plant would be able to process 300,000 barrels a day of products for the domestic market, according to al-Harami. The second phase, for 315,000 barrels a day, would replace output from Kuwait’s oldest and smallest refinery at Shuaiba, which is planned for closure, and enable the country to be self-sufficient in refined products, the analyst said.
Once the Al-Zour facility is fully built, it should also have enough spare capacity to provide products for export, he said. Kuwait, which imports liquefied natural gas to supply its power stations when demand peaks in the summer months, should be able to reduce its imports of LNG and eventually stop them, al- Harami said.
Council’s ‘Big Step’
The council’s approval of the plant is “a very big step,” said al-Busairy, the oil minister. “We now have to follow all legal procedures to implement the project.”
Kuwait awarded construction contracts for the refinery in May 2008 to JGC Corp. of Japan and to South Korea’s GS Engineering & Construction Corp., SK Engineering & Construction Co., Daelim Industrial Co. and Hyundai Engineering & Construction Co. Fluor Corp., based in Irving, Texas, won a consulting contract. The initial plan called for the refinery to start operating by 2012.
The facility may take form as a public shareholding company to expand the role of private investors in the country’s economic development, the state news agency KUNA reported last July, citing the former minister for development, Sheikh Ahmad al-Fahad al-Sabah.
“I don’t expect anything will go ahead this year in Kuwait because the political situation is so unstable,” Thad Malesa, an independent energy analyst, said by telephone from Dubai. “Parliament will drag things out, frustrating any partners.”
Disputes between Kuwait’s legislative and executive branches have led to government resignations and halted other projects. Lawmakers’ objections contributed to the scrapping of a joint venture with Midland, Michigan-based Dow Chemical Co., in December 2008.
Kuwait is the fifth-biggest producer in the Organization of Petroleum Exporting Countries, pumping 2.425 million barrels of oil a day in May, according to data compiled by Bloomberg. The country’s current refining capacity is 930,000 barrels a day.
The two refineries approved for clean-fuel upgrades, Mina Al-Ahmadi and Mina Abdulla, have respective output capacities of 460,000 and 270,000 barrels a day. The third, at Shuaiba, can process as much as 200,000 barrels a day.
--Editors: Bruce Stanley, Alessandro Vitelli
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