KNPC issues $11.5bn contracts for Al Zour complex

OREANDA-NEWS. Kuwait has awarded \\$11.5bn in contracts for the construction of the 615,000 b/d Al Zour refinery following more than a decade of delays spurred by political infighting over soaring costs. The budget for what will be the largest refinery in the Midest Gulf was eventually confirmed as \\$16bn last week.

Kuwait's state-owned KPC's downstream arm KNPC has awarded contracts for four of the five packages that make up the construction of the refinery. Package one covers the special units of the refinery, with packages two and three covering the main infrastructure and services. Package four covers tank capacity and package five accounts for marine export facilities.

KNPC said it has contracted Spanish engineering firm Tecnicas Reunidas, China's state-owned Sinopec and South Korea's Hanwha to build package one, with a consortium including South Korea's Daewoo, Hyundai Heavy Industries and Texas-based Fluor to cover package two and three. A consortium including Hyundai, South Korea's SK and Italian contractor Saipem will be responsible for package five. The remaining \\$4.5bn in the budget will mostly be allocated to package four when it is awarded in mid-August.

Kuwait's Supreme Petroleum Council (SPC) approved the \\$16bn budget for the refinery last week, following the go-ahead from KPC and KNPC. The budget has risen by around \\$1bn from price estimates in January after a series of construction bids came in around 20pc higher than KNPC anticipated and lower oil prices also took a toll.

But while firm progress has been made on the budget, the timetable has fallen victim to the political bickering yet again. Kuwait's oil ministry insists that the refinery will be completed on schedule in 2019, but several senior KPC officials told Argus the start date is more likely to be 2020.

A recent escalation in a long-running discord between KPC's board and the oil ministry meant KPC cancelled several meetings in June, including those scheduled to discuss the budget for the refinery. KPC officials said fixing the budget discrepancy was the priority when the new formation of KPC's board met for the first time on 22 June. But the officials add that KPC must have sole responsibility for the execution of oil and gas projects to avoid the costly delays, like the Al Zour refinery, for which Kuwait is notorious. KPC wants the oil ministry to adopt a more supervisory role that includes auditing, inspections and regulation in a move that would echo Riyadh's plans to increase the space between state-owned Saudi Aramco and the Saudi oil ministry.

KNPC officials said that an update on the LNG and petrochemical facilities that are part of the wider Al Zour complex will be available by September. So far, KNPC has confirmed that it has approved a \\$3.3bn budget for a new onshore LNG import and regasification terminal, with construction due to start by the end of this year. A feasibility study to assess the petrochemical capacity is also wrapping up. KPC had hinted at plans to establish a new company, which would involve KNPC, to oversee the build and operations at the Al Zour complex. But little has been said since last December.

The Al Zour refinery falls under the \\$40bn package that KNPC earmarked last year to boost the country's refining capacity by 50pc to 1.415mn b/d by 2020. The financing includes boosting the combined capacity of the Mina Abdullah and Mina al-Ahmadi refineries under the clean fuels project (CFP) to 800,000 b/d from 736,000 b/d. KNPC chief executive Mohammed al-Mutairi said this week that 27pc of the upgrade has been completed. The ageing 200,000 b/d Shuaiba refinery will be shut down once the Al Zour refinery is completed.