World's Energy

May 18, 2009 - Dow Jones by Maria Abi-Habib - Kuwait National Petroleum Co., or KNPC, may re-tender a delayed $8.3 billion project to build a refinery after the election of a new parliament could clear political objections to the plant, a senior executive told Zawya Dow Jones. "This is a strategic project and it has to go through," said Asaad Al Saad, deputy chairman of KNPC, in a recent interview. "The problem is, will we continue with the same people or re-tender? It looks more like we will re-tender it, unfortunately, because of the politics involved." Al Saad expects that the stalled Al Zour refinery will be given the "go ahead" with the new government. Kuwait elected a new parliament over the weekend. But the Supreme Petroleum Council, which oversees Kuwait's oil interests, will also have to reconsider the project. The election of a new moderate parliament in Kuwait, which for the first time includes four women lawmakers, could clear the way for progress on key energy projects in Kuwait that had previously been blocked by Islamists. Kuwait holds the world's fifth-largest oil reserves and is a member of the Organization of Petroleum Exporting Countries. The Al Zour refinery project came under intense scrutiny last year after opposition members of parliament alleged that contract awarded by KNPC didn't comply with the tender procedures set out by Kuwait's Central Tenders Committee, which handles all public sector contracts. The project was referred to the State Audit Bureau. The company signed four letters of intent for the project work worth $8.3 billion, one with a Japanese-South Korean consortium and three with South Korean firms, to build the 615,000 barrel-a-day refinery. A separate contract, worth an estimated $2 billion, was awarded to U.S. engineering firm Fluor Corp. (FLR). Al Saad said the companies haven't taken KNPC to court over the canceled letters of intent and that KNPC is showing that its interest in buidling the plant "is still there." CLEAN FUELS Progress is also expected on KNPC's estimated $5 billion Clean Fuels Project. The cost of the project, which involves significant upgrades to existing refineries, could drop by up to 20% and KNPC will invite international companies to bid for construction work this year, Al Saad said. "The cost will slip by between 15% to 20%," he said, adding that this could reduce capital expenditure on the project by about $1 billion. Bidding is expected to start this year for each of the two refineries that will be upgraded to produce "high yield" products like kerosene and diesel as part of the Clean Fuels Project, he said. The project aims to make Kuwait's aging refineries more competitive and compliant with international environmental standards. Kuwait's refining industry has been plagued by shutdowns and accidents at its major facilities due to the age of the plants. After the completion of the clean fuels project, the capacity of Mina Abdulla and Mina Al Ahmadi refineries will be boosted to 800,000 barrels a day, Al Saad said. Mina Abdulla currently has a production of 270,000 barrels per day while Mina Al Ahmadi produces 460,000 barrels daily, he added. KNPC will also build new storage for liquid gas and a plant to treat sour or acid gas, Al Saad said. The company expects the gas project to cost 120 million Kuwaiti dinar ($414 million) and the tanker will be up to KWD50 million, he said, adding that bidding for both projects will start in the next three months. "The gas treatment plant will treat 230 million cubic feet daily," Al Saad said.