Oil company deals thrown into limbo

OIL DEALS: Doubts emerge after scrapping of Dow Chemical venture. (Getty Images)

New deals for international oil companies in Kuwait have been thrown into limbo after the appointment of the fourth oil minister in three years and a scrapped $17 billion joint venture with Dow Chemical.

A crippling dispute between deputies and the government could lead Kuwait to shelve or postpone new oil service contracts to boost output and deals to build one of the Middle East's largest oil refineries.

"There is very little likelihood of there being any serious foreign investment in Kuwait's upstream sector," said Alex Munton, analyst at global consultancy Wood Mackenzie.

"There appears to be no resolution in sight for Kuwait and the long-time impasse between the ruling elite and the assembly."

Kuwait's government ditched the Dow deal in December, just a month after signing, claiming it was no longer viable given the global financial crisis.

Oil industry insiders say the cabinet cancelled the deal due to criticism in parliament and this has knocked investor confidence in the country.

"The whole fiasco with Dow was embarrassing," an executive at an international oil company said on condition of anonymity.

"Any international company doing business with Kuwait now has got to be concerned about the credibility of Kuwait's intentions. How can you do a deal? Who do you negotiate with? Kuwait Petroleum Corp (KPC) or parliament?"

A few weeks after the Dow deal fell through the world's seventh-largest oil exporter appointed Foreign Minister Sheikh Mohammad al-Salem al-Sabah as acting oil minister. The post is one of the most important portfolios in a country that relies on oil exports for 97 percent of state revenues.

But local media reported candidates for the job and others in the cabinet were few, as politicians look to avoid falling foul of the dispute between the executive and parliament.

"This country has been hijacked by members of parliament and the government is weak," a Kuwaiti oil industry source said.

"The government stabbed the oil sector in the back when they cancelled the deal with Dow. Now officials in the sector are paralyzed, they don't know which way to go next."

Each change in minister has led to fresh delays in contract awards as new incumbents settle.
 
The latest, a member of the ruling family with a doctorate in economics, is not expected to plan any long-term strategy or take bold decisions that could lead to another standoff with parliament.

His main task will be to restore confidence among investors and international oil companies.

"I don't expect confrontation with parliament. He's a very diplomatic man," said independent Kuwaiti oil analyst Kamel al-Harami. "Other oil projects will likely progress only after the government resolves current problems."

Kuwait's parliament has a history of challenging the government, triggering several ministerial resignations and cabinet reshuffles.

The oil ministry has faced criticism and parliamentary probes over new contract awards.

As part of a scheme to boost oil capacity to 4 million barrels per day by 2010 from around 2.8 million bpd, Kuwait planned enhanced technical service contracts with big oil firms. Exxon Mobil , Royal Dutch Shell, BP and Chevron were negotiating deals.

Talks picked up momentum in late 2007 after the appointment of Saad al-Shuwaib as chief executive of state oil company KPC. But Shuwaib is affiliated to the same political group as former oil minister Mohammad al-Olaim.

His hand has been weakened by Olaim's departure and he may be reluctant to push ahead with the deals, oil executives said.

"My personal opinion is that these contracts will die if they are not signed by the middle of the year," said one oil executive.

Plans to build a giant $15 billion, 615,000 barrels per day refinery in Kuwait also look threatened. Kuwait awarded contracts to Japanese, South Korean and U.S. firms in May but has yet to sign off on the deals as they face parliament probes.

KPC would go ahead with the project but progress would be slow as the oil ministry looks to win over parliament, a source close to KPC said.

"The fourth refinery is very important to meet power demand... (but) It might take some time to clarify things," said the source.

Oil industry sources said the project may well collapse.

"Parliament will never let it go through at the moment," said an executive at another international oil firm.
 
"The executive branch hasn't been able to push through decisions on any issue, much less contracts as large as this." (Reuters)

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

FOURTH OIL REFINERY
Posted by Oil-Xpert-in-Q8, Kuwait on Tuesday 3 February 2009 at 07:23 UAE time


This project will go ahead as it is vital to Kuwait's survival.

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM