Kuwait oil refinery will go ahead despite cancelled contracts

PLAN RE-EVALUATION: The Supreme Petroleum Council is reassessing plans to develop Kuwait's fourth refinery after tenders to carry out the work were scrapped last week. (Getty Images)

Kuwait has not cancelled plans to build a fourth oil refinery in the Gulf Arab state, even though it has cancelled a tender to build the plant, an official at the state's refining firm said on Tuesday.

The decision to scrap a tender to build the $15bn refinery does not mean the project will be dropped, Abdulla Al Ajmi, clean fields project manager at Kuwait National Petroleum Co (KNPC), told an energy conference in the UAE.

"The new refinery project is going to be re-evaluated by the Supreme Petroleum Council (SPC). It will take them some time to come back with their directive and they haven't indicated a timeframe," he told reporters later.

Ajmi said one of the main issues was cost. If Kuwait can bring down the cost of the refinery it will enjoy better margins for the project and that will have an impact on the outcome of the SPC review.

"Eventually the project will have to prove itself in terms of feasibility. Market conditions now are different and there will have to be a revisit," he said.

Ajmi said power demand, one of the main reasons Kuwait wanted the refinery, was still there. "Power generation demand is still there ... the objective of the fourth refinery was to provide feedstock for the generation of power," he said.

KNPC said on Friday it had informed the companies that were awarded contracts to build its fourth refinery the tender was cancelled.

In May, KNPC awarded deals worth $8.4bn to four South Korean firms and one Japanese firm for the 615,000 barrels per day Al Zour refinery.

The project has faced political problems. Several lawmakers in parliament have alleged violations, such as handing out a package to US firm Fluor Corp without a tender.

Some deputies threatened to question former oil minister Mohammad l-Oliam if he went ahead with signing contracts.

Kuwait has plans to boost refining capacity to 1.415 million bpd from around 930,000 with the new Al Zour plant and upgrades to two other refineries.

The new plant would replace the country's aging 200,000 bpd Shuaiba plant.

In December, Kuwait scrapped a $17bn joint venture with US group Dow Chemical just a month after signing the deal, saying it was no longer viable in light of the global crisis after parliament opposed the agreement. (Reuters)

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