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Mon 26 Jul 2010 04:00 AM

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Refined touch

Bakhit Al-Rashidi, deputy MD of KNPC, says the company's fourth refinery has been approved, and that the K-fuel project will help Kuwait meet international standards.

Refined touch
Bakhit Al-Rashidi, deputy managing director of KNPC and chairman of Kuwait Aromatic Company.
Refined touch
KNPC operates three major refineries in Kuwait.

Bakhit Al-Rashidi, deputy MD of KNPC, says the company's fourth refinery has been approved, and that the K-fuel project will help Kuwait meet international standards.

The Kuwait National Petroleum Company (KPNC) is the most controversial amongst the Kuwait Petroleum Corporation's (KPC) subsidiaries, and the preferred target of attacks from the local media. There is a reason for this: KPNC is in charge of the most critical project in Kuwait, the US$15bn fourth refinery project which is expected to be revived soon. The refining sector in Kuwait is operated by the KNPC, the local refining and gas processing arm of the KPC, which owns 100% of the company.

The company operates three refineries in Kuwait. "We have three complex refineries in Kuwait with a total refining capacity of 936,000 bpd," explains Al-Rashidi. "The Shuaiba refinery is the smallest refinery with a capacity of 200,000 bpd, followed by the Mina Abdullah refinery with 270,000 bpd and the third is the Mina Al-Ahmadi refinery with 460,000 bpd."

KNPC is also in charge of gas processing operations in the Gulf state, it operates a big processing complex with three trains. "We have three identical trains, with a capacity of 560 million cubic feet per day; which together have a total capacity of 1.6bn cubic feet of gas processing capacity. Plus two gas treating plants for sulfur removal," says Al-Rashidi. These gas treating plants are located in Shuaiba with a processing capacity of 150 million cubic feet per day, while the second one is located in Mina Al-Ahmadi with a capacity of capacity of 200m standard cubic feet per day.

The company produces 936,000bpd of refined products, but it doesn't conform to the Euro 4 or the Euro 5 specifications which dictate the content of sulfur in diesel. The content of sulfur should be less than 10ppm in order to be marketed in Europe. "Until now, we don't produce Euro 4 or Euro 5 standards diesel or gasoline within Kuwaiti refineries, but we are producing it through our international arm, Kuwait International Petroleum (KIP)," explains Al-Rashidi.

Not meeting European specifications does not prevent KNPC from selling its products internationally, says the managing director, as the company mainly targets the Asian markets, which do not impose such stringent requirements.

"Our customers are in the Far East and they don't require the 10ppm quality."

But the exclusive focus on the Asian markets is of temporary nature. "We target the East due to the lower transportation costs. However, after the start up of our new projects in 2015 and 2016, we will be targeting all markets around the world," Al-Rashidi reveals.

Looking ahead, the company intends to upgrade its refining system to meet all international requirements. "We launched the K- Fuel project, which will upgrade the current fuel quality to meet the level of products required by 2013. Whatever the specification, we will produce it."

KNPC has already completed the FEED stage of the K-Fuel project, and expects to award the contracts in the next few months. "We will go ahead with the project some time this year, as we have already completed the FEED stage," says Al-Rashidi.

The K-Fuel project includes the upgrading of two refineries to produce low sulfur diesel meeting the 10ppm specifications, and to reduce sulfur content in the fuel oil to less than 1% compared to current 3.5%.
The fourth refinery dilemma

KNPC is in charge of the construction of the fourth refinery project, which the government counts on to meet the increasing local demand on fuel oil for power generation.

The company has come under heavy attack from the media for its role in the 615,000 barrels per day Al Zour refinery project. The project also faced opposition from several deputies, who alleged that there were violations of the tendering proceedure. In the most prominent example of malpractice, a contract handed to Fluor without a tender. Some deputies threatened to question former oil minister Mohammad Al Oliam if he went ahead with signing more contracts. The government bowed to pressure and asked the Audit Bureau to investigate whether the tender process showed irregularities.

The bureau's report was not made public, but according to local media reports it concluded that the project was not feasible.

Consequently, the company in March 2009 cancelled contracts worth $8.4bn that had been awarded to four South Korean firms, one Japanese firm and the US contractor Fluor.

But, due to the increasing demand on fuel oil for electricity generation and refined products, the Kuwaiti government is expected to give the green light in the next few months. "The fourth refinery is an approved project. However, we are reviewing the project with the Supreme Petroleum Council," says Al-Rashidi.

"We had intensive meetings with the planning and strategic committee over the last two months, and we have provided all the data and necessary information on the strategic importance of the refinery for Kuwait," he adds. "Now we expect to receive approval within the next three months."

While the cancelled contract was awarded on a cost plus basis, KNPC haven't yet decided the basis on which it will be awarding the new refinery.

"Whether lump sum turnkey (LSTK) or cost plus basis, everything will depend on the market situation," says Al-Rashidi. "If the market is up, we go on cost plus, if the market down we go on LSTK."

The cancellation of the fourth refinery project was a disaster for Kuwait's reputation as a target for investment, as political interventions undermined the trust in the process.

But Al-Rashidi is remarkably confident  that foreign investors will eventually understand the reasons behind the cancellation. "It is our system and we have to live with it," says Al-Rashidi. "I think that after some time, people will understand this especially as it is a multibillion dollars project."

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