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Kuwait, Saudi reach settlement on Zour refinery site

KUWAIT: A senior oil executive said yesterday that Kuwait and Saudi Arabia have reached an agreement over the site of the new oil refinery to be built in Al-Zour area after Kuwait moved the initial location north. Speaking at a debate over the multibillion-dinar refinery, head of Kuwait Oil Company (KOC) Sami Al-Rasheed said "we have a Saudi approval of the new site" of the refinery.

Rasheed was responding to a question by Kuwaiti economist Waleed Al-Saif who cast doubt on a Saudi-Kuwaiti controversy over the location of the new 615,000-barrels per day refinery. Saif said that Saudi Arabia had demanded the refinery to be moved outside the Partitioned Neutral Zone, where both countries share oil production, where it was initially planned to be built.

Rasheed, who was head of Kuwait National Petroleum Co (KNPC) when the refinery project began, said that Kuwait has also secured approval to use the nearby Al-Zour port for export of products and other materials from the new refinery, denying that pipelines will be needed to link the new refinery to Shuaiba port. The official strongly defended the refinery project as "a strategic and environmental" project for Kuwait in order to meet essential domestic energy demands and "secure energy supply for our power
and water desalination plants".

We are convinced that this goal as strategically important" said Rasheed. He said that based on current estimates and projections, "Kuwait would still face a shortage in domestic energy supplies for power plants starting 2017 even after completing the refinery project". He said that natural gas was certainly a better option to operate power plants, but "Kuwait cannot guarantee sufficient supplies of gas and needs the refinery".

He said that Kuwait plans to raise its free gas production to around one billion cubic feet daily in 2015 from gas fields in the north of the country. "We are expecting to produce another one billion cubic feet daily from Dorra", an offshore gas field shared with both Saudi Arabia and Iran. Kuwait and Iran have been negotiating to demarcate the continental shelf or sea borders between them where Dorra is located. Talks have made some progress but no final deal has been reached. Rasheed said that Kuwait has been conducting seismic studies on the area without providing details.

The official also defended the cancellation of the first round of bidding for the refinery because offers made were highly exaggerated and came in at more than KD 5.1 billion. He added that the new bidding, carried out on the Cost Plus basis, will cut the cost to around KD 4 billion. Rasheed said that KD 4 billion has been earmarked for the project, but KD 300 million is for emergency purposes, and thus the real budget set for the refinery is only KD 3.7 billion. "Even if the final cost comes in 20 or 30 percent higher than our estimates, it will be less than offers made in the first bidding," he said.

Rasheed said that if Kuwait fails to build the refinery, it will be forced to burn 240,000 barrels of crude daily in less than a decade. "This is a major loss for the country". He said that even if "we manage to secure or discover sufficient gas supplies in the future, we can turn the new refinery to produce products only for exports and can make huge returns from it".

Saif however challenged that gas that could be produced from Dorra field is sufficient for Kuwait, citing some oil studies. He also said that the economic feasibility study for the project "has not been made public and thus the whole project is not transparent and may not be economically feasible".

Kuwaiti oil expert and former oil executive Kamel Al-Harami, who is opposed to the project, said the country does not need a new refinery and can get the fuel oil for power plants from another project for upgrading the refineries of Ahmadi and Mina Abdullah. Harami also recalled that Kuwait produces large quantities of natural gas associated with crude and "such quantities will increase in the future based on Kuwaiti plans to expand crude output in the coming years". He also warned that 80 percent of the contracts were awarded to South Korean companies and that most contracts in the Kuwaiti oil sectors are being carried out by Korean companies. This puts our vital industry at risk of any problem in South Korea, he warned.

In another development, a group calling itself the Alliance for Defending Popular and National Gains, held a rally to oppose the refinery project in Jahra late Tuesday night. Two MPs, Mohammad Al-Hatlani and Ali Al-Deqbasi, and other activists addressed the rally. Deqbasi criticized the project because of its ambiguity and lack of transparency despite the huge funds needed to finance it. Hatlani warned that the issue was being politicized and some quarters were pushing towards dissolving the National Assembly.

By B Izzak

© Kuwait Times 2008