Kuwait’s Jurassic Gas Project Hits More Problems
Shell’s 1bn cfd Jurassic Gas Project in Kuwait faces more delays, forcing the petrochemical industry to switch production and feedstock, while parliament appoints new committee members to investigate the contract. The project impacts KNPC’s $40bn planned refinery capacity expansion and gas fractionation trains, and its decision on building a permanent LNG import terminal. Nick Wilson writes.
Kuwait’s parliament is due shortly to appoint new members to the committee that is investigating Shell’s $800mn enhanced technical services agreement (ETSA). Among the new members are expected to be critics of the government’s energy policies (MEES, 20 February). Parliament is running an investigation in parallel to a Ministry of Oil probe into the contract. The inquiries are, among other things, looking into whether state-owned Kuwait Oil Company (KOC) overstepped its authority in issuing the consultancy contract to help develop the 1bn cfd Jurassic gas project in the northern fields of Umm Niga and Sabriya, and if Shell has operational control. The project has been plagued by problems – KOC said Phase One would produce 175mn cfd of gas by December 2007, but output is stuck at 140mn cfd, and Shell has recommended pulling down the processing plant and starting again, which would take at least two years. Phase One produces 50,000 b/d of liquids, which at first was called condensate but has since been classified as mainly light oil.
KOC says it lacks the experience to handle the project. It set standards for qualifying contractors too low, and did not specify the quality of equipment that had to be used. Local firm Safwan built the processing plant using refurbished machinery. “It runs, but in extremely poor condition – nothing is working well,” a contractor tells MEES. The Phase Two, three-year project awarded in December 2010 to local firm Kharafi National was expected to reach 600mn cfd by end-2013, but work hasn’t started yet due to changes in the project scope. Kharafi and Safwan have limited experience in gas development and are handling “the world’s most difficult gas field” – the gas is deep, at high pressure and temperature, and contains a lot of hydrogen sulfide. It is also underneath difficult geological structures.
Kharafi subcontracted the project to Saipem, an engineering division of Italy’s Eni, paying it a fee for its work. Saipem has since offered to form a joint venture, take all the risk and provide all the cash, and pay Kharafi a fee, MEES learns. KOC sent a technical team to Italy, but the team has since returned, implying a collapse in the talks. Industry insiders expect the contract to be cancelled and re-tendered. “There are issues between KOC and Kharafi because they are not on target,” an official of the Kuwait Petroleum Corporation (KPC), KOC’s parent company, tells MEES. The original Phase Three goal of 1.5bn cfd has been dropped. The current Phase Three target of 1bn cfd by 2016 looks increasingly unrealistic and KOC no longer publicly refers to the target of 350,000 b/d of liquids production.
KOC Gas Targets
At present, after meeting its reinjection needs, state-owned upstream firm Kuwait Oil Company (KOC) sends 1.16bn cfd of associated gas and 140mn cfd of non-associated gas from the Jurassic project in the north to Mina al-Ahmadi refinery for processing. Fifty percent of the raw gas is available for power generation after ethane and NGLs are stripped out, of which 20% goes to KOC’s power plants and a potential remaining 520mn cfd could go to the national grid. However, flaring at state-owned Kuwait National Petroleum Company (KNPC) refineries remains a significant issue. State-owned Kuwait Gulf Oil Company (KGOC) – which partners Saudi Arabia in the Neutral Zone – aims to implement a 1% flaring policy by 2015 in its offshore fields, which produce 50-60mn cfd of associated gas. Onshore, a project in Wafra field will collect 100mn cfd of associated gas by 2014 to use for in-field power generation. KNPC and KOC have programs to reduce flaring, but do not publish figures.
KOC is relying on exploration to find 1bn cfd of non-associated gas, letting it hit its total target of 4bn cfd by 2020. It discovered the Nawara non-associated gas field in the north two years ago and is drilling three test wells. Offshore, Dorra in the Neutral Zone is expected to start production in 2016 and ramp up to 1bn cfd – of which 500mn cfd will go to Kuwait. KOC chief Sami al-Rushaid says the 2020 goal includes 2.5bn cfd of non-associated gas. The associated gas target is 1.5bn cfd.
The program is not fast enough for the needs of KPC’s petrochemical division, Petrochemical Industries Company (PIC), which is completing a feasibility study for the Olefins III plant next to Mina al-Ahmadi refinery. It is looking at whether to build a mixed feedstock ethylene flexi-cracker (using naphtha and low cost ethane), senior PIC officials say. It is also studying the amount of ethylene to be produced – some 700,000-900,000 tons/year. It is in talks with KOC to work out its feedstock options, and will look for a partner in the joint venture. Yusuf al-'Atiqi, PIC Deputy Managing Director said at a recent conference: “We’re not good at integration between refining and petrochemicals and we face an ethane shortage, so we are shifting to speciality products rather than commodities.”
A petrochemicals analyst tells MEES the project, formerly known as Equate 3, “will now be done by PIC as Dow will no longer be involved, given the whole mess over the failed deal in 2008.” Dow is suing PIC for $2bn after being forced by parliamentary pressure to abandon the planned joint venture. “I guess it’s not so much a project transfer as PIC killing the Equate project and then starting a new one on its own. It would take four years plus to build, I think, once the [Front End Engineering and Design] FEED is complete,” he said. Equate Petrochemicals Company is a joint venture, in which Dow and PIC have equal stakes. “What I’ve heard is that it will be a fully liquids cracker and that there’s no extra ethane at all in Kuwait – in fact both Equate 1 and 2 have been experiencing FEED problems.”
Muhammad al-Husain, a well respected former deputy managing director of KOC with a reputation for hard work and campaigning against corruption, is to become chairman of Equate – a post he will soon take up, MEES learns.
Kuwait Gas Production Targets (Bn CFD)
Project | 2012 | 2013 | 2016 | 2020 |
Umm Niga and Sabriya | 0.14 | 0.6* | 1.0 | 1.0 |
Dorra (Kuwait’s share) | 0.5 | 0.5 | ||
Νon-Associated Gas Total | 0.14 | 1.5 | 2.5† | |
Associated Gas | 1.30 | 1.5 | ||
Total Gas | 1.44 | 4.0 |
* Viewed as improbable.
† Relies on field discoveries.
Source: KOC and KGOC.
Gas Imports And Refinery Expansions
KNPC plans to spend $40bn between 2012 and 2018 to expand and modernize its refining sector – but its strategic decisions, including whether to build a permanent import LNG terminal, depend on the success or failure of the Jurassic gas project. And if the past and present are indicators of the future there is not much encouragement for optimism about its success.
In the second quarter of this year a tender will go out for a $2bn sulfur recovery unit at Mina al-Ahmadi refinery. The Jurassic gas is very sour. Mina al-Ahmadi’s three gas fractionation trains, each of 560mn cfd, handle a total of 60,000 b/d of liquids. Units for a fourth train will arrive in April, for completion in the first quarter next year. The train will be able to handle 1.1bn cfd and more than 100,000 b/d of liquids. The front end engineering and design (FEED) of an identical fifth train will be completed by the end of February for completion in 2015. A sixth train is under study. The expansion is based largely on the Jurassic project’s projected output.
Kuwait has been in unsuccessful talks with Iran to import gas for years. It is unlikely to happen during the current political tension in the Gulf. Two gas pipelines from Iraq to Kuwait were built before Iraq’s 1990 invasion of Kuwait, but were never commissioned. Although two independent companies have been in talks with Baghdad to import gas for petrochemical projects, Iraq is unlikely to agree to this. Sara Akbar, CEO of Kuwaiti upstream independent oil firm Kuwait Energy Company, which operates a project to recover 100mn cfd of associated gas in southern Iraq, tells MEES: “Iraq is desperately short of gas – it won’t export any before it can provide enough for the domestic market.”
Kuwait imports 500mn cfd of LNG in the summer under a deal with Shell and Vitol. KNPC is studying building a permanent LNG import terminal, which would lower operating costs. To help plan this it needs to know if the planned refinery expansion to produce more fuel oil will go ahead and when the Jurassic project will hit its targets.
In addition to associated gas Kuwait’s power stations burn LNG and high sulfur foil oil (HSFO) at a ratio of about 30:70 during the period March-October and only HSFO during the winter. In the past they burnt about 9-10mn tons of HSFO in one year. But Kuwait exports HSFO via a term contract into Pakistan of one cargo (70,000 tons) per month of HSFO (180 centistoke).
Kuwait’s refineries have a total 936,000 b/d throughput capacity – Mina al-Ahmadi 466,000 b/d; Mina 'Abd Allah 270,000 b/d; and Shuaiba 200,000 b/d – producing 300,000-400,000 b/d for the domestic market and 500,000-600,000 b/d for export. Twenty percent of total production is fuel oil – 187,200 b/d. This will drop to 5% (39,000 b/d) of their output after the $15bn Clean Fuels project has upgraded two of the refineries and closed Shuaiba. Its aim is to produce low sulfur higher value products. A new 630,000 b/d refinery at al-Zour will produce 225,000 b/d of LSFO for the domestic market. Kuwait will then have 264,000 b/d of LSFO.
However, communication in Kuwait’s oil industry can be poor – a Supreme Petroleum Council (SPC) member tells MEES that the council authorized a 530,000 b/d new refinery, after parliament balked at the cost and bidding process for a previous $15bn, 615,000 b/d plan. KNPC officials, however, are still planning for the 615,000 b/d project. “It’s not about cost – it’s about need,” KNPC Deputy Managing Director Bakhit al-Rashdi, tells MEES. Another senior KNPC official looked visibly shocked when told about the SPC’s decision. A third said the 530,000 b/d plan can be expanded to 615,000 b/d if Kuwait’s heavy oil projects are successful. Mr Rashdi hopes to commission the 615,000 b/d version in 2017. However, the project – first planned in the early 1990s – was blocked by parliament’s objection in 2009. Its contract award was subsequently referred to the State Audit Bureau, which found it opaque and that it had been issued under non-competitive bidding. The government, intimidated by the then minority opposition, has not tried to push the project forward. After elections in February the former minority now dominates, making it even less likely that the government will try and push ahead with the big refinery projects. Meanwhile the reactors, which house the catalysts, for al-Zour and the clean fuels project have been lying in the desert, slowly deteriorating, MEES learns. GE’s reactors for al-Zour have been there since 2008 and their guarantee date has expired. Larsen & Toubro’s 33 reactors, costing $420mn, are also in the desert with their guarantee expiry date approaching.
Copyright MEES 2012.
