Kuwait May Decide on New Oil Refinery by September

Source: Al Watan Daily 6/2/2010, Location: Middle East

Kuwaiti crude oil jumped 2.14 US dollars Monday to $70.88 per barrel (pb) compared with Thursday's price, said Kuwait Petroleum Corporation (KPC).

This comes after a US report indicated bigger than expected drop in US fuel reserves last week, a drop of 3.2 million barrels.

The increase comes to end a series of consecutive losses in international oil prices, which observers believed was not due to the customary supply-demand mechanism but rather to anxiety over economic growth in the EU under the pull of the Greek debt crisis.

This coupled with the increase in the exchange rate of the dollar against the Euro could affect demand on oil. The Organization of the Petroleum Exporting Countries (OPEC), with Kuwait among its members, aims to keep oil prices between $70 and $80 pb to achieve balance between the interests of producers, who need continuous funding for developing and exploring new oil fields, and consumers, who suffer from great economic decline due to the economic crisis. That level is seen as appropriate and safe in terms of effect on international economic recovery.

Though current Kuwaiti crude price could have been better, the drop in price is in no way comparable to that seen in early 2009 when it sank to the $32 pb level, down from a peak of $136 pb back in July 2008.

In other news, Kuwait's top oil policy body may decide by the end of September whether to build a fourth oil refinery to meet domestic fuel demand and for export after political opposition quashed the project last year.

The Supreme Petroleum Council (SPC) will review technical committee findings on whether to resume the project at its next meeting, the committee's head and council member Imad Al-Atiqi said in an interview in Bahrain on Tuesday. The council could make a decision on the plan from this month through September, he said.

Kuwait, holder of the world's fourth-largest crude oil reserves, put on hold a plan for what would be the its fourth refinery in March 2009 after the government canceled contracts following political opposition. Costs for the project had almost quadrupled by 2007 to four billion Kuwaiti dinars (13.7 billion US dollars), Al-Atiqi said.

"The economics of the project had changed," leading a government audit committee to object to the plan, he said. "We have to address all the comments and questions of the audit committee or it won't be worthwhile re-launching a project with any loopholes or problems in the plan."

The refinery, to be located at Al-Zour, will mainly process heavy crude oil the country is now developing, as well as Kuwait's export blend. It is planned to produce low-sulfur fuel oil for power plants, gasoline, diesel, naphtha and gas oil.

Engineering design work
The timing of the next SPC meeting depends on the country's oil minister, Al-Atiqi said. He declined to say what the technical committee's findings were. The 10- member committee is composed largely of council members and doesn't include government ministers, he said.

The refinery could start by 2015 as main design and engineering work for the project is done, Bakhit Al-Rashidi, deputy managing director of planning at Kuwait National Petroleum Company (KNPC), said in April. Construction tenders could be issued next year once the project is approved, he said then.

Kuwait's three existing refineries have a capacity to process 931,000 barrels a day of crude oil, according to data from BP Plc's Statistical Review of World Energy. The refining unit of state-run Kuwait Petroleum Corporation (KPC) is also upgrading existing refineries to produce cleaner fuels, like low sulfur diesel, Al-Rashidi said. Engineering and design work for that project is finished and the upgrades may be done in 2015 or 2016, he said. KPC will cut supplies of crude oil sold under long-term contracts to Asia by 5 percent in the third quarter compared with contractual volumes, according to three refiners in the region who received notices from the company.


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