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MENAFN - The Peninsula - 11/04/2008

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(MENAFN - The Peninsula) Kuwait's giant new Al Zour refinery could cost as much as 19bn, 5bn more than previously budgeted, as the country considers adding more units to the plant, a company official said yesterday.

Rapidly rising costs in the energy industry have hit projects worldwide and already delayed the start-up date for the 615,000 barrels per day Kuwait refinery by more than a year.

"There is an intention to raise the budget to add more process units, it is under consideration," an official at Kuwait National Petroleum Company (KNPC), said. He declined to say what units may be added to the plant. Unlike most new refineries, Al Zour was planned as a relatively simple plant as the country needs to produce more fuel oil to burn for power generation.

Elsewhere, new refinery plans typically include more complex units to produce more transport fuels and reduce fuel oil output. Cleaner-burning natural gas has replaced fuel oil in much of the world's power generation, but Kuwait is short of gas and must rely on oil to meet rapidly rising power needs.

Kuwait plans to produce low sulphur fuel oil to limit the impact on the environment. The cost of building the desulphurisation units has played a part in driving up the refinery budget.

State-owned Kuwait Petroleum Corp (KPC) will work to raise the approved budget for the plant to 19bn from 14bn, Al Rai newspaper said, citing industry sources. Kuwait had already doubled the budget to 14bn from its initial cost estimate. "There is nothing official until now. There are expectations that the budget will increase again with the rising costs in oil prices and equipment," said another oil official.

Saudi Arabia and Kuwait have struck a deal over the site of a planned oil refinery near their common border. The deal was reached during high-level talks held in Riyadh a few days ago.

Kuwait's Emir H H Sheikh Sabah Al Ahmad Al Sabah held talks with the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz on Saturday during a short visit to the kingdom, the world's top oil producer. Saudi Texaco, which manages oil on behalf of Saudi Arabia in the divided zone shared with Kuwait, was reported to have objected to the location of Kuwait's new refinery, which is close to the border.

When the Gulf state began planning for the project several years ago, it had earmarked only 6.3bn. But bids by international companies came at more than 15bn, prompting Kuwait to cancel the tender and invite new bids on the basis of cost-plus profit margin.

Faruq Al Zanki, head of the state-owned refiner Kuwait National Petroleum Co, told the Middle East Economic Survey last month that one of the contracts was awarded to US engineering firm Fluor. Other contracts are expected to be awarded later this month, he said.

Kuwait in September prequalified 17 international companies to bid for the refinery. Construction is due to start later this year or early in 2009, with the refinery set to come on stream by the end of the first quarter of 2012. Completion was originally planned for 2010.

The new refinery, along with another project to upgrade two of Kuwait's three existing refineries, would boost the emirate's refining capacity to 1.4 million b/d by 2012, up from its current 936,000 b/pd.

Saudi Arabian Chevron has a lease on some of the land on Kuwait's side of the neutal zone, which Kuwait state refining arm KNPC had earmarked for the new refinery. Chevron, operator on the Saudi side of the zone, is not using the land but may want to if it expands operations in the zone. Chevron is in talks with Saudi Arabia about renewing its concession in the zone. The concession, which survived the nationalisation of the Saudi oil industry in the 1970s, expires in 2009.


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