Kuwait Facing Multibillion-Dollar Cost Escalations in Upgrade Projects and New Refineries

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Researched by Industrial Info Resources (Sugar Land, Texas)--The steep escalation of project costs in the Middle East, and throughout the world, is reflected in upgrade projects and new refineries in Kuwait. Not long ago, projects with total investments of $3 billion to $6 billion were considered to be top of the range. Now a scan of projects being launched in the region, and/or having their budgets reviewed upwards, will identify a significant number over $10 billion.

Kuwait National Petroleum Company (KNPC) will launch tenders in August for upgrading the capacity of the Mina Abdullah and Al Ahmadi refineries by 100,000 barrels per day (BBL/d) each, bringing their combined output to 800,000 BBL/d from the current 600,000 BBL/d. The current overall plan will see the closure of the older Shuaiba refinery in 2011 as Kuwait targets a capacity of 1.42 billion BBL/d, up from the current 930,000 million BBL/d. The plan to close Shuaiba may be modified and postponed as the refinery has been performing beyond expectations since 2003.

In 2003 the complete upgrading program was estimated at $3.7 billion at current values. Latest estimates have moved the total investment figure up to $18.75 billion.

The present $6 billion Front-End Engineering Design (FEED) phase of the project is set for completion in June under main contractor Fluor Corporation (NYSE:FLR) (Irving, Texas) and consultants SPDM System Development Project Management (SPDM), Hill International and Foster Wheeler (NASDAQ:FWLT) (Clinton, New Jersey). The Hill and SPDM consortium is providing on-call consulting services, contract and commercial management, interface management, quality assurance, and quality control and claims avoidance and management services.

The scope of the upgrade contracts will cover the installation of new crude distillation units to replace currently installed units, naphtha continuous catalytic reformer units, and atmospheric residue desulpherization units. Also covered will be associated new facilities including upgrading storage facilities and provision of new storage and the possible upgrade, repair or replacement of export systems.

Another KNPC project that has seen upward budget recycling over a period of years is the new 615,000 BBL/d Al Zour refinery project which now carries an investment estimate of $14 billion after delays and re-tendering have seen the overall cost increased from $6.5 billion in 2005. The final investment may rise to $19 billion if construction costs continue to rise and new units are added to the design specification. The project, when completed, would be the largest single-site refinery in the world.

Fluor has carried out the FEED and Foster Wheeler has conducted the feasibility study on the refinery project. Ten companies from the east and west submitted bids for the five packages on offer and Japanese and South Korean companies are looking strong for the first two packages, the marine works and storage tank packages.

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