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Al-Zour Refinery Project

State-owned Kuwait National Petroleum Company (KNPC) awarded contracts for the construction of the world's fifth biggest refinery. The new facility will nearly double the country's capacity and is expected to partially offset the downward trend in oil price.

Kuwait, like all other countries whose GDP depends on revenues from oil, sees its economy currently threatened by a low petroleum price crisis, and this situation has already led the country to register its first budget deficit in 16 years. In order to overcome this situation, the small constitutional emirate is investing $70 billion to revamp its refining capacity. The state-owned refiner Kuwait National Petroleum Company (KNPC) will use nearly half of that money to implement two long-awaited projects that will allow the Emirate to process crude oil at home.

The Clean Fuel Project (CFP) is a $12 billion project awarded by KNPC in 2014. It includes the upgrading and expanding of two existing KNPC refineries at Mina Abdulla and Mina Al-Ahmadi, with the aim of increasing their overall capacity to 800,000 bpd by 2018. Moreover, old units will be retired and the refinery at Al-Shuaiba will be closed.

The second and most important project is the construction of the so-called Fourth Refinery at Al-Zour in the south of the country which, once completed, will be the biggest oil refining plant in the Middle East and one of the largest in the world.

The output of the Al-Zour refinery is expected to serve the increasing demand for oil driven by the petrochemical sector. The new plant will produce a higher-quality fuel containing less than 1% sulfur (compared to 4% currently) to supply local power plants.

Higher-quality fuel is necessary to enhance competitiveness of Kuwaiti petroleum products, as it would allow local production to meet the stringent requirements of Kuwait’s traditional export markets.
The New Refinery Project, as the Al-Zour plant is also known, will process Kuwaiti heavy crude coming from new fields and is hoped to play a strategic role in improving KNPC’s downstream process. The new plant will benefit not only the country’s export matrix, but also the environment, as lower levels of sulfur reduce emissions.

The refinery is expected to produce between 700,000 to 800,000 bpd, constituting a 13% increase over the 615,000 bpd that were initially planned, making Al-Zour the fifth largest refinery in the world, after plants in Venezuela, India, and South Korea.

The mega-construction project has an estimated cost of $16.1 billion, after Kuwait’s Supreme Petroleum Council approved in July an additional $2.88 billion for the completion of the plant.

The project has been divided into five different packages and contracts have been awarded to corporations from China, the US, Spain, Italy, and South Korea, with the latter having won the largest number of contracts
KNPC awarded five contract packages to an international consortium to build the 800,000 bpd refinery. Contracts include the construction of the main manufacturing units, support units, and infrastructure services, as well as the construction of a marine export terminal.

Al-Zour refinery was originally planned in 2007, but its execution experienced delays due to internal disputes between the government and parliament. In 2012, a final agreement between the two parties was reached and KNPC retendered the contracts in 2014.

Since 2013, oil-producing countries have suffered from the dramatic drop in the commodity prices. Kuwait’s decision to move downstream is in line with policies enacted by other GCC states in a bid to diversify their output and increase revenues.

Demand for refined products in the GCC is expected to rise, driven by an increasing population and the low cost of fuel. The Fourth Refinery will nearly double Kuwait’s processing capacity, scaling it up from 936,000 bpd to 1.6m bpd.