Kuwait’s refining capacity was damaged severely during Iraqi invasion and occupation in 1990-91. After losing most of its pre-war capacity of 820,000 bbl/d, Kuwait had only 200,000 bbl/d of refinery output by early 1992. Kuwait’s $ 400-million downstream reconstruction program was completed in mid-1994. At present, Kuwait’s three domestic refineries – Mina Al-Ahmadi, Mina Abdullah and Al-Shuaiba – have a combined capacity of around 773,300 bbl/d, according to US-based Energy Information Administration.
Kuwaiti officials have expressed interest in accelerating development of the country’s relatively small petrochemical sector. This would accomplish several goals – boosting the value of Kuwait’s crude oil reserves; helping to protect Kuwait’s revenues during periods of low crude oil prices; and boosting Kuwaiti revenues while adhering to OPEC crude oil quota limitations. Historically, Kuwait’s Petrochemical Industries Company (PIC) has mainly manufactured low-value products such as urea, ammonia and fertilizer for export. PIC is now beginning to move upmarket to production of higher-value products.
The EQUATE joint venture, involving PIC and Union Carbide, is the country’s largest Petrochemical Project. The $ 2-billion industrial complex at Shuaiba, which came online in 1997, includes a 650,000 metric-tonne-per-year ethylene cracker, two polyethylene units with a capacity of 450,000 metric tones per year and a 350,000 metric-tonne-per-year ethylene glycol plant, all of which re currently operating. The complex primarily serves the Asian and European markets. PIC and Union Carbide each have a 45 per cent share in the project, with the remainder owned by Boubyan Petrochemical Company.
Foreign Downstream Operations:
Kuwait Petroleum Corporation (KPC) currently has around 250,000 bbl/d of refining capacity in Europe, including half of Agip’s 300,000 bbl/d Milazzo refinery. KPC also owns a 75,500 bbl-d unit in Rotterdam.
These two refineries enable KPC to supply a large share of its European retail outlets directly. In September 1998, KPC announced the purchase of 157 service stations in Belgium from BP.
The move gives KPC an 8 per cent of the retail market share in Belgium. KPC’s subsidiary, Kuwait Petroleum International (KPI), operates approximately 5,500 service stations under the "Q8" banner in 10 countries in Western Europe and about 200 sites in Thailand.
Kuwait Plans new Port Facilities
Kuwait Ports Authority (KPA) is currently studying the feasibility of one or more new port facilities in the country. The new ports would incorporate the latest technology in the field, to keep abreast with the local and regional economic activities anticipated for the future.
KPA is currently in the process of selecting an international consultant to oversee the studies in this regard. A very important consideration is the ideal location for the new project. Also important are the type of the port and whether to opt for a multi-purpose shipping and navigation facility or one that is specialized in certain services only. KPA would study private and government sectors, local, international and joint-stock enterprises with foreign investors before making a final decision.
Kuwait may post budget surplus in fiscal year 2003-2004
In the latest economic report on the oil market and budgetary developments, the National Bank of Kuwait (NBK) reports that the price of crude increased for the fourth consecutive month in August averaging $ 27.9 per barrel during the first two weeks, up $ 1.2 from the July average of $26.7. Crude oil prices have strengthened as the resumption of Iraq’s oil exports have been disappointing and OPEC has refrained from increasing the production quotas at its last meeting in July. Making things worse are continued problems in Venezuela and Nigeria that have kept output down.
Poor Security:
Continued deterioration in the security situation in Iraq has not allowed the oil sector to return to capacity production levels as early as had been hoped. While Iraq has signed some oil export contracts, the country has yet to see its export pipelines operating at anywhere near full capacity if they have been operating at all. The market has become quite pessimistic and does not expect any return to normality during this year. As a result, the crude oil market has been undersupplied and is expected to remain so at least throughout the remaining part of 2003.
The market’s hope has been set on OPEC to raise its output to make up for the lost Iraqi oil, as it did during and immediately after the war. Instead, OPEC members decided not to increase production quotas during their last meeting at the end of July. The organization’s decision to keep production targets as it is despite disappointing Iraqi oil exports has ensured a steady increase in the price of crude oil as a result of solid demand.
Demand Growth:
The demand picture has become substantially more robust particularly from European and Asian markets. In China, a quick recovery from the effects of the SARS outbreak earlier in the summer has boosted demand for crude. Part of this is also in anticipation of increasing fuel demand during the winter. While US demand was softer by the recent forecasts of the International Energy Agency (IEA), Europe and Asia more than made up the difference, helping to raise expected growth in global crude oil demand for this year. Moreover, the US demand picture may yet turn out to be stronger as estimates are revised in the coming months, according to the agency.
As a result of the reduced supply and strong demand, oil inventories in industrial countries have declined to their lowest levels in years forcing some refineries to be operating at full capacity to replenish refined product inventories. The Center for Global Energy Studies (CGES) estimates global inventories to have declined from 83 days of output last year to 79 days in 2003. According to CGES, undoing this low inventory will take months of over-supply which has yet to begin.
KEC Average:
As long as the Iraqi production remains illusive, we can expect markets to remain relatively tight, requiring OPEC production target hikes during the remaining months of 2003. If OPEC is able to replace the shortfall in production, prices could remain strong at the higher end of the organization’s price target with KEC averaging $ 26.4 in the fourth quarter of 2003 and $ 26.6 in 2003 as a whole. If OPEC is reluctant to raise the output, an already tight market will mean prices will continue to climb through the winter, pushing KEC to an average of $ 28.8 in the fourth quarter of 2003 and $ 27.4 for the year.
However, it is possible that Iraqi oil exports will rise before the end of the year increasing towards pre-war levels, as security improves and the oil infrastructure is refurbished. In such an event, oil prices will weaken during the last months of 2003 and further during the first half of 2004. KEC would be expected to average $ 23.6 during the fourth quarter of 2003 and $ 25.7 for the full year.
Under such scenarios, the price of Kuwaiti crude is likely to average $ 23.7 - $ 27.9 in the fiscal year 2003/04. Government revenues would likely stand at $ 18.7 - $ 22.1 billion, 59 per cent – 89 per cent above the $ 11.7 billion expected in the draft budget.
If the government spends the entire $ 19.24 billion in budgeted expenditures, we could see a $ 1300 - $ 2900 million surplus, though a deficit of $ 535 million is possible in the low price scenario. However, the expenditure is expected to come in about 10 per cent below the budget, or $ 17.69 billion, which means the budget is likely to see a surplus ranging between $ 1003 million and $ 4.45 billion.
