Spectacular Growth in Energy Demand expected by 2030
According to the 2004 World Energy Outlook (the biennial publication of the Paris -based International Energy Agency {IEA}), the world’s primary energy demand will increase by 59 percent by 2030. Oil will continue to be the dominant fuel and OPEC’s share of global supply will strengthen considerably. Fears that oil is going to run out in the near future is dismissed – but heavy investments will be necessary to maintain supplies and urgent government action is encouraged to reduce dependence on fossil fuels.
The predictions of the report are based on a reference scenario which assumes that all decisions and plans relating to energy in place at the end of 2003 are implemented. It is expected that the demand of energy will increase at 1.7 percent a year, which is slower than the 2 percent
average of the past few decades. Demand is expected to grow to 121 million barrels a day (b/d) by 2030 and OPEC’s share will rise from 37percent to 53 per cent. Massive investment will also be needed in global oil infrastructure to enable crude production to reach 121 million b/d mark. The IEA suggests that about $3 million million must be pumped into oil fields, tankers, pipelines and refineries over the next two-and-a half decades.
While reassuring the supply levels over the next 25 years, the IEA warns that the increasing levels of oil traded from world trouble spots through busy corridors will enhance supply risks. “A central message of this outlook is that short-term risks to energy security will grow”, says the study. “Major oil and gas importers – including OECD countries, China and India – will become ever more dependent on imports from distant, often politically unstable parts of the world”. Net interregional trade will more than double to 65 million b/d, accounting for more than half of demand. “Booming trade will strengthen the mutual dependence among exporting and importing countries”, the IEA says. “But it will also worsen the risks that wells or pipelines could be closed or tankers blocked by piracy, terrorist attacks or accidents”.
Spectacular Growth: Increase in demand for natural gas will undergo the most spectacular growth, doubling by 2030,mainly on the back of the switch to gas for electricity generation. The bulk of the new supply is likely to come from shipments of liquefied natural gas (LNG), at just over half of inter-regional trade, up from about 30 per cent today. To meet the rise in demand, annual investment of $100,000 million will be needed in gas supply infrastructure.
On oil prices, the IEA predicts an increase of 0.7 per cent a year until 2030. However, unsurprisingly for an agency representing consumer countries , the report has a warning for OPEC on the dangers of high prices. Assuming an average of $35 a barrel, demand would be 15 percent, or 19 million b/d, less in 2030 than in the reference scenario, which assumes a real average of $25 a barrel. Non-OPEC output would rise significantly, cutting the producer group’s market share, and cumulative OPEC revenues would be $750,000 million or 7 percent, less than at the lower price.
In spite of being categorical about the availability of oil for decades to come, the IEA also urges governments to invest in alternative fuels and in technology to improve energy efficiency, both from an environmental standpoint and to conserve finite fuels for longer.
According to the reference scenario, nuclear energy demand will increase only slightly and while use of noncarbon - emitting fuels will more than triple, these will still account for a mere 6 per cent of electricity production by 2030. However, under an alternative policy scenario, world energy demand could be lowered by 10 per cent and carbon emissions by 16 per cent.
Kuwait Capital Market sees a promising New Year
After a comparatively quiet 2004, investors in the Kuwait Stock Exchange (KSE) are preparing themselves for what has the potential to be another good year. Robust liquidity, attractive valuations and a resurgent domestic economy are the drivers for expected strong price advances.
The anticipated uptick will come on the back of recent calm. Trading volumes in 2004 were strong – the average was well over $3,426 million) a month – but failed to touch the highs hit during the feeding frenzy of 2003. Equally, prices struggled to find a direction. The headline KSE index may have appreciated by 30% in 2004, but its methodology is deceptive and hides a muted market. Other, differently structured, indexes showed more modest gains. The Gulf Investment Corporation (GIC) Kuwait index put on 12 per cent last year.
Upward pressures are returning. On a comparative basis, Kuwait had by some margin, the worst performing stock market in the GCC in 2004. And partly as a result valuations have become comparatively attractive.
The stocks to watch read like a list of market’s blue chips . National Bank of Kuwait is expanding its regional footprint while continuing to generate healthy profit growth from its domestic franchise. Other attractive stocks are Wataniya Telecom and Mobile Telecommunications Company.
After some interesting deals brought to the primary market last year – the initial public offerings of Bubiyan Bank and Al-Qurain Petrochemicals Company stood out – the 2005 pipeline is thin compared to the potential deal flow in Saudi Arabia and the UAE. The headlinegrabbing exception could be the IPO of Showtime Arabia, which is partly owned by Kuwait Projects Company (KIPCO). Investment banks have engaged in talks with KIPCO over how a Showtime sale might be structured. Speculation is rife that a dual listing in Kuwait and a European market, will be sought – but no plans has been finalized.
Strong New Year for Oil Prices
Oil prices entered the New Year some $10 a barrel above their level at the start of 2004. with Saudi Arabia’s resolution to adhere to output cuts and terrorist attacks in the Saudi capital helping to support the market. Fears about US winter heating oil stocks are also contributing to the bullish mood. Spot Brent was trading at $40.09 a barrel on 5th January 2005.
Speaking at a conference in India early during the month, the Saudi Minister for Petroleum and Mineral Resources confirmed that production from the start of the month had been cut back by 500,000 barrels a day (b/d) to 9 million b/d, as per OPEC’s early December pledge. Other members also appear to be trimming output.
Fears that Saudi supplies could be subject to a more impromptu cut are fuelled each time terrorism strikes the kingdom. Prices rose in the wake of the suicide attacks in Riyadh at the end of 2004. Escalating violence ahead of elections in Iraq is also raising fears of an interruption to exports in addition to that caused by the remaining closure of the northern oil export pipeline, shutting in a potential 500,000 b/d of sales.
Iraq – Kuwait Gas Deal
According to recent press reports, a Memorandum of Understanding (MOU) is being signed for the purchase of Iraqi natural gas by Kuwait. Once the MOU is signed, the two parties are expected to finalize the deal next year, with a view to resuming gas supplies within a year of contract signing.
Under the terms of the proposed deal, the supply agreement will be implemented in two stages. Under the first phase, Iraq will export 35 million cubic feet a day (cf/d) of gas to its southern neighbor through an existing disused pipeline. The second phase would see imports rise to 200 million cf/d. Expected investment will exceed $800 million to re-commission and rehabilitate the pipeline, as well building associated receiving terminals. The two countries will share the costs, with Kuwait taking on the majority of the financial burden. Baghdad supplied Kuwait with 200 million cf/d of gas through the 140-kilometer-long pipeline from 1986-90. However, the 40-inchdiameter link, which runs from the giant Rumaila field in Southern Iraq has remained idle since the Iraqi invasion of Kuwait in 1990.
As part of the Agreement, Kuwait will also increase exports of refined products to Iraq, which faces a shortfall of about 100,000 barrels a day (b/d) of refining capacity. Petrol shortages are a common occurrence in Iraq.
For its part, Kuwait has been desperate to find a gas supply partner for some time to meet its power generation requirements and increasing domestic demand. The state has other gas import deals pending with Qatar and Iran and is also considering the possibility of building a liquefied natural gas (LNG) terminal, should the pipeline option fail.
Prospective Bidders for Crude Oil Storage Re-tender
Just 7 of the 17 pre-qualified companies attended the obligatory pre-tender meeting for the Ahmadi Oil Storage and Export Facilities Project of Kuwait Oil Company. The bid is closing on 22nd February 2005 for the estimated $850 million EPC Contract. This tender was originally tendered early last year and is re-tendered now.
Of the three original bidders, only Paris -based Technip attended the recent pre-tender meeting. The following are prospective bidders for this project:
1. Hyundai Engineering & Construction, South Korea.
2. Hyundai Heavy Industries, South Korea
3. LG Engineering & Construction, South Korea
4. SK Engineering & Construction, South Korea
5. SNC Lavalin, Canada
6. Technip, France
7. Tecnicas Reunidas Spain / Saipem, Italy.
The project, which retains the scope of the original tender issue, calls for the construction of 11.4 million barrels of crude storage capacity at Ahmadi.
It is being tendered in four packages covering general works, tanks and gravity lines, pumps and metering skids and offshore works.
Kuwait lifts restrictions on high-rise buildings
The Government of Kuwait has lifted restrictions on building high-rise buildings in the country, allowing towers to be built up to 70 storeys high. The Government’s decision allows investors to develop buildings almost twice the height of the current projects, which are limited to 40 storeys.
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Kuwait is experiencing a construction boom and the recent announcement may go some way to relieving some of the pressure on plots available for development. As a Design Consultant puts it, “People will certainly now go for bigger towers, although it will likely be sometime before they start coming up, because the existing power, sanitation and parking infrastructure cannot cope with the huge demands these kind of buildings create”.
Infrastructure limitations are not the only impediments to high-rise development. Government regulations also state that a building’s maximum height cannot be more than 400 per cent the size of the plot it is built on. “Lifting the ratio restriction is key”, says a private developer. “This is what we would all like to see. Unless this rule is relaxed, it doesn’t matter how many storeys the tower can have, we simply wouldn’t be allowed to build it”.
Anode Plant in Shuaiba Industrial Area
Plans are gathering pace for the construction of an estimated $689 million Carbon Anode Plant at the West Shuaiba Industrial Area. Agreement has been reached on the feedstock supply for the 600,000-tonne-a-year (t/y) plant. Consolidated Contractors International Company (CCC) are the main construction contractors.
Kuwait Petroleum Corporation (KPC) has signed an agreement with Al-Fada Trading & Contracting Company to supply the plant with 380,000 t/y of calcined coke over 20 years, or 510,000 t/y of green petroleum coke if calcined coke is not available.
The plant, which will be built on a “build-ownoperate” (BOO) basis, will cover 230,000 square meters near KPC’s green coke storage facilities.
Formation of a new project company called gulf Carbon Industries Company (GCIC) is underway. Al-Fada will take a 30% stake in the new firm in partnership with Aminco Resources of USA. The remaining share will be held by a number of GCC investors.
The Canadian company ALCAN is the bake furnace technology provider. Technology for the paste plant will be provided either by Solios of France or KHD Humboldt Wedag of Germany. The Front End Engineering & Design (FEED) of the plant has been carried out by K-Home Engineering of the United Kingdom.
GCC Electricity Grid Project – Pre-qualifications
The GCC Interconnection Authority (GCCIA) of Saudi Arabia has announced the pre-qualified companies for the Engineering, Procurement and Construction (EPC) packages for the first phase of the GCC Electricity Grid Project. The first phase of the project estimated to cost $1190 Million, will link the power networks of Saudi Arabia, Kuwait, Bahrain and Qatar.
For the purpose of tendering, the Phase I program has been split into five main packages covering 13 lots. The Packages are as follows:
A-1 – Substations
Following six international contractors are prequalified for the 400-kV substation package:
1. ABB Contracting Company, Europe
2. Areva T&D, France
3. A&E Power Systems Company, Japan
4. Siemens, Germany
5. TMT T&D Company, Japan
6. VA Tech T&D, Austria.
The six new substations will be built at Al-Zour in Kuwait, Fadhili and Ghunan (both in Saudi Arabia), Al-Jasr in Bahrain, Doha South in Qatar and Salwa on the Qatari/Saudi border.
A-2 – HVDC (High Voltage Direct Current ) Terminals:
Following five international contractors are prequalified for the package which covers one lot, the construction of the HVDC Converter Station at Fadhili:
1. ABB Contracting Company, Europe
2. Areva T&D, France
3. A&E Power Systems Company, Japan
4. Siemens, Germany
5. TMT T&D Company, Japan.
B-1 – Overhead Lines:
Twenty four international and regional contractors are pre-qualified for the 400 kV transmission line package, which has been split into four lots, which are:
- 310 kilometers of double-circuit transmission line between Al-Zour and Fadhili
- 100 kilometers of double-circuit transmission line between Fadhili and Ghunan
- 200 kilometers of double-circuit transmission line between Ghunan and Salwa
- 100 kilometers of double-circuit transmission line between Salwa and Doha South
Following are the pre-qualified companies for the overhead lines:
1. ABB Contracting Company, Europe
2. Areva T&D, France
3. Al-Shariff Group, Saudi Arabia
4. Al-Suwaiket, Saudi Arabia
5. Fujikura, Japan
6. Hadi Haider, Saudi Arabia
7. Haif Trading & Construction, Saudi Arabia
8. High Dam Electrical & Industrial Projects, Company, Egypt
9. Hyundai Engineering & Construction, Korea
10. Inabensa, Spain
11. Isolux, Spain
12. A&E Power Systems Company, Japan
13. Jyoti Structures, India
14. Kalpataru Power Transmission, India
15. KEC International, India
16. Larsen & Toubro, India
17. MASS Projects, Saudi Arabia
18. Middle East Engineering, Saudi Arabia
19. National Contracting Co., Saudi Arabia
20. PIPCO, Saudi Arabia
21. SA-RA Energy Construction, Turkey
22. Siemens, Germany
23. Tata Projects, India
24. Technopromexport, Russia
B-2 – Submarine Cable:
Following four companies are qualified for this package, which covers one package, the 40- kilometer 400 kV submarine link between Ras Al-Qrrayah to Al-Jasr:
1. ABB Contracting Company, Europe
2. Fujikura, Japan
3. Marubeni Corporation, Japan
4. Pirelli, Italy
C – Control Center & Telecommunications:
Six international contractors are pre-qualified for the package.
1. ABB Contracting Company, Europe
2. Areva T&D, France
3. Inabensa, Spain
4. Siemens, Germany
5. TMT T&D Company, Japan
6. VA Tech T&D, Austria
Only Europe’s ABB is pre-qualified for all the five packages, while Germany’s Siemens and France’s Areva T&D are pre-qualified for four.
The first award of the contract is expected by May 2005 and the commissioning of the project is scheduled for the first half of 2008.
SNC Lavalin is providing the consultancy services in Phase 1, which will be finance by Saudi, Kuwait, Bahrain and Qatar.
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