KPC—outside the political bubble
Kuwait Petroleum Corporation is expanding its global footprint as it targets increased domestic oil and gas capacity
When KPC's chief executive Nizar al-Adsani stood up to address Petroleum Economist's third Energy Strategy Forum in Kuwait City in January he began with an apology on behalf of the country's oil minister, Bakheet al-Rashidi. The latter, he said, "has to be at the National Assembly [parliament] for a vote of confidence on one of our ministers".
The oil minister's absence from the conference and the KPC boss' presence illustrate the differences between the two wings of Kuwait's energy management. The minister is caught up in the bare-knuckled hurly-burly of Kuwaiti politics—there have been no fewer than 21 oil ministers since 1980—while the head of the state energy firm isn't directly involved in parliamentary and cabinet tussles. In contrast to the swift turnover of oil ministers, KPC has had only six chief executives over the past four decades. Coping with the lack of continuity at the ministry has been a challenge for all of them.
Unlike many NOCs, KPC isn't directly involved in upstream or downstream operations. It's an umbrella company that oversees the activities of its subsidiaries—not just in upstream and downstream in Kuwait, but also in overseas ventures, shipping and other sectors. "Our vision," Adsani told the Kuwait conference "is to be a global integrated oil and gas company, leveraging innovation to maximise profit."
The KPC subsidiary with the deepest roots is Kuwait Oil Company (KOC), which was established in the 1930s by the Anglo-Persian Oil Company that became BP. KOC was later owned by BP and Gulf Oil, producing up to 3.7m barrels a day. In 1972, the government took a 25% share in KOC. Under a Partition Agreement, this rose to 60% in the wake of the 1973 Arab-Israeli war and the oil embargo, as Arab oil producers gradually acquired ownership of oil operations.
A certainty is that the National Assembly would throw away any IPO proposal for KPC into the waste bin
In 1976, two years after the creation of the Supreme Petroleum Council, Kuwait took over the remaining 40% of KOC and four years later KPC was formed. KOC, responsible to this day for upstream operations throughout Kuwait, and other companies in the energy sector became subsidiaries of the state firm. The new structure, according to KPC, would enable "central planning of the industry, more effective and efficient distribution of work, close coordination between various bodies, in addition to the better use of engineering economies of scale".
One of KPC's primary roles has also been to draw up national energy strategies. That's the easy part. Before any major plans can be implemented they invariably require the approval of the cabinet and National Assembly. This is where KPC finds itself face-to-face with Kuwait's often unruly and unpredictable political system, leading to frustratingly long delays to planned projects.
Kuwait has ambitious downstream expansion plans
A good example was a proposal called Project Kuwait, drawn up in 1997 to increase oil production capacity by allowing IOCs to take part in the development of the country's northern heavy-oil fields. The scheme met immediate political opposition, with parliamentarians refusing to accept the principle of foreign companies being allowed to enter the country's oil sector. There were also allegations in the media of corruption involving agents of various foreign companies. Despite repeated assurances over many years from KPC that the firms involved would merely be contractors and would have no ownership rights, Project Kuwait remained blocked.
In 2010, Shell signed an enhanced technical services agreement (ETSA) to help develop Jurassic gasfields; but the deal was immediately subject to parliamentary and judicial inquiries. The public prosecutor dropped his investigation into the agreement in 2016. In the same year, KPC amended the ETSA and BP and Shell were both awarded contracts—the former to help maintain output capacity (1.7m b/d) at the Burgan field (discovered in 1938) and the latter to develop the heavy-oil Ratqa field and assist with water management at a number of onshore fields. The expectation is that if the new ETSA withstands parliamentary scrutiny, other IOCs will be contracted. Significantly, Adsani said in January that Kuwait would "continue to strengthen its cooperation with IOCs in order to effectively meet its ultimate targets".
KPC's 2040 strategy is to raise crude oil output capacity from the current 3.1m b/d to 4.75m b/d. To achieve this, development of the northern fields is essential. KPC is likely to make even more strenuous efforts to persuade politicians of the need for more IOCs to be involved. The state corporation will also hope that the government is successful in reaching an agreement with Saudi Arabia that sees taps being turned on again in the Neutral Zone shared by the two neighbours. Kuwait has not received its 250,000-b/d share of crude oil since 2015, when a dispute with Saudi Arabia led to joint operations stopping. Kuwait's involvement in the Neutral Zone is through Kuwait Gulf Oil Company, another arm of KPC. Kuwait has compensated for this lost production by pushing output from the aging Burgan field to the limits.
As for natural gas, the plan is for sustainable non-associated production to rise to 2.5bn cubic feet a day in 2040, having reached 0.5bn cf/d this year and 1bn cf/d in 2023. This will be achieved largely through the development of the Jurassic fields in the north.
Outside the country, Kuwait Foreign Petroleum Exploration Company (Kufpec), KPC's overseas upstream subsidiary, is involved in operations in a dozen or more countries, from a shale gas venture in Canada to a liquefied natural gas project in Australia. Kufpec was hoping to end 2017 with production of 100,000 barrels of oil equivalent a day. But the unexpected collapse of a deal to buy Shell's stake in a gasfield in Thailand was one factor behind the company managing only 82,000 boe/d.
2.5bn cf/d—2040 target for gas output
In line with other Gulf NOCs, much of KPC's focus is on expanding downstream operations—in Kuwait and overseas. "We plan to integrate refining and petrochemical operations domestically as a means of optimising operations and securing high value for Kuwait," Adsani said. "Petrochemical expansion is continuing to attract our attention inside and outside Kuwait. We will expand into derivative and speciality petrochemical projects."
The jewel in the crown of KPC's domestic refining subsidiary, Kuwait National Petroleum Company (KNPC), in the years ahead will be al-Zour refinery on the Gulf coast. The 615,000-b/d refining/petchems plant—long delayed by parliamentary inquiries—is expected on stream in 2020. It will provide clean fuel for power and desalination plants. KNPC also operates the Mina Abdulla and Mina al-Ahmadi refineries, with combined production capacity of around 700,000 b/d. These are set to see some changes. Adsani said KPC had "recently commenced a pre-feasibility study for expansion of our refining capability that will lift capacity by about 300,000 b/d".
Kuwait Petroleum International (KPI), which handles downstream operations overseas, has a 50% share in the Milazzo refinery (248,000 b/d capacity) in Italy and 35.1% stake in the Nghi Son refinery (200,000 b/d) in Vietnam. The first cargo of Kuwaiti crude oil was dispatched to Nghi Son in August last year. KPI also has a 50% share in the planned 230,000-b/d capacity Duqm refinery on Oman's Indian Ocean coast, with start-up planned for 2020-21. In Europe, KPI markets 301,000 b/d of products, branded as Q8, through more than 4,000 retail outlets.
Also expanding, inside and out Kuwait, is Petrochemical Industries Company (PIC). It holds a 42.5% stake in Equate, a Kuwaiti domestic petchems company and is involved in three ventures in Canada. In November last year, the Canada Kuwait Petrochemical Corporation—a joint venture between PIC and Pembina Pipeline Corporation—signed up a US firm to carry out front end engineering and design for a planned polypropylene venture in Alberta. PIC is already a partner in MEGlobal in Alberta. The Kuwaiti company partners the Saudi petchems giant, Sabic, in a fertiliser project in Bahrain and is considering taking a share in a planned aromatics venture on the island.
KPC is clearly well on its way to becoming the integrated global oil and gas company that Adsani envisions-—with a large dose of petchems thrown in for good measure. A question often raised is whether KPC might follow Saudi Aramco's plan for a 5% initial public offering or Adnoc's successful IPO of the retail sector. The view in Kuwait is that neither option is on the table—with the certainty that the National Assembly would throw any such proposal straight into the waste bin.