The establishment of Boubyan Petrochemical Company in 1995 ended the government’s monopoly of the petrochemicals industry, but the activities of the state-owned Petroleum Industries Company (PIC) – often in partnership with private entities – continues to define the development of the sector. As a subsidiary of the Kuwait Petroleum Corporation (KPC), the broad terms of the PIC’s development plans fall within KPC’s Strategy 2030, a comprehensive document that charts the company’s future growth in areas ranging from domestic and international upstream development to transportation, crude oil and bulk products marketing, and petrochemicals, linking everything to an assessment of the nation’s future domestic energy demand.

Within this meta-strategy the development of the country’s petrochemicals industry is centred on pursuing growth both inside and outside the country, with a focus on increasingly popular petrochemicals products such as aromatics, olefins and other downstream outputs. In addition to this, the plan prioritises a move towards the partial or full privatisation of the nation’s petrochemicals assets, which are currently almost exclusively state-run, as well as the inclusion of foreign partners in this process.

STRATEGY: With these key objectives put in place by KPC, the PIC is then able to formulate a more detailed internal strategy aimed at reaching them. “We work closely with KPC to develop our long-term strategy, building our strategy in-house and going to KPC for endorsement,” Hamad Dakheel Al Sebaie, PIC’s corporate planning manager, told OBG. “At its simplest, our current strategy is to enhance core olefins derivatives portfolio, broaden portfolio through refining and petrochemicals integration and venture into financially attractive, diversifying investments.”

The strategy developed by PIC thus calls for the development of core olefins facilities and the introduction of more processes in conjunction with the private sector and international oil firms in an expansion drive that will occur both at home and abroad.

AT HOME: PIC’s domestic strategy centres on the development of its Olefins III project, which will give the company its third cracker by 2017 or 2018, according to the current timeline. The economic pre-feasibility study for the new facility was completed in 2009 and a detailed feasibility study was commenced in 2011 and is expected to be completed in 2012. But even at this early planning stage two challenges, which have become increasingly dominant preoccupations for the wider industrial sector, have come to the fore.

The first is the question of location. To date, Kuwait’s petrochemicals sector has been centred on the Al Shuaiba Industrial Area, an industrial zone located some 32 km south of Kuwait City that has grown up around Shuaiba Refinery and the docks that service it. PIC’s first olefin cracker, the Equate Petrochemical Company, began operations there in 1997; in 2009 it was joined by The Kuwait Olefin Company, the firm’s second cracker. But congestion at the site has compelled PIC to look at other potential locations for its new facility. One possibility, according to Al Sebaie, is the coastal Al Zour area in the south of the country.

The attractiveness of the location rests primarily on the fact that it is the chosen site for Kuwait National Petroleum Company’s new refinery, the presence of which would provide obvious synergies with PIC’s operations. In 2011 Kuwait’s Supreme Petroleum Council gave the go-ahead for construction of the Al Zour Refinery, and production at the $14.56bn facility, which will include the naphtha feedstock utilised by petrochemical plants, is expected to begin in 2016.

The future supply of naphtha at the Al Zour location is the second challenge now faced by the Olefin III project. Like other Middle East countries, Kuwait has historically worked its feedstock advantage (the prodigious supply of ethane from its large natural gas fields) to the benefit of its petrochemicals industry.

The country’s first two crackers are ethane-fuelled facilities, and the future supply of gas will play an important role in the nation’s petrochemicals sector.

However, a regional shortage of gas, which is expected to last for the considerable amount of time it will take to establish a sufficient extraction infrastructure to meet demand, has compelled PIC to consider other feedstock options. “Historically, ethane feedstock has played a key role in petrochemicals development within Kuwait. The availability of gas for future projects has emerged as a major challenge and we are now negotiating with KPC on the optimal volumes that will be made available to us for the third cracker project,” said Al Sebaie. “Our third cracker will be built as a flexi-feed system, and we are currently looking at different options for optimising the project configuration models.” A cracker utilising a mixture of naphtha, liquid petroleum gas and ethane, or a combination of any two of these inputs, is a possible solution to the feedstock challenge and its implementation will mark another first for Kuwait’s petroleum industry.

ABROAD: While PIC considers how best to utilise its domestic budget, it has also been assiduously working on the second component of its development strategy: expansion into foreign markets. In March 2011, China’s National Development and Reform Commission (NDRC) granted Kuwait approval to construct the refinery and petrochemicals complex that has been the subject of speculation since the two countries signed a memorandum of understanding in 2005.

A pressing question during the intervening years has been that of location, with the original choice of the provincial capital Guangzhou’s Nansha district facing opposition due to the project’s potential environmental impact on the densely populated area. The NDRC’s recent announcement has clarified the matter, confirming the less crowded Donghai Island near the southern Chinese city of Zhanjiang as the project site. The environmental considerations delaying the construction process were successfully resolved with the Chinese Ministry of Environmental Protection’s approval of an impact study at the new island site, which brings a number of advantages, such as the availability of deep water for very large crude carriers and tax incentives from the provincial government.

The presence of a refinery component in the $9bn development means that it will be carried out as a joint venture between Sinopec, one of China’s major petroleum companies, and PIC’s mother company, KPC.

In late 2010 Hussain Ismael, the president of Kuwait Petroleum International, told local press that further international partners would be finalised at a later date. Royal Dutch Shell, which had been in talks during the year, pulled out in December 2010 citing “strategic and commercial considerations,” leaving the door open for another international oil company to buy into the project, which is expected to have a 300,000-barrel-per-day refinery production capacity, and a 1mtonne-per-year ethylene plant when fully operational. In late January 2012 it was reported that France’s Total signed up to the project with KPC.

THE LONG TERM: The vibrant economies of Asia represent promising markets for PIC’s forthcoming China-based capacity, and the region has been prioritised in the company’s long-term expansion strategy. “We are currently also studying a number of opportunities in Asia as part of our strategic targeted growth plan,” Al Sebaie told OBG. The joint venture model employed by PIC in its China project is also part of the wider strategy of teaming up with international players for large-scale petrochemicals projects, an area in which PIC has already established a solid track record.

In addition to its local partnerships, it has established a number of regional joint ventures, such as the Gulf Petrochemical Industries Company, a producer of ammonia, urea and methanol and formed by PIC, the Government of Bahrain and the Saudi Basic Industries Corporation. PIC has moved further afield, partnering with DOW Chemical in three major projects and holding a 50% share with it the Canada-based MEG lobal and a similar stake in MEG lobal BV, based in Dubai. It also has a 50% interest in the Equipolymers, based in Switzerland. This model of investing with foreign partners both at home and abroad forms the basis of PIC’s growth strategy, and more announcements concerning agreements with major players are expected.