The Oil Sector

Kuwait is a major world oil producer. Commercial production of crude oil commenced in 1946 and peaked at 3.3 million barrels per day in 1972. Currently, Kuwait is pumping just over 2 million barrels per day although it has the capacity to pump up to 2.5 million barrels per day. Plans have been established to move this capacity up to over 3 million barrels per day by the year 2005. Crude oil exports account for about 60% of the output with the remaining 40% used in downstream refining projects.

The oil industry which had been managed since 1934 by Kuwait Oil Company, a joint venture between the U.S. Gulf Oil Company and the Anglo-Persian Oil Company (British Petroleum), came under direct Government control in 1980. In that year, management of the oil sector was vested in the government-owned Kuwait Petroleum Corporation (KPC) which has become one of the largest oil conglomerates in the world. KPC manages the sector through various subsidiary companies that are responsible for the day-to-day running of the various activities.

Kuwait Oil Company (KOC) is responsible for gas and crude oil exploration and production. KOC also works in the neutral zone between Saudi Arabia and Kuwait with Texaco-onshore and Arabian Oil Company offshore. Also, KPC explores and drills abroad through Kuwait Foreign Petroleum Exploration Company (KUFPEC). It operates in Asia, North Africa, various Arab States and Australia.

Kuwait National Petroleum Company (KNPC) deals with crude refining and gas liquefaction. The three refineries at Mina Ahmadi, Mina Abdullah and Shuaiba have a current capacity of 900,000 barrels per day which will soon increase to over 1 million barrels per day. KNPC also manages the country's 90 gas stations, in addition to distributing gas and fuel to ports, desalination plants and power stations. Arrangements are in hand to privatize the gas stations once the facilities for the sale of unleaded gas have been put in place.

Kuwait Petroleum International (KPI) offices are located in London. KPI refines Kuwaiti crude in Rotterdam in the Netherlands and in Italy where KPI has a 50% share of the Milazzo refinery jointly owned with AGIP. KPI also distributes 25,000 barrels per day worth of oil products throughout Europe through its Q8 gas stations and International Diesel Service. Plans are in hand to expand refining capacity and establish refineries in other European countries and in India and Pakistan where letters of intent have already been signed.

The Petrochemical Industries Company (PIC) produces fertilizers and urea, ammonia, salt, chlorine, caustic soda, hydrochloric acid, hypochloric sodium and compressed hydrogen. In its desire to diversify its range of oil products downstream, PIC entered into a joint-venture agreement in 1997 with Union Carbide to establish a new petrochemical complex called Equate. The complex is the largest and most modern in the world for producing ethylene glycol (350,000 tonnes) and ployethylene (450,000 tonnes). The world-wide demand for ployethylene is growing at about 15% per annum. PIC with its high level of technology offers a whole range of polyfines used in the plastic industry which it distributes and sells world-wide through its own marketing subsidiary. PIC is also involved through various joint-ventures in China through Sion-Arab Chemical Fertilizers and in Bahrain through the Gulf Petrochemical Industries Company. At the current time, PIC is seeking partners for another petrochemical complex that involves the production of benzene, xylene and paraxylene using naptha as a feedstock.

Kuwait Oil Tanker Company (KOTC) with a fleet of 31 tankers of about 3.5 million tons dwt. ensures the distribution of crude oil, gas and by-products to countries throughout the world. KOTC has recently placed orders for two new tankers which will have double hulls that will minimize leakage and pollution accidents and conform to the new international standards for curtailing marine pollution. The Kuwait Aviation Refueling Company provides jet-fuel for aircraft in Kuwait. In order to advance industrial development and keep abreast of recent technology, KPC will be opening in 1999 a College of Petroleum in Ahmadi in a joint venture with the renowned Kuwait Institute for Scientific Research.

Finally, oil prices have fallen in 1998 levels as low as $10 per barrel from an average for 1997 of about $18 per barrel. This was due to falling demand from the Asia Pacific region. This region has been the fastest growth area in the world and as soon as it recovers and gets back on track, the demand for oil will begin to recover as well as the price. The forecast of the International Monetary Fund is that the Asia Pacific region economies will begin to pick up in 1999 and continue to grow very strongly once again. The World Bank are forecasting that the average price of oil in 1999 will be around $14 per barrel. Kuwait and the Gulf region have very low costs of oil recovery and production at under $2 per barrel compared to other oil producers' costs which vary from $7 to $20 per barrel. This means that it will be the high cost producers that will suffer during this short period of low oil prices.