Economic Downturn and its Effect on the Oil Downstream Industry, KPC choices.
It is my privilege to participate in the tenth Middle East Petro-Tech in Bahrain. This conference is an important platform to promote coordination for excellence between Industry, Government and Education to address future challenges.
Our Industry is evolving fast amid various changes.
Crude oil prices are more than fifty percent cheaper than they were in 2014.
The current low-oil-price environment presents a unique opportunity, for revenue and profit growth, with an abundant oil supply relative to demand, offer refiners opportunities to save on feedstock costs.
Those that successfully identify their highest-value opportunities and seize the moment could improve their resilience and competitive position.
Companies thus focus on the dynamics of markets, exceptional analytical capabilities, analyze portfolio exposure, Optimize risks, and select strategic tactics to capture the upside low oil prices might afford.
The lessons learnt in the energy business along with changing economic conditions, and competitive drivers is to look at integration as a business necessity between refiners and petrochemical manufactures.
The majority of future refining projects are implemented with an optimum extent of petrochemical integration to monetize and maximize the synergies.
The integration provides stability over the value chain with product diversification by combining the best features of the cyclical petrochemicals market with the non-cyclical fuels market.
Integration provides opportunities for savings in investment and operating costs.
I will share with you thoughts on KPC strategy to adapt to the new era of low prices.
We are currently updating KPC 2040 strategic directions and addressing some strategic questions concerning downstream activities.
One of the key questions we are debating is how much upstream production should be allocated across the downstream portfolio? In addition, the extent to develop and diverse the downstream to maximize profits?
Kuwait will need to mobilize its resources and to seek best-in-class technology and skills wherever they are available.
Promoting investment is essential to meet the increasing demand for energy.
Investment decisions are more complex as the pace of change is accelerating in energy markets, technologies, and geopolitics.
However, we at Kuwait Petroleum recognize the risk of not making investment.
KPC will increase its local refining capacity with conversion capability, while ensuring maximum offtake of domestic heavy oil production to reach 1.4 million barrels per day by 2020, and 1.7 million barrels per day by 2025, with the buildup of the Alzour refinery.
Downstream operations provides a means to create value to Kuwait, maintaining complete operating control over assets and production, additional value for Kuwaiti Hydrocarbons, besides a foundation for future expansion into petrochemical.
Local refining expansion will be dedicated to meet significant local energy from electricity as well as product demand for transportation and other industrial uses. Furthermore, exporting clean products in line with international demand patterns would secure additional value and outlets.
Asia will remain the focus of exports of Kuwaiti Hydrocarbons, while monitoring African markets as it is expected to show higher growth and needs in the future.
It is a clear fact that oil will remain vital for Kuwait prosperity. KPC provides a holistic opportunity to offer employment opportunities to nationals and secure capability development. KPC operations supports, and is part of Kuwait national strategy and vision. Besides, we recognize our role to reduce emissions and help clean environment locally and internationally.
Internationally, we are pursuing, through partnerships and alliances, economically viable investment opportunities taking into consideration secure outlets for Kuwaiti crude, focusing in high growth captive markets, investing in complex refining, and integrating with petrochemicals operation where it adds value. Hence, we will sustain competitive position in Europe, while expand into other high growth regions like the case with Vietnam, and move strategically as the case with Oman.
International investments will fulfill the diversification needs, which will provide stable income stream from external sources and reducing risks.
We believe that KPC petrochemical business is well positioned worldwide, but requires maintaining its competitiveness into 2040. Among the expansion options, is to diversify the commodity chemical portfolio. KPC will seek benefit from the experience and the technological advantages of joint venture partners.
Petrochemical provides an additional secure higher value for extending further down the hydrocarbon chain and ensures diversification that will reduces risks and enhance Kuwait government economic reform agenda to diversify sources of income.
Therefore, we will grow the petrochemical business inside and outside of Kuwait via builds and expansions as well as M&A activities, with suitable partners when necessary to sustain a leading position in the Olefins and Aromatics products markets. We also plan to expand into downstream derivative and specialty chemicals through partnerships and alliances beyond 2030.
Kuwait is producing 3 million barrels of oil per day today.
By 2020, we should be able to produce 3.65 million barrels per day, without Neutral Zone.
Ladies and Gentlemen,
To meet it, we will need to improve technical expertise and overall resources and competencies, as field becomes more complex.
We not only need to drill more conventional wells, but also we need to drill more horizontal, directional and multilateral wells to significantly increase the productivity of our existing fields.
Already, advanced technology applied to producing wells has reduced the water cut.
New technologies are helping us extend the reach of wells into reservoirs with increased reliability and safety.
An important part of our plans is to increase oil production capacity, which relies on the development of heavy crude with API gravity ranging from 12 to 16 degrees.
We are fully committed to higher standards of HSSE Practices in all of operations worldwide.
We have already started the development of the non-associated gas, which is critical to meet Kuwait's energy needs, particularly for power generation.
This gas will be one of the main sources of supply for electricity, as demand has been increasing at an average annual rate of 6.6%.
We recognize the importance of petroleum to the Kuwaiti economy. Hence, we seek to enhance the role of the private sector and diversify of the national income resources.
Besides coordinate with various parties in Kuwait and international to ensure that renewables will contribute to generate 15% of total energy demand by 2030 in line with HH SH. Sabah Al-Ahmad Al-Sabah the Emir of Kuwait direction and guidance.
We in Kuwait fully intend to ensure that KPC maintains its position as a leading and reliable source of energy supply in the world, contributing to market and price stability, and fully committed for clean environment.
Thank you for your attention.