KPC new refinery in Oman a shift in marketing strategy – Advantage of proposed venture questioned

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Kuwait Petroleum Corporation (KPC), since its inception, has been following a sound marketing strategy of investing in building refineries in large consuming markets and countries to establish a safe and secure home for Kuwait crude oil. This has been the case since 1983 when KPC first invested in more than three refineries in various parts of Italy, Netherlands and Denmark and secured a home for more than 400,000 barrels of Kuwait oil per day.

After that KPC looked towards some Asian countries and tried to launch similar operations in China, India and Korea but it did not success for some reason. Eventually, it managed to launch a new joint venture in Vietnam, which included building a refinery with capacity of 200,000 barrels along with a marketing outlet in that country. Once again, this formed a safe and secure market for Kuwait along with joint foreign investments.

The recent announcement made by KPC to build a new refinery in Oman has raised some questions concerning its marketing strategy, as Oman does not meet the criteria for high growth, high consumption. In fact, it is self-sufficient, surrounded by oil and gas exporting countries and produces close to 800,000 barrels of crude oil and 220,000 barrels of refined products from its Mina Al-Fahal Refinery.

In fact, this refinery in Oman will be a direct competition for the three Kuwaiti refineries in the northern part of the Arabian Gulf region. So, what is the advantage behind such a venture if not for the export of our products and securing a home for our oil?

We do know that the proposed venture is aimed to find a strategic foreign partner but it still represents a major deviation from KPC’s well-established strategy, which was being followed by other oil exporters such as Saudi Arabia and Venezuela with success. In fact, now Iran and Iraq are also trying to follow the same strategy.

KPC should focus on finding new safe and secure outlets in Indonesia and other high growth markets instead of investing in simple export refineries that will be in direct competition with ours.

Securing a new joint partner in Oman should be an easy task, especially since we know that two of the major international oil companies BP and Shell have been operating since the discovery of oil and gas. They should be the first ones to come forward. However, they might not consider the joint owning of a new refinery of 200,000 barrels capacity in Oman as an attractive proposition. In case they refuse, does it mean the end of the project? We have to wait and see.

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By Kamel Al-Harami

Independent Oil Analyst

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