"Kuwait Petrochemicals Report Q3 2016" now available at Fast Market Research

As part of a major overhaul of the downstream sector Kuwait is pursuing the Al-Zour project to increase revenues through export of refined products and through investment in advanced downstream technologies. The project involves completion of the greenfield 615,000 barrels-per-day (bpd) Al-Zour refinery complex to be built in southern Kuwait, as well as upgrades at existing facilities as part of a wider downstream reorganisation. Additionally, the firm overseeing Al-Zour's refinery will also manage a worldscale petrochemicals facility that will utilise feed from the refinery, following a decision in Q116.

The Al-Zour project was set to raise downstream refinery capacity to 1.4mn barrels per day by 2019, but it looks set to be delayed until 2020 as costs escalate and Kuwait continues in its effort to secure financing. In the meantime, refining capacity is set to decline as a result of consolidation within the refining sector, a move that could restrict naphtha supply to petrochemicals and raise feedstock costs.

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Equate represents 60% of Kuwait's non-oil exports, making it central to the growth story of the Kuwaiti petrochemicals industry. Kuwait's higher level of naphtha feedstock from the refinery sector will enable it to take full advantage of the fall in crude prices, which are the main determinant of naphtha prices. This will help it see off competition from ethane-based regional rivals such as Qatar and Saudi Arabia. However, the alleviation of sanctions on Iran will pose a major threat to all regional producers and could still drive down Kuwaiti petrochemicals margins. There are also downside effects of a medium-term reduction in oil refinery capacity.

The domestic economy is set to grow more slowly than previously thought, leading to slower consumption of plastic products, although household consumption will still rise at a faster rate than overall GDP growth.

The impact of lower oil prices is being felt by local oil and petrochemicals producers. Efforts to reduce labour costs resulted in industrial action by trade unions, indicating that KPC will come up against domestic resistance.

Kuwait scores 60.1 out of 100 in BMI's Petrochemicals Risk/Reward Index (RRI), up 1.4 points since the previous quarter as a result of progress relating to the Al-Zour oil and petrochemicals complex. However, further improvements in its RRI will be held back by economic stagnation and increased competition with Iran's petrochemicals industry. The country has risen from fifth to fourth place, 3.5 points behind Iran and 2.4 points ahead of Qatar.

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