KUWAITI OIL SECTOR DAMAGE WORSE THAN FEARED

Kuwaiti oil officials have begun the grim task of assessing how to rebuild their country's oil industry in the wake of massive damage inflicted mostly by Iraqi forces.

Top priority is extinguishing oil well fires caused by Iraqi sabotage. If early reports are true, fully restoring Kuwait's oil production capacity may be 4 years away, say Kuwaiti officials.

Bechtel Corp. has signed a letter of intent with Kuwait Petroleum Co. (KPC) agreeing to manage restoration of Kuwait's oil and gas production industry.

Meantime, a new crude oil slick has appeared in the Persian Gulf about 60 miles east of the Neutral Zone between Kuwait and Saudi Arabia. In addition, there are signs that the Persian Gulf shipping business is returning to normal operations as allied forces continue to rout lraq's army.

In market developments related to the gulf war:

• Saudi Arabia and the United Arab Emirates are supplying free crude oil to Pakistan, Turkey, and Morocco to alleviate effects of the war. Saudi Arabia is supplying Turkey with $1.2 billion of crude to make good losses from observing United Nations sanctions against Iraq. Deliveries are running at about 180,000 b/d. Pakistan is getting about 50,000 b/d in a 3 month period and Morocco 30,000 b/d from the Saudis and 20,000 b/d from the U.A.E.

• A Japanese proposal to double the current tariff on crude and product imports has been toned down in the wake of strong protests from the principle oil suppliers in the Middle East. A 50% increase in the tariff is now proposed. The Japanese government had been looking to recoup half the $9 billion contribution towards the gulf war's cost from higher tariffs.

OIL FIELD FIRES

Nadir Sultan, president of Kuwait Petroleum lnternational (KPI), said reports of more than 500 wells afire in Kuwait's oil fields were worse than the company dreamed possible.

KPI parent had been working on projections that 200 wells might be set ablaze, costing $2 billion to extinguish in a 2 year span. Instead, KPC could be looking at a 3-4 year program to extinguish more than 500 wells at a cost of $5 billion, he said. In addition, Sultan said it is possible oil worth $40 billion would be burned or otherwise wasted during this period.

Five U.S. wild well control companies were expected to send officials and then well kill equipment to Kuwait once it was safe for personnel to enter the fields (OGJ, Feb. 25, p. 24).

In addition to Red Adair, Wild Well Control, Boots & Coots, and Safety Boss, another Houston wild well specialist, Cudd Pressure Control Inc., has confirmed it is talking with Kuwaiti officials about participating in extinguishing the well fires. Cudd has not signed a contract yet.

KPC has no information on whether the Iraqis have booby trapped fields as well as destroying wellheads and setting fire to production facilities.

Meantime, British destroyer HMS Exeter reported massive explosions from a tank farm that was set afire by the Iraqis.

REFINERY DAMAGE

KPC also faces having to import refined products to support emergency services.

After extinguishing well fires, its second priority will be to restore limited crude oil production to feed enough refining capacity to back out product imports. The initial target would be 120,000-130,000 b/d.

KPC also will need to run an emergency evaluation of damage to the country's three refineries. Until the Iraqis began their scorched earth policy, the processing units had been systematically looted by the Iraqis but had not suffered war damage.

According to industry reports, the smallest of the three units, the 187,000 b/d Shuaiba refinery is badly damaged, probably by sabotage. The larger Mina Abdulla and Mina al Ahmadi refineries were stripped of process control equipment and their inventory of spare parts but only received damage to tank farms.

KPC is anxious to find out whether additional damage was inflicted during the Iraqi retreat. KPC hopes to get basic processing running within months but larger volumes could take as much as a year depending on extent of damage.

The final stage of the emergency program is the restoration of crude oil exports. KPC will need to assess damage to the gathering and crude processing infrastructure beyond damage to export terminals. The manifold station for the Sea Island export terminal was damaged by allied bombers to stop discharge of crude oil into the Persian Gulf. The manifolds could be repaired and operational within a month. It will also be possible to export limited volumes of crude oil through refinery loading facilities.

BECHTEL ROLE

As project management contractor, Bechtel would assist KPC in damage assessment, planning, engineering, procurement, and production services. Restoration of general infrastructure is not included in the letter of intent.

However, Bechtel would provide logistical support to well control specialists seeking to extinguish Kuwaiti oil field fires. That early assignment would include laying emergency pipelines to carry water from the Persian Gulf to sabotaged wells, and digging water lagoons at well sites.

Although too soon to set timetables, key early requirements include identifying sources of water, power, fuel, camp accommodations, and supplies for a field force in Kuwait expected to total 4,300 Bechtel employees and subcontractors.

KPC is expected to have another 1,300 people in the field.

At this stage, 130 Bechtel employees in London are preparing to identify and gather resources, people, and materials to undertake the unprecedented rebuilding effort. If the project proceeds, Bechtel expects its London work force to rise to 150-200.

NEW SLICK

Shipping sources estimate the new Persian Gulf slick's size as about 10,000 bbl and say it might have become detached from one of the larger slicks that still pose a long term threat to industrial facilities and the ecosystem along the coasts of Saudi Arabia, Bahrain, and Qatar.

Abdullah Dabbah, head of research at Saudi Arabia's King Fahd University, told a meeting of Persian Gulf oil cleanup experts that the new slick is potentially the worst yet. The previous and much larger slicks were still penned in the northern Gulf by southerly winds. The new slick was in a position to threaten the southern Gulf, he said.

Meanwhile, officials are scaling down estimates of the size of the large slicks released from the Sea Island tanker terminal off Kuwait and the Mina al Bakr terminal in Iraq. The Saudis say these slicks could contain 500,0003 million bbl, and International Maritime Organization estimates 2 million bbl.

Britain's Natural Environment Research Council (NERC) warned industrial facilities and the gulf's ecosystem could be endangered by underwater movements of the oil. Surface floating barriers may protect against the surface slick but will be less effective against the underwater plume, NERC said.

It also warned against use of detergents to disperse the slick, contending, "The longer the oil remains at the sea surface, the greater the proportion of its toxic constituents will be lost to the atmosphere."

Further, NERC added, once oil came ashore, it is preferable to rely on natural processes to degrade the oil, because often more harm is done by clean up efforts.

TANKERING

The days of Iran's tanker shuttle service from Kharg Island may be numbered following National Iranian Oil Co.'s (NIOC) decision to double the charge for the service to $1/bbl. The charge applies to oil shuttled from Kharg to Lavan Island, where crude is transshipped to Japanese flagged tankers prohibited from visiting Kharg by an exclusion zone imposed by Japanese shipowners and the seamen's union.

NIOC said it doubled the charge to cover full cost of the service, which it describes as disruptive.

Japanese oil companies have appealed to the shipping industry to lift the restrictions on visiting Kharg, arguing that the Iraqis were too preoccupied with the land war to attack merchant shipping in Iranian waters.

Japanese companies lift about 20% of the throughput from Kharg and industry sources indicated crude buyers will turn to non-Japanese flagged vessels prepared to trade at the Iranian terminal.

Meantime, allied successes in the ground war have brought down war risk insurance rates for tankers to 0.75% compared with 2% at the start of February and 5% immediately after the start of fighting in mid-January. Hull rates have also fallen to 0.1-0.125% from about 0.5% at the start of February.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.