Kuwait tightens oil grip

Press, 10 February 1983, Page 7

Kuwait tightens oil grip

By

THOMAS THOMSON

(of

’ Reuter through NZPA) Bahrain Kuwait is poised to seal a multi-million-dollar deal that will make it the first Arab oil exporter with direct links to consumers via a chain of companies carrying oil from the wells of the Gulf to the petrol pumps in Europe. Kuwait Petroleum Corporation owns companies that extract the crude, refine it, ship it, and under a deal agreed on last week will shortly sell it to motorists in the Benelux countries. The acquisition of 750 Gulf Oil Corporation petrol stations in Belgium, the Netherlands, and Luxemburg plus a refinery in the Netherlands was part of a longterm strategy to build Kuwait Petroleum into a force to rival the giant multinationals, Gulf oil analysts said. Kuwait Petroleum began a spectacular expansion last year by buying the American Santa Fe oil drilling firm for SUS2.S billion (SNZ3.S billion), the biggest single investment ever by an Organisation of Petroleum Exporting Countries member. Kuwait Petroleum with a capital of 2.5 billion dinars (SNZII.4B billion) was formed in 1980 as a conglomerate to direct all Kuwait’s oil activities. The company controls Kuwait’s nearly 70 billion barrels of oil reserves, its

refineries and tanker fleet

With the Santa Fe purchase, Kuwait Petroleum had showed that it was determined to join the league of the world's big oil companies, such as Texaco. Royal Dutch/Shell and British Petroleum, which dominate the oil trade, the analysts said. Kuwait Petroleum's chairman, the Kuwaiti Oil Minister, Sheikh Ali Khalifa alSabah, has said in recent speeches that only by forming strong, integrated national oil companies can the exporters cushion themselves at times of weak demand for oil. Kuwait’s crude oil production was slumped to well below 850,000 barrels a day from an official ceiling of 1.25 million as its relatively expensive oil struggles to compete in a glutted market. One element of Sheikh Ali's strategy is to depend less on crude sales and boost the capacity of Kuwait's own refineries to around 800,000 barrels a day by the mid1980s, and improve the plants to extract more higher-grade products such as petrol and gasoil. To take the relatively profitable refined products to the world markets, another Kuwait Petroleum subsidiary, the Kuwait Oil Tankers Company, is increasing and modernising its fleet. Now the acquisition of the West European “downstream” activities of Gulf Oil completes a chain, giving Kuwait an outlet for its

products to European motorists.

Kuwait has seen its production slump partly because it honours O.P.E.C. price agreements, while other O.P.E.C. members, and the oil industry points particularly to Iran and Libya, are undercutting it and attracting former Kuwaiti buyers.

But oil refined in Kuwait’s own refineries is free from O.P.E.C. pricing rules, although the Gulf States are working on a pricing policy for refined products that would let them compete in world markets but not at the expense of each other. The analysts said that Gulf Oil’s deal with Kuwait Petroleum. which is subject to certain conditions, is part of a policy switch by the Pitts-burgh-based company to divest itself of unprofitable activities in Europe and concentrate on the American market.

Western oil company profits have slipped since they have bought the higherpriced O.P.E.C. crude and then processed it into products w’hich often sell at a loss on recession-hit markets.

Gulf Oil, for example, said that its net profit for the first nine months last year fell 35 per cent from the same 1981 period. The analysts said that

Kuwait and other O.P.E.C. countries entering the ‘downstream" sector of the industry should fare better because their integrated oil companies would use costprice crude. The Kuwaiti push into the retail sector of the industry comes two decades after O.P.E.C. members began to take control of their own crude oil resources, and of crude oil pricing, while leaving the "downstream" sector largely to the multinationals. Now the huge financial reserves, estimated at$US7O billion JSNZ9B billion), amassed by Kuwait during the rapid price rises of the late 1970 s allow it to finish off the process. The question the oil industry now asks is: what will be next?

One tempting area is mineral rights to United States Federal land, where Kuwait Petroleum's almost unlimited funds would give it a competitive edge in costly exploration areas such as offshore Alaska and the Rockv Mountains.

United States law bars foreign countries from owning these rights unless reciprocal arrangements are granted, but exceptions had been made before, the analysts said.