Sheikh Khaled AL SABAH
CEO
KUWAIT OIL TANKER COMPANY

KOTC's strategy for Kuwait's refined products boom

Kuwait

Sheikh Khaled Al Sabah, CEO of Kuwait Oil Tanker Company, talks to The Energy Year about building up tonnage to export Kuwait’s growing output of refined products and the company’s plans to establish a bunkering hub to serve the international shipping industry. KOTC is a subsidiary of KPC engaged in the transport of crude oil, refined petroleum products and LPG.

This interview is featured in The Energy Year Kuwait 2024

How is the expansion of Kuwait’s refining capacity affecting your activities?
The Clean Fuel Project is adding 800,000 bpd to Kuwait’s refining capacity and Al Zour Refinery an additional 615,000 bpd. This represents a big opportunity for us. We have a fleet of 31 vessels, including 11 VLCCs [very large crude carriers], five LPG carriers and two bunker vessels. The rest are mostly long- and medium-range product carriers and Suezmax tankers, but we are assessing with KPC the addition of more product carriers.
To that end, we have several partnerships in place with shipyards in China, Japan and particularly South Korea, where we have built most of our fleet. In May of 2021, we welcomed Al Siddeeq, a VLCC that was constructed in China by BSHIC, as the latest addition to our fleet.
We are also planning investments in vessels that run on alternative fuels. HFO [heavy fuel oil] has so far been the most widely used fuel in shipping due to its lower cost, but the IMO has introduced more stringent environmental standards and we are looking at LPG and LNG vessels as alternatives, taking advantage of the large LNG import facility we have in the country.

What effects can geopolitical tensions have on shipping operations and what measures have you adopted to mitigate potential risks?
Transportation providers always seek to find the safest, fastest and most cost-effective routes. The Bab el Mandeb Strait has been the gateway to our African customers, as we have multiple contracts in countries on the Red Sea and the Mediterranean and many of our vessels use that route. However, given the tension in the area, we have decided to hold our vessels from passing through that chokepoint. We will conduct assessments before resuming transit and reroute our vessels around the Cape of Good Hope in the meantime.
Our tankers have not been targeted, but we are rigorous about due diligence and risk assessment to ensure the safety of our crew and our vessels, and we are optimistic that traffic on the route will recommence soon. Circumnavigating Africa means adding 10 or more days to the trip and consuming more bunkers, as well as adding other costs to the voyage, which affects the netback for the vessel owner and the cargo carrier.

Can you give us an overview of KOTC’s main export destinations and the nature of your contracts?
Our export destinations for crude oil are all in the Far East because it is the region that gives us the best netback. On the other hand, products such as diesel and jet fuel are international commodities that we sell everywhere.
A large portion of our business is long-term contracts for crude oil, which we have thanks to our strong customer relationships and because refineries are usually not keen to change their crude feedstock. Most of these contracts are with Far Eastern companies.
Contracts for products can be with government entities or private companies and are typically renewed on an annual or semi-annual basis. Global circumstances can affect contract negotiations, as happened with the Russia-Ukraine conflict, which affected the supply network and the destination of large quantities of products.
Prices depend on the duration of the agreement, the volumes involved and the type of delivery, either CFR [cost and freight] or FOB, depending on the circumstances. Most of our contracts are CFR, where the seller is responsible for arranging the carriage of goods to the port of destination and providing the buyer with all the documents required to collect the goods. KOTC is one of the main exporters of diesel to Northern Europe, with the majority of those contracts being FOB.

How does KOTC structure its portfolio of spot and long-term contracts?
We occasionally have spot contracts, and the number has grown with the commissioning of the Al Zour Refinery and the resulting stream of exports. However, we prefer long-term agreements. Given the large volumes we handle, they help guarantee us a more relaxed system of supply. Long-term contracts also allow us to invest in our fleet based on known demand, and obtaining those types of customers helps us secure a stronger position in the market.
Vessels are expensive; a VLCC’s resale price is around USD 143 million, depending on the specifications and the cost of materials. Nonetheless, demand has been good enough to motivate numerous shipowners to book slots at Far Eastern shipyards.
Our LPG business is supported by two plants, one in Shuaiba and one in Umm Al Aish, which cover domestic demand. Umm Al Aish was built as a backup to ensure that we always have enough LPG to supply the local market. Then, through our international marketing arm, of which I am the managing director, we sell LPG to international customers, mainly in Japan and South Korea.

What growth opportunities do you see ahead for KOTC?
We used to be involved in bunkering until we had issues with one of our supply pipelines, and now we are considering taking up the business again and establishing a bunkering hub outside Kuwait. Bunkering is good business, if you have the proper facilities.
Shipowners look for high-quality bunkers, and what we used to sell was a pure bunkering grade that was not blended, so it was top quality. For shipowners, it’s an investment towards reducing drydock maintenance expenses and a way to improve vessel performance and longevity. Since a good bunkering hub is also able to deliver a full package of services, from food supplies to crew management, we are studying that as well.
We want to relaunch our bunkering business as soon as possible and capitalise on Kuwait’s new refining capacity. We are confident that it will attract vessels, particularly VLCCs coming from Japan and South Korea. As in the past, KPC will handle the bunkering and KOTC will deliver the services through its marine agency branch.

What steps is the company taking to harness energy transition trends?
The IMO has revised the upper limit of sulphur content in fuel oil for ships, lowering it from 3.5% to 0.5%. Our fleet already complies with the new standards, and KPC’s plan to invest USD 100 billion towards energy transition goals by 2050 is bound to have a positive impact on the domestic shipping industry, helping it reduce the sulphur content of its emissions and become greener.

Can you provide us with details on KOTC’s digitalisation plans and their impact on fleet operations and overall performance?
Because KOTC is a global transport provider, ensuring that our vessels operate at full capacity without any breakdowns is a primary concern in which the timely supply of required spare parts, materials and services plays a major role. To meet this challenge, KOTC has deployed the Digital Worker Initiative, which uses robotic process automation to streamline repetitive, rule-based tasks.
The company has deployed bots that can mimic human interactions with various computer systems and applications to perform tasks like data entry, data extraction, report generation and more. As a result of the initiative, we have boosted our speed and accuracy, refined our compliance and controls, and increased our ability to audit processes. At the same time, KOTC employees have gained more time to focus on complicated tasks.
One of the processes that the Digital Worker Initiative has been applied to is the procurement process. In this process, digital workers publish RFQs [requests for quotations], create new rounds of RFQs when no offers are received, send offers for evaluation, obtain offer award approvals, create purchase orders and finalise purchase requests and purchase orders.
With this end-to-end deployment, the time needed to complete the procurement cycle was reduced by more than 80%. In addition to the time saved, KOTC employees were able to offload 75% of their workload to the bots.

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