KUWAIT, Sept 26 - Kuwait has approved a budget of 4 billion dinars ($ 14.29 billion) to b

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KUWAIT, Sept 26 (Reuters) - Kuwait has approved a budget of 4 billion dinars ($14.29 billion) to build the Middle East's largest refinery, more than double the initial estimate, state refiner Kuwait National Petroleum Co (KNPC) said.

The cost of building new refineries has spiralled as the energy industry strains to increase capacity to meet rising global fuel demand. The Gulf's top oil producers were all building new refineries and expanding old plants, but costs have hurt budgets and delayed plans.

Kuwait's top Supreme Petroleum Council approved the budget for the giant 615,000 barrels per day (bpd) al-Zour refinery on Tuesday, KNPC Chairman Sami al-Rushaid said.

''God willing, this will be enough,'' Rushaid told reporters late on Tuesday.

The world's seventh-largest oil exporter will boost refining capacity to 1.415 million bpd from 930,000 bpd with the new plant and upgrades to two other refineries, Rushaid said in a speech manuscript.

The new refinery will start operating near the end of the first quarter of 2012, he said. That was a few months later than the last estimate for start up of end-2011, and over a year behind the initial plan to launch the refinery at end-2010.

Kuwait cancelled a first tender for the refinery in February, after bids came in far above its initial budget. Local media said some bids had reached as much as $15 billion.

Rushaid said that KNPC would soon announce the firms that it had approved as qualified bidders for the five engineering, procurement and construction packages for the refinery project.

UPGRADES KNPC will also separately invest 245 million dinars in a first stage to upgrade its Abdullah Mina and al-Ahmadi refineries, according to the speech manuscript. Final costs had yet to be estimated.

Kuwait plans to boost combined capacity at the two plants to 800,000 bpd from 730,000 bpd, he said.

The new al-Zour refinery is to replace the ageing 200,000-bpd Shuaiba refinery, which has been hit by several accidents.

KNPC said in July around 30 companies had made preliminary bids for al-Zour. KNPC intends to prequalify several companies for each package.

French firm Technip, U.S. companies KBR, Bechtel and Foster Wheeler and Italy's Snamprogetti submitted pre-qualification bids, according to media reports.

U.S. engineering and construction company Fluor Corp is in talks for a contract of around $2 billion to build part of the refinery, an industry source said in August. Fluor already holds the project management contract for the refinery.

At 615,000 bpd, al-Zour would exceed the capacity of the Middle East's largest refinery, Saudi Arabia's 550,000-bpd Ras Tanura plant. Saudi Arabia plans to build another 400,000 bpd refinery in Ras Tanura.

OPEC-member Kuwait sits on around 10 percent of the world's oil reserves. It produced 2.41 million bpd of crude in August, a Reuters survey showed.

($1=.2800 Kuwaiti Dinar) REUTERS SI SSC1355

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