KUWAIT is sending caravans to Washington, loaded with blueprints for a new oil refinery. The desert sheikhs, their pockets stuffed with petrodollars, are riding to the rescue of the American motorist, offering a project of gleaming towers of steel, flares, catalytic crackers and gasoline converters.

Good news for drivers, but a huge headache for President Bush who now has to meet the Kuwaiti challenge by coming up with a plausible site for the proposed fuel factory. No refinery has been built in the United States since the 1970s because American oil companies reckon that the planning and permitting hurdles are almost impossible to overcome.

Kuwait Petroleum Corporation (KPC) is fully aware of the difficulties. “We have heard of costs of hundreds of millions of dollars just to get the permits,” Nawaf Nasir al-Sabah, general counsel at KPC, said.

There is no budget as yet for the project and no partner signed up, but the Kuwaitis are contemplating a 250,000 to 350,000 barrel-per-day (bpd) facility. Typically, such a project might cost more than $2 billion (£1.1 billion).

However KPC, which is floating on cash and oil, is taking a long view and Mr al-Sabah admits candidly that the economics might not stack up for a conventional oil industry player. “If this were a commercial proposition, the international oil companies would have done it already. We are willing to accept a lower rate of return,” he said.

Willing, because KPC is making a strategic investment, he said. In explanation, he pointed to this week’s Opec meeting in Vienna, at which Sheikh Ahmad al-Fahd al-Sabah, the Kuwaiti Oil Minister, made a grand gesture, reaching into his pockets to offer the cartel’s entire untapped output of some two million barrels per day (bpd) to the market. Knowing that there would be no takers for the heavy, sour crude that makes up the world’s spare oil.

Kuwait is calling America’s bluff and at the same time making a calculated pitch for a big share of the American market. It is not just a political blame game, although the recent White House comments about the lack of Opec investment have irritated Gulf producers, who know that America has run embarrassingly short of refining capacity. The Gulf state has plans to raise its oil output from 2.7 million bpd to four million bpd by 2020, but the extra oil needs factories equipped to convert more of each heavy, sulphurous barrel of Gulf crude into “high-spec” American gasoline.

“The Kuwaitis want to secure a direct market presence in the largest oil-consuming country and they want a market for their oil,” Damien Kennaby, a refinery analyst at Purvin & Gertz, said.

Will the President find a way of cajoling or bullying state and local governments into allowing the stink and smoke in their backyard? The alternative is to import more fuel and KPC is building an even bigger, 650,000-bpd refinery on its own soil. Qatar and Saudi Arabia have plans for refineries and KPC is in talks with Shell and BP about a refinery in China.

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