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Kuwait's big plans, tricky politics

Kuwait still hopes production will rise considerably between now and the end of the decade, but must overcome a number of hurdles

DESPITE myriad difficulties, Kuwait is unmoved: it will, says the oil ministry, increase its liquids production to 4m barrels a day by 2020. Liquids, though, will be the key. The country’s authorities now say the target is to be met not by crude alone but with help from the Jurassic gasfields, to the tune of at least 300,000 b/d. The crude target now stands at 3.65m b/d, a level it will sustain for a decade.

Can the market rely on the numbers? Crude production is now 2.9m b/d and, whatever the will of the ministry, Kuwait’s daunting investment climate is an obstacle to growth.

Kuwait Oil Company (KOC), charged with pushing through the expansion, has had a rough go of it lately, facing battles on a number of fronts. Its restive oil workers staged a strike in April (helping to buoy prices in the days following the collapse of the Doha freeze talks); and the Neutral Zone shared with Saudi Arabia remains out of action for opaque political reasons, largely emanating from Saudi Arabia.

Nonetheless, in mid-April, KOC said it would soon offer contracts for offshore rigs and support services to drill its first subsea wells. The plan at the outset of 2016 was to boost oil and gas drilling rigs by 50% this year, bringing it up to 120. That will be missed, but the Kuwaitis are serious about shrugging off their reputation as the Gulf’s laggard.

National Bank of Kuwait (NBK) estimated it was the region’s largest market for oil and gas projects in 2015, with $19.8bn worth of contracts awarded last year.

Carving out progress

Some upstream work continues. KOC recently announced the discovery of four oilfields and two new reservoirs in the north and west of the country, yielding prospects of both light and heavy crude, as well as gas. The offshore remains a clear focus. KOC’s planning manager, Bader al-Attar, told the OTC conference in Houston that it plans to spud the first of 15 offshore wells later this year.

Kuwait has been forced to pump aggressively from the giant Burgan field to keep production steady at 2.9m b/d

Meanwhile, other long-term plans call for KOC to spend $15bn to increase output from non-heavy oil formations in the Sabriya and Raudhatain by about 300,000 b/d. Heavy oil from the Ratqa field would contribute another 60,000 b/d by 2017 in a first phase, before rising to 270,000 b/d by 2020.

But progress is rarely that smooth in Kuwait. The International Energy Agency still sees its 2020 target as unrealistic given the dearth of greenfield development projects on the books.

The Neutral Zone is another problem. All output from the zone was stopped in May 2015, after the 200,000 b/d onshore Wafra field was shut in at Saudi Arabia’s behest. The 300,000 b/d offshore Khafji field had already been closed in October 2014. While Saudi Arabia has relatively easy spare capacity to fill the gap, Kuwait – which shares the output evenly with its bigger neighbour – has been forced to pump aggressively from the giant Burgan field to keep production steady at 2.9m b/d.

Early in April, Kuwaiti press claimed an agreement had been reached with Riyadh to restart Khafji – a claim met with silence in Riyadh. Most analysts expect a deal to be fixed between the emir and Saudi king. But until then, output that will be critical to Kuwait’s targets remains frustratingly offline.

Beyond borders

The bigger strategic question is what role international oil companies will play in Kuwait’s upstream. Although majors such as Shell, BP and Total have signed enhanced technical-service agreements (Etsas) with Kuwait, enabling them to provide technical knowledge, expertise and management in return for fees, these deals have been held up since 2011. That relates to an investigation mounted by MPs following claims that the contracts were granted without proper competition. The Etsa deals are there to help KOC tap both heavy oil and gas in the deep and sulphurous northern Jurassic gas reservoirs. Above all, they are a core component of the 2020 production target. Without them, KOC’s prospects of getting anywhere near that target would be bleak.

On that score, there is better news. On 26 April, state news agency Kuna reported that the public prosecutor had closed an investigation into the Etsa signed with Shell in 2010. But parliamentary opposition has frequently hindered the ministry’s efforts to rope in the international oil companies (IOCs). MPs will continue to resist.

The ministry, though, sees IOCs as integral to its upstream ambitions. So creative ways to get them involved may be used. BP recently signed a co-operation agreement with KOC’s parent, Kuwait Petroleum Corporation, that would see the companies collaborate on upstream projects across the Middle East. Crucially, the pair will also study enhanced oil- and gas-recovery projects in Kuwait and also possible joint exploration.

This article is part of an in-depth series on upstream in the Gulf. Next article: Growth pause in Iraq.

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