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Count on Kuwait

Kuwait thankful for cuts after missing output targets

Kuwait has temporarily dodged a bullet. Its Opec commitment for a cut of 131,000 barrels a day, to keep production beneath 2.75m b/d, has shifted scrutiny away from the country's failing plan to reach output of 4m b/d by 2020. Instead, the focus is on how and where state-run Kuwait Petroleum Corporation (KPC) will make the cuts. Its job has involuntarily become easier: KPC missed a 3m b/d production target in 2016.

The confidential results of KPC's assessment of its oil wells is due in late January and will identify the wells that would benefit most from unplanned maintenance, thus stemming output. The list will not be long and will likely prioritise work at mature wells to preserve their longevity, with a focus on the Greater Burgan and north fields. The maintenance will not hinder a rapid restart of the wells if the Vienna Agreement falls through before May.

Curtailing much-needed upstream investments will be avoided, especially for international oil companies (IOCs), such as BP and Shell, that have spent time navigating Kuwait's notorious political maze to get a green light.

KPC has also temporarily paused export customers' options to add another 5% of volume onto deliveries, which has trimmed 100,000 b/d from the country's usual 2m b/d of exports. The potential rise in revenue per barrel, assuming oil prices climb, is well-timed for Kuwait's treasury. The country faces a $31bn budget deficit for the current fiscal year through to 31 March.

KPC could access up to 250,000 b/d of additional supply if circuitous talks to resolve a spat between Kuwait and Saudi Arabia succeed and restart production at the 300,000 b/d Khafji field and the 200,000 b/d Wafra field in the Neutral Zone, which the countries share equally. KPC will not limit production from the zone. But, it would be overly optimistic to plan how any such production would be managed considering false starts since the shut downs began in October 2014.

PE verdict: This core Opec member will make the cuts, but the Neutral Zone could offer swift gains if the deal fails

This article is part of a report series on Opec. Next article: Doha will deliver

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