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Kuwait expansion plans in doubt; measures being taken

Kuwait announces plans to raise oil production capacity from around 2.9m barrels/day to 4m b/d by 2020

Addressing an energy conference in Kuwait in mid-October, the oil minister Ali al-Omair said that specific measures were being taken to enable output to go up, including more rigs and drilling 2,000 wells; building four gathering centres and two booster stations; and developing heavy oil.

The Kuwaiti authorities have long planned to exploit the country’s heavy oil reserves – drawing on the services of experience and expertise of international oil companies. As far back as 1998, IOCs were invited to bid for contracts relating to ‘Project Kuwait’, which envisaged the expansion of output from northern and western oil fields by 0.9m b/d.

The idea was that international firms would sign operating service agreements, with the explicit proviso that they would have no right of ownership of Kuwaiti oil. Nevertheless, members of the Kuwaiti national assembly blocked the venture.

Today, the plan is for IOCs to be offer enhanced technical service agreements (ETSAs). While an ETSA limits the role of an IOC to that of service provider, the likelihood is that the scheme will still face opposition and delays in parliament.

Second, the 4m b/d target assumes that Kuwait will receive 350,000 b/d from its half-allotment of output from the Neutral Zone shared with Saudi Arabia. However, for the past few months all production from the zone has stopped because of a dispute between Kuwait and Saudi Arabia that has taken on a political dimension. While a joint committee has been formed to try to resolve the dispute, both sides are now saying that a solution will require intervention from the heads of state of the two countries.

Saudi Arabia, with its comfortable band of spare production capacity, is not affected by the loss of 250,000 b/d of output from the Neutral Zone. Kuwait, by contrast, is producing flat out from all fields to make up for at least part of the loss, with expanded output from the Burgan field pushing total production up from around 2.7m b/d to 2.9m b/d. But this not an arrangement that is sustainable in the long term.

The operating companies in the Neutral Zone point out that the longer the fields there remain closed, the more time it will take to resume full production – with the current capacity of 500,000 b/d. For Kuwait to reach 4m b/d by 2020, output will not only have to resume, but a planned 200,000 b/d expansion programme will have to have been completed in order for the Kuwaiti share to rise to 350,000 b/d.

As one senior Kuwaiti energy official says, “4m b/d by 2020 is technically feasible, but the problems of decision-making and the culture of delaying projects here make this very unlikely.”

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