Related Articles
Forward article link
Share PDF with colleagues

Kuwait views low oil prices as an opportunity for growth

Falling oil prices have not yet persuaded the country to abandon its aggressive capacity growth plans

However deep the gloom elsewhere, in Kuwait City the mood is bullish. Oil prices won’t stay this low, predict executives, citing ever-rising demand from Asia. Anyway, if they do, Kuwait will still prosper. “We needed this correction,” said Sara Akbar, chief executive of Kuwait Energy, a private firm. “This is an opportunity.”

Her country enjoys the lowest per-barrel production costs in the world, she said, and the market’s weakening will expose this competitive advantage. “The last barrel of oil from this planet will be produced by Kuwait.”

Kuwait’s oil ministry exudes similar confidence. A $100 billion plan to raise production to 4 million barrels a day (b/d) by 2020 and expand the country’s refining and petrochemicals capacity remains official policy. “Despite the weak crude oil price environment,” said oil minister Ali Saleh Al-Omair at a Petroleum Economist conference in Kuwait City in January, “I am confident we can benefit from the crisis and can transform it into an opportunity.”

That means business as usual, whatever the price. This year, Kuwait will deploy another 40 drilling rigs, taking the total to 120 – part of a campaign to reach output capacity of 3.15m b/d by end-2015. In January, Kuwait pumped just under 2.9m b/d.

Global support

There is little indication, either, that Kuwait is yet in a mood to help support global prices. Officials talk plenty of Kuwait’s obligations to the international market and consumers, but less urgently about propping up the market. Content with fiscal break-even prices beneath most of its Opec peers, Kuwait heartily endorsed the Saudi-led decision last November to leave group output unchanged and let the market find its own balance.

Market share is the motivator for Kuwait, which is adding foreign refining capacity in key markets around the world. Conscious of Iraq’s plans to add another 5m b/d or so to supply in the coming years and the possibility of a surge in Iranian output should sanctions be eased, Kuwait has spent recent months aggressively pricing crude sold into Asia, the main target for its oil. This has contributed to a mini pricing war in the Gulf – reminding the buyers that the region’s biggest producers have market share, not price, in their sights.

Yet despite the public confidence, not everything is rosy in Kuwait’s oil sector. Saudi Arabia’s decision in October to shut down the 300,000 b/d Khafji oilfield in the Neutral Zone it shares with its neighbour has instantly made Kuwait’s expansion plans more difficult. The 4m b/d target includes about 350,000 b/d from the Neutral Zone.

So too have events at the Wafra field, another Neutral Zone concession, where Chevron, a long-term investor, had plans to spend $40bn on a vast heavy-oil recovery project. Now the company seems to have been caught up in the Khafji dispute. Last year, Kuwait stopped issuing work permits to the supermajor’s employees, and output from the field has since fallen by about a fifth, to around 180,000 b/d. On top of rising costs, the political dispute now raises doubts about the US firm’s Wafra project, which would have accounted for a large chunk of the extra capacity needed to meet Kuwait’s output target. Chevron was also negotiating with Kuwait over possible investments in the country’s onshore sector, too. No one will be surprised if its enthusiasm wanes.

Despite Kuwait’s eagerness to engage more international oil companies (IOCs), the last major deal involved Shell agreeing in 2010 to develop the Jurassic gas development, seen as crucial to alleviating the country’s gas shortage. But the project, ensnarled in political objections to the original deal, has barely moved in four years. On top of Chevron’s experience, this has only reinforced an impression among IOCs that while Kuwait remains promising and suffers few of the risks of countries like Iraq, its contract terms are still poor and the business environment tricky.

That is a problem, because falling oil prices are also making IOCs choosier at a time when Kuwait hopes they will be central to its development programme – or even simply to maintaining production. At Burgan, the country’s largest field, which produces around 1.6m b/d, BP is already involved in a technical study focused on the play’s top strata. It isn’t certain, though, that the UK firm will stay on beyond the study. Nor, yet, have any big deals been signed with other IOCs that have eyed Kuwait’s onshore fields, where output is supposed to rise to 3.65m b/d if the country is to reach its 2020 target. New contracts, in the form of enhanced technical service agreements, were to be offered to a host of supermajors this year. But there has been no progress so far.

Equally pressing an issue, while oil prices remain depressed, will be how to pay for the $100bn expansion – as well as large growth in Kuwait’s refining sector both domestically and abroad. Kuwait’s latest budget for the year starting 1 April, involves a 42% plunge in revenue, based on a conservative forecast of $45/b for oil.


Keeping the upstream spending plans intact will contribute to a deficit the country expects to run this year. On the surface, that will hardly be problematic: sovereign reserves amount to more than $500bn, allowing lavish spending to continue. Kuwait typically forecasts deficits, too. Things may not be as tight as envisaged. Some Kuwaiti officials say the plunge in revenue makes it an opportune time to reduce energy and other subsidies, too. Plans are afoot to make diesel and kerosene more expensive, though gasoline and electricity prices – among the cheapest in the world – will not be lifted.

A lengthy oil price slump, however, will inevitably make Kuwait’s upstream expansion programme less urgent. It may also make sense for the ministry to wait for further falls in industry production costs to push ahead. Kuwait Oil Company expects to spend $40bn to increase onshore capacity by 550,000 b/d – an eye-watering outlay, if the oil will eventually feed into a well-supplied global market. There will be few surprises if plans to award contracts this year for northern fields, or the heavy oilfield development at Ratga, are delayed; or if, as expected by many analysts, Kuwait’s bullish development programme moves more slowly than its 2020 target envisages.

Also in this section
Libyan production languishes under ‘illegal blockade’
4 August 2020
National Oil Corporation reports its lowest production since the blockade started in January as external forces gear up for clash over Sirte basin oilfields
Turkey’s ambitions have imperial echoes
4 August 2020
Facing the challenge of a domestic economic crisis, President Recep Tayyip Erdogan hopes that successful military interventions in the surrounding region will foster nationalist solidarity
Bolivian election delay further dampens gas investment appetite
31 July 2020
The Andean country’s natural gas sector will be a casualty of a second vote being pushed back yet again