Kuwait's new dynamism
The country wants to shake off its reputation for delays and energy sector in-fighting
A handful of long-awaited upstream successes are on the cards for Kuwait this year, reflecting a new sense of determination permeating through its oil industry. Both Kuwait Petroleum Corporation (KPC) and the oil ministry would certainly benefit from a new reputation of efficiency, rather than bureaucratic delays.
Kuwait's voice within Opec is becoming increasingly influential. In March, the country's new oil minister, Essam al-Marzouk, called for an extension to the six-month production cuts agreement negotiated in November. Kuwait is also chairing the joint ministerial monitoring committee—the group responsible for monitoring compliance rates to output cuts. Marzouk's appointment last December is also a victory for the country's upstream. Investors will be tentatively hoping that his business acumen—he headed Kuwait's stock exchange and was a KPC board member—will end the tug of war between KPC and the ministry. The bridge that joins the buildings housing the two entities is often far sturdier than the cooperation it is meant to symbolise. Public clashes between technically-minded KPC and the politically-orientated ministry do little to whet investors' appetites, especially when opportunities abound in other Gulf countries with arguably easier entry points.
This year the energy sector hopes to see an end to both the political shuffles that have seen more than 10 oil ministers come and go in roughly as many years and the expensive instability that has stalled modernisation and capacity-building projects. The 0.615m-barrels-a-day al-Zour refinery, which should be a jewel in the Gulf's downstream crown when it comes online in 2019, has been delayed by more than a decade due to a lack of stewardship over the $15bn bill. The steady completion of this project would inject more faith into the partnership between Marzouk and KPC chief executive Nizar al-Adsani and help to turn the tide on Kuwait's reputation. So far, so good.
Signs of movement
The strongest signs since 2014 have emerged that production at both the 300,000 b/d Khafji field and 200,000 b/d Wafra in the Neutral Zone—an oil producing area shared equally by Kuwait and Saudi Arabia—will resume this year. In late-2016, start-up readiness reports were requested within KPC and Marzouk said production at some level would resume by this June. In another positive move, Chevron, which handles Saudi Arabia's share of the Neutral Zone, has appointed Saudi executive Ahmad Awad al-Omar president of its operations in Kuwait.
But there may yet be a few more twists in the narrative. Internal briefings in KPC in late March suggested that the timetable might slip again. Whatever the politics, the ongoing spat over the Neutral Zone does little to bolster Kuwait's—or Riyadh's—reputation as reliable partners, especially considering both are strongly aligned in Opec dealings. Drawing a line under the issue would be in the interests of both sides.
Another feather in Kuwait's cap would be the signing of more enhanced technical services agreements (Etsas) with international oil companies. Similar contracts were previously derailed by a disapproving parliament. Etsas awarded to BP and Shell last year helped to put a stamp of credibility on Kuwait's foreign alliances. These two majors plan, respectively, to boost sustainable operations at the giant 1.7m b/d Burgan field and to develop heavy oil reserves in the north. Kuwait must sustain momentum to lock in other partners quickly.
Keen to cultivate an image of efficiency, Kuwait would also benefit this year from clarifying the confusion surrounding its oil production capacity targets. With just three years to go, the official target of 4m b/d capacity by 2020 is increasingly unlikely to be met. KPC officials stress that reports of a 4.75m b/d production capacity target by 2040 remain subject to approval, which is pencilled in for the third quarter of this year. Is Kuwait's ability to ramp up production by 2020 being grossly underestimated, or will new targets be announced this year?
Whatever transpires, officials say that even the suggestion of 4.75m b/d by 2040 hints at a white flag of surrender to the 2020 target. At present, with Kuwait's agreed cuts of 131,000 b/d, production is averaging 2.71m b/d. Its capacity is 3.2m b/d.
Kuwait is clearly making waves in its efforts to carve out a new identity. But KPC and the oil ministry show their true capabilities. Easing off the gas risks reviving criticism, but a steady speedometer would indicate to oil producing competitors that Kuwait is on the move again.