Related Articles
Forward article link
Share PDF with colleagues

PNZ patch-up raises offshore gas hopes

Belated reconciliation over acreage shared with Saudi Arabia offers relief for Kuwait's flagging oil expansion efforts

The energy ministers of Kuwait and Saudi Arabia met in the border town of Khafji in late December to seal settlement of a prolonged dispute over management of the Partitioned Neutral Zone (PNZ)—a 5,700km² (2,200 square miles) of contiguous onshore and offshore acreage shared equally for nearly a century. 

The quarrel flared-up in the second half of 2014, triggering closure of the producing Khafji and Wafra fields. It centred on the Saudi decision to outsource operation of the kingdom's onshore PNZ interests to Chevron—a level of foreign involvement in upstream activity anathema domestically to both states, but especially so to Kuwait. 

Khafji, operated by a joint venture between the respective state oil companies, Saudi Aramco and Kuwait Petroleum Corporation, was closed in October 2014 purportedly over violations of Saudi rules on gas flaring.  Kuwait then further escalated tensions by frustrating Chevron's ability to operate Wafra from its base at the country’s al-Zour port, forcing the field’s shut-in in May 2015. 

Importantly for both countries, the deal struck is reported to resurrect plans to develop the Dorra offshore gas field

Reconciliation was regularly declared imminent but the imperative for either side to give ground was weakened by their adherence to Opec production cuts in place since January 2017, minimising the impact of the output loss. The Kuwaitis’ incentive to resolve the dispute was always greater: as the smaller producer; and by dint of chronic delays to domestic field expansion projects. A longstanding target of raising capacity to 4mn bl/d by this year has been missed by almost 1mn bl/d. 

Conversely, though, the Kuwaiti government appeared the more reluctant to compromise. Saudi crown prince Mohammed bin Salman (MbS) cut short a visit to Kuwait for talks on the issue in late 2018, complaining that his interlocutors were insisting on settling fundamental questions of sovereignty as a prerequisite for restarting the fields. 

The deal inked in late December, to judge for its reporting by Kuwait’s state news agency, represented victory for Kuwait on the latter point—making firmer the land and maritime border demarcations set by treaties in 1965 and 2000, under which Kuwait is sovereign in the PNZ’s north and Saudi Arabia in the south. Only the hydrocarbons resources are shared. 

To resolve the foreign involvement element of the flare-up, Chevron Saudi Arabia will reportedly be permitted to remain based at al-Zour for five years before relocating to Khafji, on Saudi soil. The US major's presence has been a decade-long sore point, ever since Saudi Arabia renewed the company's concession for 30 years in 2009, allegedly without consultation with Kuwait. 

Kuwait is the needier through a combination of a paucity of available gas and domestic development delays

A memorandum of understanding was also signed calling for PNZ production to resume. The two shuttered fields have nominal combined capacity of around 500,000 bl/d, split almost equally; but pre-closure output was considerably lower and restoration of the long-mothballed operations is likely to take some time. Both parties say they are aiming for full resumption of production within a year. 

Dorra hopes rekindled

Potentially more importantly for both countries, the deal struck is reported to resurrect plans to develop the Dorra offshore gas field, abandoned in 2013 amid another intergovernmental quarrel. Saudi Arabia's shortage of non-associated gas has forced resort to the costly development of offshore sour and onshore tight reserves. But Kuwait is again the needier through a combination of a similar paucity of available gas and domestic development delays. 

First production from the huge Jurassic gas reserves discovered some 14 years ago came on stream only in 2018, through a trio of 100mn ft³/d early production facilities. A tender for the far larger Jurassic Gas Facility—which, at an envisaged 590mn ft³/d, would have more than doubled national production to beyond the government's 1bn ft³/d 2023 target—was cancelled in 2017 over characteristic disputes between the various state actors involved. 

Speaking in early January, Kuwait’s oil minister Khaled al-Fadhel confirmed that production from a Dorra development was anticipated at around 500mn ft³/d. Exploitation is complicated by an Iranian sovereignty claim over part of the field, but officials discussing the project in the wake of the PNZ settlement assert that the scheme could be carried out in such a way as to avoid the disputed area.

Also in this section
Latest licensing rounds
2 July 2020
The industry's most comprehensive list of current and recent rounds for onshore and offshore licences
No rebound in sight for US shale
30 June 2020
Domestic crude production will continue to be squeezed despite the modest oil price upturn and faces a long-term existential threat in the form of the Democratic manifesto
Guyana must embrace transparency to realise oil wealth
25 June 2020
Grasping the lessons from the mistakes of other countries in the region will be vital to maximising the country’s resource potential