Kuwait has moved to further expand its energy sector, after officials resumed talks with their Saudi Arabian counterparts on oil production in the Partitioned Neutral Zone (PNZ).
On July 24 Prince Abdulaziz bin Salman, Saudi Arabia’s minister of state for energy affairs, visited Kuwait to discuss technical points related to reopening upstream activity in the zone between the two countries, and noted that major issues had been resolved.
The 5770-sq-km PNZ, which was left undefined following the creation of a border between the two territories in 1922, is capable of producing 500,000 barrels per day (bpd) of oil, equivalent to around 4% of the countries’ combined production in June.
The neighbours previously operated two jointly run oilfields – Khafji and Wafra – in the area; however, operations were halted in October 2014 and May 2015 following environmental concerns and disputes over use of the land, respectively. Output was expected to resume in late 2016, but no action has been taken.
While a deal has yet to be struck, officials are hopeful that recent bilateral talks will lead to a resumption in production. Khalid Al Falih, Saudi Arabia’s minister for energy, industry and mineral resources, stated in February that he expected to reach an agreement before the end of this year.
See also: The Report – Kuwait 2018
Expansion of production
While Kuwait is currently bound by Organisation of the Petroleum Exporting Countries (OPEC) production quotas, which are expected to stay in place until at least March of next year, any resumption of activity in the PNZ would help to meet long-term aims of expanding the upstream segment.
Despite an increase in production to around 2.7m bpd of crude since the imposition of OPEC quotas in 2017, Kuwait remains below its OPEC target. Nonetheless, the country aims to increase this figure to 4m bpd by 2020, of which it is hoped 350,000 bpd will come from the PNZ.
To this end, the state-owned Kuwait Oil Company (KOC) announced on July 1 that it had signed a three-year, $597m deal with US oilfield services firm Halliburton, which will see the company drill six high-pressure, high-temperature offshore exploration wells at two sites in Kuwaiti waters off the coast.
The first phase of the project is scheduled for completion in July 2020, followed by the second phase in January 2021. Emad Sultan, KOC’s CEO, projects that offshore production could reach 100,000 bpd in the future.
Investment in natural gas and refining
Kuwait’s ambitious plans to create an integrated energy industry also include greater natural gas production.
The country intends to significantly increase non-associated natural gas production, from FY 2017/18 levels of 215m standard cu feet per day (scfd) to 2bn scfd by 2040.
Recent projects in the segment include drilling 15 deep wells into Jurassic formations in the north of the country over the course of FY 2016/17.
The increased investment appears to be having an impact, with non-associated natural gas production rising by 66.7% over the course of FY 2017/18, according to KOC data.
Elsewhere, efforts are being made to increase downstream capacity.
Kuwait Petroleum Corporation, the umbrella business for Kuwait’s hydrocarbons assets, has outlined plans to nearly triple domestic refining capacity, from 701,000 bpd in 2017 to 2bn by 2035, through the modernisation of existing refineries and the construction of new facilities.
Major projects include a $13bn, 615,000-bpd refinery at Al Zour in the south, expected to be operational before the end of 2020; a liquefied natural gas import terminal with a daily capacity of 3m British thermal units; and a petrochemicals plant with a capacity of 2.8m tonnes per annum, set for 2024.
The expansion and upgrade of Kuwait’s hydrocarbons assets should have a significant impact on the broader economy.
Given that the energy sector accounts for approximately 90% of both revenue and exports, economic prosperity is strongly tied to the industry.
An expansion of upstream and downstream capacity should therefore drive growth in associated non-oil sectors such as engineering, procurement and construction, and support services.
GDP grew by 2.6% in the first quarter of the year, according to the Central Statistical Bureau, and the IMF expects growth to accelerate to 2.9% in 2020 and 2021, up on 1.7% in 2018 and a 3.5% contraction in 2017.