With a new oil minister at the helm, Kuwait is looking forward to quicker development of its energy sector.
Long derided by oil sector watchers as ‘queue and wait’, Kuwait’s oil industry may be about to get a kick start as its new oil minister pushes for progress on huge upstream and downstream developments.
The state has been publicising its ambition to increase national oil production capacity from 3.1 million barrels per day now to 4 million bpd by 2020, and has had two world-class downstream projects ready to go for several years.
Kuwait’s export profile should ensure its oil industry can develop. In April crude oil exports to China rose 79% over the previous year to 308,000 bpd and exports to South Korea and Japan are up over 40%. and despite forecasts of a slowdown, a strong supply tie to the world’s fastest growing energy market cannot be a bad thing.
After years of false starts Oil Minister Hani Hussein, a widely respected former head of KPC, has been making progress. His appointment is already bearing fruit.
Refineries Green Lit
On 8 May, Kuwait National Petroleum Company (KNPC) announced the launch of tenders in for a new – and long-awaited – state of the art refinery at Al Zour. At 615,000 bpd of refining capacity and at a cost of $14.5 billion, the project will be one of the largest downstream projects in the Middle East.
KNPC is also on the cusp of choosing FEED consultants for the Clean Fuel project, an $18 billion upgrade of the Mina Abdullah and Mina Al Ahmadi refineries that will increase their capacity from about 730,000 bpd to 800,000 bpd and enable them to produce lighter grade fuel which will meet stringent international standards.
The news marks the end of years of delays. Each consulting contract will cost about $300 million and there may be as many as nine international pre-qualified consultants for the projects, according to a KUNA report. Fluor, Technip and AMEC are thought to be at the head of the pack at Al Zour.
Push Upstream
The next litmus test is the 25 billion barrel Wafra joint project with Saudi Arabia, which requires additional investment to obtain enough water to roll out its successful steam flooding pilot more widely in the partitioned zone (PZ). Getting approval for the billions of dollars of investment needed may be tricky, especially with foreign oil companies involved, put the potential rewards are massive.
Away from the PZ, Kuwait is facing increasingly technologically challenging upstream developments. Fields such as Burgan have entered a critical stage for reservoir management and continued production.
To maintain reserves levels and boost production, KOC has to exploit heavy oil resources which require cutting-edge technologies to lift and transport which are not available domestically.
The drilling stage of the North Kuwait Heavy Crude development plan has exceeded expectations, with Hosnia Hashim, Deputy Managing Director for North Kuwait at the Kuwait Oil Company, telling Oil & Gas Middle East that 537 wells drilled at northern fields, more than double the planned 200, and production is running at 700,000 bpd.
The next stage is lifting the crude in larger volumes, which analysts say requires external expertise, a political hot potato which Hussein is regarded as best able to carry through parliament.
The specter of Project Kuwait, an $8.5 billion plan to reinvigorate Kuwait’s oil sector in the north by bringing in foreign oil companies, looms over attempts to import expertise. Project Kuwait foundered after parliament refused to sign off a deal that would see oil companies take up to a combined 40% stake in Kuwaiti oil production.
Article continues on next page …
Politics
Kuwait is too often portrayed as the victim its progress towards democracy and constitutional monarchy, with vote-garnering pushes for ever higher public sector salaries and outspoken political rivalries leading to the cancellation of commercial contracts, often for specious reasons.
The result, combined with a sclerotic civil service, has been delays, frustration and the crowding out of the private sector dues to inflated public sector pay and conditions and a difficult business environment.
However, there have been signs of progress which could give private sector oil companies a break in the country, including a well-supported campaign headed by former oil executive Ahmad Al-Arbeed to make Kuwait the ‘world’s oil capital’ by 2022 through increased private enterprise, launched in May.
“The private sector will have great success,” Arbeed predicts, “but it needs a way to be paved with the oil sector, coupled with legislation that protects and helps local and foreign investors.”
The rapid – and under-reported – improvement in Kuwait-Iraq relations in the last two months also gives room for hope, as waterway access, border and commercial accords were reached.
A factor which is often ignored is that Kuwait’s political culture, while often making for delay and the odd fist fight in parliament, can be a positive thing with the right impetus. Kuwaitis are open and frank about their country’s challenges, and the difficulties facing the country’s oil sector.
Parliament can be chaotic, but in giving a real outlet to Kuwaitis’ views promotes stability and Sunni/Shia integration, the lack of which has seen Bahrain suffer severely.
The country’s political development will be felt keenly in its oil sector, and for a change, the effect could be very positive.
