With more than a quarter of MPs protesting when parliament was presented with the new cabinet line-up, the political deadlock over the country’s oil and gas policy looks set to continue and further delay the launch of much-needed projects to boost production and upgrade energy facilities, says Samuel Ciszuk, IHS Global Insight Middle East energy analyst.
“With the parliament and government set to remain on a collision course, there will be little chance that Kuwait will be able to launch even some of its badly needed upgrading- and production-boosting projects over the coming year. Its downstream sector is already suffering from years of neglect, and its refineries are operating with the region’s worst health and safety record apart from war-torn Iraq,” says Ciszuk.
Both a giant contract to upgrade two of its old refineries and a project to build a new 615,000-b/d refinery (and so enable the oldest plant to be scrapped) have been effectively quashed, leaving Kuwait with limited ability to meet growing demand for advanced fuels—compatible with the latest environmental standards—in some of its core markets over the coming decade.
Further downstream, a deal to create a large-scale joint venture between US petrochemical giant Dow Chemical and state-owned PIC floundered in late 2008 and early 2009, after parliament had started alleging that PIC was overpaying Dow for its contribution to the JV.
“The JV had been agreed before the mid-2008 oil price crash, but the criticism instead led to the contract being broken just as the JV company was about to be incorporated and after Dow had undertaken a series of related investments and acquisitions. It set a very disconcerting example for other investors in all sectors, as well as halting an opportunity for PIC to gain access to more up-to-date production technologies and know-how” explains Ciszuk.
Upstream, development is likely to remain stalled too, with IOCs largely having made the same assumptions during the past election cycle and downscaled their effort to continue working under technical service agreements in Kuwait with notoriously low margins.
“Given that Kuwait is facing increasingly technologically challenging developments—both with regard to keeping output steady from maturing reservoirs and in developing new deep-lying oil and gas reservoirs, often containing heavy oil—the absence of an inflow of technical skill and expertise is likely to continue forcing the country to push its long-term production-capacity-boosting plans back,” warns Ciszuk.
“With parliamentary hostility towards IOCs, coupled with the endemic inability to facilitate technology transfers to the national oil industry, set to continue, news from Kuwait is unlikely to entail large possibilities and developments over the coming year.”
Ciszuk concludes that the likelihood being that most development in Kuwait’s energy sector will remain stalled, whether in the upstream or downstream, efforts to increase production are likely to show only meagre results as Kuwait faces increasingly complex mature reservoir management issues. “Its downstream sector is also likely to show little change: Its NOCs are likely to continue to invest in refineries and downstream capacity closer to its main markets, such as China, contrary to the increasing worldwide trend of moving downstream production capacity closer to cheap sources of feedstock.”
