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Higher oil prices drive renewable energy implementation
February 11, 2017, 4:14 pm
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Income from oil exports, which accounts for over 90 percent of Kuwait’s budget revenue and nearly half of the country’s GDP, has been boosted in recent months by higher international oil prices. This has enabled Kuwait to post healthy trade surpluses in the last two quarters and with average oil price continuing to trend upwards, the trade surpluses could edge higher in the coming months.

However, latest figures show that despite being one of the world’s biggest oil producers, and with proven crude reserves of over 100 billion barrels, Kuwait refines less than a third of its total crude production. With an oil output of nearly 3 million barrels per day (bpd), the country’s three refineries currently have a joint peak refining capacity of around 900,000 bpd, of which a little over two-third is exported annually.

Kuwait’s attempts to increase the export of crude oil and refined petroleum products, and thereby raise revenues for the exchequer, have been stymied by several internal and external factors. A contentious parliament has over the years delayed attempts to ramp up the country’s oil production and refining capacity. Plans to increase refining capacity to 1.41 million barrels per day (bpd), and oil output to 4 million bpd, were repeatedly stalled by legislators who alleged corruption and misdemeanors in project awarding processes.

The delays in gaining the eventual go-ahead for various oil-sector projects has meant that the Clean Fuels Project at Mina Al-Ahmadi and Mina Al-Abdulla refinery, which aims to increase refining capacity to 800,000 bpd, and the new refinery at Az-Zour with a refining capacity of 615,000 bpd, will now begin production only sometime in late 2018 or early 2019. With global demand for refined petroleum products on the rise, Kuwait is left with the unenviable position of not having the capacity to cater to this urgent demand.

Another factor hurting Kuwait’s oil exports is the recent OPEC decision calling on its members to cut production. At their meeting in November 2016, OPEC, which was later joined by several non-OPEC members, agreed to cut oil production so as decrease global oil inventories and raise prices. In line with this decision, Kuwait agreed to cut its oil output by 131,000 barrels per day from 1 January 2017, thus lowering its daily oil production to 2.71 million barrels, down from the October 2016 baseline production of 2.84 million barrels per day.

Also hindering exports is the country’s burgeoning local demand for energy. New statistics from the Public Authority for Civil Information (PACI) reveal that in early 2017, Kuwait with a population of 4.42 million needed 350,000 barrels of oil per day to meet its energy requirements. Based on the government’s budget estimate of US$45 per barrel in fiscal year 2017/18, that works out to a potential revenue loss to the state of $15.75 million per day, or an annual loss of $5.75 billion.

Kuwait has one of the highest per capita energy consumption rates in the world. Recently, the country’s Minister of Oil and Minister of Electricity and Water Essam Al-Marzouq was quoted as saying that, with the population expected to increase to over 5.5 million by 2035, the local demand for oil would go up to one million barrels per day. In the same time demand for electricity would leap to 30,000 MW from the current peak demand of around 12,500 MW.

Given that Kuwait’s projected oil output from 2020 until 2030 is four million barrels per day, the local consumption would amount to a quarter of all production. By then, the potential revenue loss to the state, at the current estimated price of $45 per barrel, would surge to $45 million per day, or $16.43 billion over a year. And if, as is probable, oil goes to $90 per barrel in the next decade, then the potential loss of revenue could double to over $32 billion per year.
This huge loss of potential revenue, along with Kuwait’s deep commitment to pursuing environmental sustainability for the benefit of future generations, lies behind the state’s urgent moves to implement the far-sighted vision of His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah.

In 2012, His Highness the Amir speaking at the18th session of the Conference of the Parties to the UN Framework Convention on Climate Change (UNFCCC), which took place in Doha, Qatar, announced his vision to see Kuwait pursue sustainable development and realize 15 percent of its energy needs from renewable sources by 2030. Since His Highness’ announcement, a growing numbers of state institutions, particularly in the oil sector, which is the main energy consumer in the country, have started implementing strategies designed to realize this vision.

Solar and wind are the principal sources of renewable energy that Kuwait can easily rely on. With an average monthly solar irradiation of170.4 kWh/m2, solar energy remains the most attractive and viable renewable energy option. It is no surprise that most of the upcoming renewable energy projects are focused on solar energy.

Kuwait began operating its first solar energy production facility in late October 2016 with the commissioning of the Sidrah 500 solar power plant. Built by Kuwait Oil Company (KOC) at a cost of around $100 million, the Sidrah 500 plant located at Umm Gudair oil field, to the south of Kuwait City, will produce 10 megawatts (MW) of electricity. Half of this production will be used to run KOC’s oil-field operations, while the other half will be supplied to the public utility network.

Meanwhile, the Kuwait Institute for Scientific Research (KISR), in cooperation with the Ministry of Electricity and Water (MEW) is building a renewable energy park at Al-Shaqaya in north-west Kuwait. In 2015, KISR signed a contract for $403 million with Spanish firm TSK to establish the country’s first concentrated solar power (CSP) plant with a planned production capacity of 50MW and a solar photovoltaic (PV) station with capacity of 10MW in the park. Another Spain-based firm, Elecnor, won a $26 million contract to build Kuwait’s first wind farm in the same Al Shagaya complex with a capacity of 10MW the area.

By 2030 the park is expected to have a total capacity of 2,000MW, including solar thermal, solar PV and wind power, will cover around 7 percent of the country’s estimated energy consumption in 2030. Meeting Kuwait’s target of 15 percent of energy needs from renewable sources would cut 150,000 bpd of oil from local demand and lead to a potential saving of nearly $5 billion per year by 2035, at the estimated rate of $90 per barrel. In addition, it could also reduce annual CO2 emissions by 10 million tons to improve Kuwait’s environmental credentials.

According to analysis by the International Renewable Energy Agency (IRENA), the GCC region can cut its annual water use by 16 percent, save 400 million barrels of oil, create close to 210,000 jobs and reduce its per capita carbon footprint by 8 percent by 2030, just by achieving the renewable energy targets that national and sub-national governments have already put in place.

 

 

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