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Kuwait’s expansion plan underlined by new oil finds
June 21, 2015, 3:42 pm

The government plans to spend $100 billion on the oil sector over the next five years to reach its goal of raising output from 2.8 million bpd in 2014 to 4 million bpd by 2020, received a boost in April with the announcement by Kuwait Oil Company (KOC) of the discovery of four new oil fields. Noting that three of the new fields, containing high-quality light crude, are located in western Al Manageesh, in northern Al Rawdhatain and in Umm Neqa fields, the company added that production could start at these facilities in the near future.

According to the US Energy Information Administration (EIA), Kuwait, which controls six percent of the world’s oil reserves, has long operated below potential. The recent downtrend in global oil prices has boosted the state’s need to expand and diversify its oil resources.

In recent years, the government has pursued a host of large-scale initiatives, including Project Kuwait, which aims to encourage greater foreign investment; the Clean Fuels Project, which involves a series of refinery upgrades; and the construction of a new refinery at Al Zour.

The, Kuwait Petroleum Corporation (KPC), the umbrella company for the country’s state-owned oil and gas firms, including KOC, announced a $75 billion capital spending plan for 2015-20, split between $40 billion for upstream and $35 billion for downstream development.

However, many of the initiatives were ones that had been delayed under the previous five-year plan, which ended in 2014 with only 57 percent of planned spending carried out. Progress has also been slow at many discoveries, such as Kra’a Al Mara (1990), Sabriya and Umm Niqa (2006), largely because these are more technically challenging, being of a heavier and more sour quality.

If Kuwait is to implement its more challenging projects in full, KPC may need to make more use of foreign expertise. With foreign ownership of natural resources banned by the country’s constitution, international oil companies (IOCs) have been recruited in recent years via ‘technical service agreements’ and special buy-back contracts that exclude any concessions or control of output levels.

Project Kuwait is designed to draw foreign investment and boost production by taking advantage of IOCs’ technical know-how, especially in the northern fields. Oil major Shell signed a contract in 2010 to help develop natural gas production at the northern Jurassic field, while Japan Oil, Gas and Metals Corporation has inked a deal with KOC to test enhanced oil recovery (EOR) techniques in the country.

EOR is another potential area for foreign involvement. According to research by intelligence firm IHS released in May, Kuwait is among the top 10 countries outside North America that could benefit from vast unconventional reserves available through new technologies, with more than 4 billion barrels in extra resources. Of the 141 billion barrels of such reserves worldwide, 96 percent would require hydraulic fracturing, an EOR practice that has so far been mostly limited to the US despite its success over the last decade.

Despite deep cuts to spending and subsidies, the country looks set to run a deficit in fiscal year 2015/16, its first in 15 years. To keep Kuwait in the black, the current rebound to above $60 a barrel for oil would have to improve further – something many analysts and industry participants doubt given OPEC’s strategy of maintaining output in the face of low prices in order to squeeze competitors in areas like US shale.

Kuwait has ample fiscal reserves, worth $548 billion as of June 2014, according to the state audit bureau, but the country needs to secure oil revenues in the long term to fund its spending plans, most recently a $155 billion five-year package of 523 development projects in areas ranging from infrastructure to human resources, announced by the government in January.

This looks set to require new investment and potentially more accommodative policies towards foreign partners, especially regarding difficult oil reserves that are critical to boosting output as older, easier-to-access reserves gradually dwindle.

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