Kuwait is on the verge of exhausting its production capacity – OPEC faces pressure
Kuwait is on the verge of exhausting its production capacity, capping its ability to bring in more crude oil to meet increased global demand, as OPEC faces pressure from major customers for lower prices , reports Al-Qabas daily.
Platts Analytics – providing clarity on changes in commodity supply and demand flows, infrastructure, policies, etc. unfavorable business climate, as well as government instability, limiting its ability to continue growing and according to the Platts OPEC Production Survey by S&P Global Commodity Insights, Kuwait pumped 2.72 million bpd in June.
State-owned Kuwait Petroleum Co.’s plans to increase production capacity to 4.75 million b/d by 2040 were seen as very ambitious when unveiled in 2018. The country has now revised its target to 3.5 million b/d by 2025 and 4 million b/d by 2040, but analysts say even that can be a daunting task. Kuwait’s main source of supply is the huge Greater Burgan field – the second largest in the world – which is already producing up to 95% of its capacity, with some 1.6 million bpd of sustained production through a mixture of gas injection and water fl flooding.
KPC is working on a 100,000 bpd capacity gathering center in Burgan and continuing development in the neutral zone the country shares with Saudi Arabia, which remains technically difficult after the facilities were closed for several years , according to sources. Beyond that, any other major additions would not come online until the end of the decade and would require international funding and expertise, which remains a challenge for the country notorious for its aversion to foreign investment.
Another hurdle is Kuwait’s turbulent politics. The country currently does not have a functioning parliament and new Prime Minister Sheikh Ahmad Nawaf al-Sabah has been tasked with forming a new government as the country awaits elections. Current Oil Minister Mohammed al-Fares, who will represent Kuwait at the next OPEC+ meeting on August 3, could participate in a possible cabinet reshuffle. This leaves Kuwait and its oil policy somewhat in limbo. Upgrades to its aging fields require international know-how, which would require changes to the country’s oil law to entice oil majors to participate, analysts say.
“International companies are hesitant to come to Kuwait unless we reach some sort of share-or-buy-out deal like they did with Abu Dhabi, Qatar and Oman,” said independent Kuwaiti oil analyst Kamil al- Harami. “But it’s very, very difficult, if not impossible, for us to observe or comply.” Kuwait’s reliability as a supplier could come from its petroleum product exports thanks to its investments in the downstream sector, such as the 615,000 bpd Al-Zour refinery, Al-Harami added. The refinery is still in the test phase, with full capacity expected to be reached in early 2023.
In the medium term, Kuwait is expected to see additional heavy oil production from the second phase of the Lower Fars development, which is expected to be commissioned by 2023, adding up to 200,000 bpd by the end of the decade. The Neutral Zone fields are also expected to boost Kuwait’s production, although no projects have yet been approved. Either way, much of the production is expected to more than offset declines from the Greater Burgan Reservoir. The country is also expected to develop and sell condensate volumes from its non-associated Jurassic gas projects in northern regions, such as Sabriya. The condensate is expected to be sold as Kuwait Super Light grade crude oil.
A possible lifeline for Kuwait could be loan facilities from buyers, which would allow their service companies to participate in upgrades and secure a secure market share for future production. In March, the Japanese company Nippon Export and Investment Insurance signed a preliminary energy cooperation agreement with KPC. The MoU also calls for a consortium of Japanese and Western banks to provide a $1 billion loan to KPC to help the company build upstream capacity.
However, the resignation of the Kuwaiti government in April and the dissolution of parliament for the second time this year in July have delayed plans. A Japanese banking source said the loan facility was a “work in progress”. Japan sought to diversify its imports of Russian crude oil after Moscow invaded Ukraine in March, and Kuwait was its third largest supplier in 2021. Japan also has a historic reason to invest in the upstream sector. of Kuwait after losing the concession to the Khajfioil field in the neutral zone through his company Arabian Oil Co. when it expired in 2003. “Many Japanese people involved in these negotiations felt bitter about it” , said a source familiar with the past discussions.
Source: Arab Times