Despite the continued low oil price Kuwait has continued to expand its capital expenditure on oil and gas activities and looks to ramp up development on some of its mega projects, writes Julian Walker
Kuwait is the 10th-largest producer of oil and its economy is heavily dependent on oil revenues, which accounted for more than 70 per cent of the government’s total revenues in 2015, according to IMF estimates. Kuwait is currently producing around 2.8 million bpd and committed to cutting 131,000 bpd of production to 2.707 million bpd in January under the OPEC agreement.
Kuwait has historically struggled to boost its hydrocarbon production for more than a decade because of upstream project delays and insufficient foreign investment. This has changed in the last year or two. Kuwait has agreed big financing deals for some of its projects as the government takes steps to expand private sector participation in economic development.
In its latest budget announcement, the Ministry of Finance (MoF) forecast Kuwait’s oil revenues would rise by 36 per cent in FY 2017/18 to reach KD11.7 billion ($38.7 billion), just below the KD12 billion ($39.7 billion) recorded in FY 2015/16. Kuwait’s oil revenues have recovered, the ministry foresees a 6 per cent spending increase this year to KD21.1bn ($69.8bn), up from KD19.9bn ($65.8bn) last year, with KD3.4bn ($11.3bn) earmarked for capital expenditure. Kuwait has targeted crude oil and condensate production of 4 million barrels per day (bpd) by 2020.
Deputy Chief Executive Officer, (North Kuwait Directorate), of Kuwait Oil Company (KOC), Badria Ali Abdul Rahman said in an interview with Pipeline Magazine:
“The strategic plan of Kuwait Petroleum Corporation (KPC) and its subsidiaries, “2030 strategy”, lays out an ambitious future to explore, develop and produce oil and gas at a greater scale and complexity than at any time in the history of the State of Kuwait.”
Most of the increase in oil production capacity is expected to come from KOCs projects, with total KOC capacity expected to reach 3.65 million bpd by 2020. The remaining 350,000 bpd is expected to come from the Kuwait Gulf Oil Company (KGOC) in the Partitioned Neutral Zone (PNZ) but the PNZ has been shut since the fourth quarter of 2014 because of a dispute with Saudi Arabia. The two countries finally agreed to restart production from the 300,000 bpd offshore Khafji oilfield at the end of March. The rapprochement followed a visit last December by Saudi King Salman bin Abdul Aziz to Kuwait, which was widely thought to have smoothed over the political differences.
The main mega projects in Kuwait’s energy sector revolve around the $15 billion Al Zour Refinery and $14 billion Clean Fuels Project, which will raise the state’s refining capacity by more than 50 per cent to 1.4 million bpd by 2020.
Kuwait National Petroleum Co (KNPC) signed a $6.25 billion loan in May 2017 with international lenders and export credit agencies (ECAs) to finance its planned clean fuels project. There is a real focus on downstream investment in Kuwait that has resulted in the creation of a new company Kuwait Integrated Petrochemical Industries Company (KIPIC), which was approved by the Ministry of Commerce and Industry late 2016.
The new subsidiary of KPC, is set to become the largest oil company in Kuwait with an estimated capital of KD 1.8 billion. In May this year, KNPC and the Petrochemicals Industries Company (PIC) agreed to transfer contracts of key projects to Kuwait Integrated Petrochemical Industries Company (KIPIC).
The projects include Al-Zour Refinery, facilities for importing liquefied natural gas and Project Management Consultant (PMC) contract for petrochemicals complex project. The new Al-Zour refinery is an essential part of KNPC’s strategy to increase the refining capacity of Kuwait up to 1.41 million bpd, from the current 615,000 bpd.
Another big project is the $10 billion Olefins 3 petrochemicals plant, currently in the pre-execution phase. It will house Kuwait’s third olefins cracker, significantly surpassing production from Olefins 1 and 2, which came on-stream in 1997 and 2009, respectively. Kuwait is looking to integrate the project between its Olefins III, Aromatics II and Al-Zour in Kuwait. The new petrochemical facility will be integrated with the new Al-Zour 615,000-bpd refinery, which will be one of the largest refineries in the region.
Heavy oil resurgence
A key component of Kuwait’s plans to increase its oil production will come from heavy oil resources. Kuwait has strategy going forward for the development of the heavy oil resources and according to the Deputy CEO of KOC there are two planned phases:
• Phase I, known as “Building capability” phase, to build a strategic capability to produce 60 million mpd, from 2018/19, maintaining it afterwards.
• Phase II, known as “Gap Filler” phase, to grow KOC’s heavy oil production to 270 thousand barrels of oil per day by 2030.
“The aim is to increase the strategic production target of Kuwait to 4 million barrels of oil per day, of which the 11 per cent will be achieved by developing the heavy oil resources in the North Kuwait Directorate. The heavy oil resources are pivotal for the sustainability of Kuwait’s oil industry, and one of the strategic development objectives for the country,” added Ali Abdul Rahman.