Saudi Arabia and Kuwait have shelved their project to develop the Dorra offshore gas field after disagreeing over how to share the gas back on land, a senior Kuwaiti energy source said.
Dorra has long been a bone of contention between Kuwait and Iran, which also lays claim to part of the field.
Kuwait agreed with Riyadh in 2000 to jointly develop the field they desperately need to satisfy their growing gas thirst. Thirteen years on, little progress has been made and it has now been shelved indefinitely.
"The entire project is on hold, the budget is on hold, no new drilling is anticipated for the 2013/2014 budget for Dorra," said the source.
The plan had been to share Dorra's gas at an offshore facility and pump it down separate pipelines to the project partners. Early last year, Saudi Arabia began pressing for all the gas to be piped first to Khafji, a town on the Saudi side of the border, before piping Kuwait's share overland.
A route via Saudi Arabia raises security of supply issues for Kuwait.
But the original plan to pump its share direct to a Kuwaiti beach near a big gas fired power plant is also stuck because of land disputes between Kuwaiti energy companies.
"The issue between Saudi and Kuwait has not yet been sorted out, nor has the landing point issue within Kuwait been resolved," the senior energy industry source said.
Kuwait Oil Co (KOC) has built a large beach club for employees at the landing site and will not give it up until an alternative location is offered.
"We are now back to square one because there is not enough land for the onshore pipeline that will transport the gas from Saudi Arabia to Kuwait... access to all corridors for the pipelines are blocked."
Kuwati oil and gas officials were either unable to comment, declined to comment or were unavailable for comment. Saudi Aramco could not immediately comment.
Top oil exporter Saudi Arabia plans to raise its gas production capacity to 16 billion cubic feet per day (bcf/d) by 2020. Kuwait, which relies heavily on imports of liquefied natural gas (LNG) to meet a summer surge in air conditioning demand, hopes to nearly quadruple its gas output to more than 4 bcf/d by 2030, with 0.5 bcf/d expected to come from Dorra.
Both need to boost gas supplies to reduce domestic oil consumption for power generation and boost exports, which Dorra's estimated trillion cubic feet of gas and 310 million barrels of oil should help achieve.
Failure to develop Dorra will likely force Kuwait to buy more costly LNG on the global market.