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Wed 17 Feb 2010 08:31 PM

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Kuwait signs 5 year gas deal with Royal Dutch Shell

Deal with Shell to boost output from gas fields not associated with oil ouput.

State run Kuwait Oil Company has signed a five year service contract with Royal Dutch Shell to develop pure gas fields in the country's north, a Kuwait official and Shell said on Wednesday.

Gas demand in the Gulf Arab state has outstripped supply, forcing the world's fourth largest oil exporter to import liquefied natural gas (LNG).

Tight supply has been exacerbated by OPEC member Kuwait's adherence to the producer group's oil output restrictions since late 2008.

Most of Kuwait's gas is a by product of oil production, so when it pumps less crude it pumps less gas.

The deal with Shell is to boost output from gas fields not associated with oil output, Kuwait oil sector spokesman Sheikh Talal al Khaled al Sabah told Reuters on Wednesday.

That would help decrease the exposure of domestic gas supply to OPEC output agreements on oil.

Kuwait plans to increase output from the gas fields to 1 billion cubic feet per day (cfd) from around 140 million cfd, state news agency KUNA reported on Wednesday.

Shell would provide the expertise and technology needed to produce from the difficult fields, Sheikh Talal told KUNA.

Speaking to KUNA, Sheikh Talal said: "The project is one of the most complex and challenging in terms of technology in any place in the world."

Kuwait had hoped to bring production up to 175 million cfd by now, but has had problems with its plans to increase output from the fields alone.

In a statement, Shell said: "This project is both complicated and challenging, due to unconventional geological formations, difficult reservoir conditions and complex gas compositions."

Both Talal and a Shell spokeswoman declined to give details on the value of the deal. The two have been negotiating a gas service deal for years.

Kuwait has struggled with plans to boost capacity in its energy sector, as politics have caused delays or cancellation to contracts.

Kuwait, like its Gulf Arab neighbours, has seen gas demand for power generation and industry rise on a petrodollar fuelled boom.

The country ditched contracts to build a new refinery that would have produced clean fuel for burning at its power plants.

More gas output from pure fields would help meet demand for clean energy for power generation, oil industry operations and petrochemical plants, Sheikh Talal told KUNA.

Kuwait has also been negotiating a service agreement with Exxon Mobil to boost heavy oil output for several years, but has yet to agree a final deal. (Reuters)

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