Kuwait: upstream forecast

A recent gas field development agreement with Shell has given hope to IOCs looking to enter Kuwait's tightly-controlled yet lucrative upstream market.
Kuwait: upstream forecast
By Daniel Canty
Fri 20 Aug 2010 04:00 AM

A recent gas field development agreement with Shell has given hope to IOCs looking to enter Kuwait's tightly-controlled yet lucrative upstream market.

With its vast oil and gas wealth and ever increasing domestic and overseas energy demand, Kuwait is rapidly expanding its production capabilities. This has brought up the issue of engaging more foreign oil companies in the exploration and production sector which has always been a contentious one for the country's parliamentarians who have been adamant on protecting the country's future energy supply.

E&P activity

According to the latest BMI Kuwait Oil & Gas report, IOC involvement could begin with the Project Kuwait initiative, aimed at bringing foreign companies into Kuwait as subcontractors that are paid a fee for developing oil fields and increasing the country's productive capacity. Legislation has not yet been passed.

Kuwait is believed to contain around 101.5bn bbl of proven oil reserves (excluding its share of the Neutral Zone), or roughly 9% of the world's total. A leaked industry document had implied that reserves were being overstated by the Kuwaiti government, with 48bn bbl suggested as a more accurate assessment of the state's resources.

The same source implied that only 24bn bbl of oil are actually proven. The Gulf state has denied the accuracy of the reports, suggesting that they relate to only part of its reserves base. Along with Saudi Arabia and the UAE, Kuwait is one of the few countries with surplus oil production capacity - able to pump an estimated 2.65m bpd on a sustainable basis. Kuwait is a core member of OPEC and, as such, is governed by output quotas. Output has recently been averaging 2.28m bpd (March 2010).

Most of Kuwait's oil reserves are located in the 70bn bbl Greater Burgan area, comprising the Burgan, Magwa and Ahmadi structures. Capacity is estimated at 1.6m bpd, with the field considered to be the second biggest in the world, after Saudi Arabia's Ghawar field. It has been in constant production since 1938, hence concerns over its longevity, remaining reserves and longer-term production potential.

Kuwait's Raudhatain, Sabriya, and Minagish fields have combined proven reserves of 11.5bn bbl. All of these fields have been in production since the 1950s.

The South Magwa field, discovered in 1984 to the west of Burgan, is believed to house at least 25bn bbl of recoverable oil. In March 2006, Kuwait announced a 10-13bn bbl discovery in the Sabriya and Umm Niqa areas. A month later, the country claimed another major find in Arifjan, south east of the Burgan oil field. Kuwait's oil minister stated that the new oil discovery bolstered Kuwait's official reserves by 10%.

In October 2009, Petroleum Minister Sheikh Ahmad al-Abdullah al-Sabah said that Project Kuwait was on track to raise production to 4m bpd by 2020 and sustain it for 10 years thereafter. Sheikh Ahmad attributed the current stagnation of the project to a lack of ‘technical know-how' and added that Kuwait would need help from IOCs to reach its output targets.

IOCs shortlisted for the Project Kuwait contracts include the six largest oil majors: BP, Chevron, ConocoPhillips, ExxonMobil, Royal Dutch Shell and Total. The fields likely to be opened to IOC participation are Raudhatain, Sabriya, Ratqa and Abdali. Bahra has been excluded from the process, as has Kuwait's largest field, Burgan, which will continue to remain off limits to foreign investment.
Kuwait Oil Company (KOC) said in October 2007 that it had reached a preliminary deal with ExxonMobil to produce a possible 900,000bpd of heavy oil by 2020. The project involves exploration for, and development of, heavy oil in the Lower Fars field in northern Kuwait. Parliamentary disagreement has halted progress with the project.

In February, the signing of a five-year Enhanced Technical Service Agreement (ETSA) with Shell for the development of the Jurassic gas fields in Kuwait boosted hopes that IOC involvement could be gathering speed again.

Total in April said that it was in talks with Kuwait on the development of heavy crude oil deposits in the north of the country. Speaking to reporters at the Middle East Petroleum and Gas Conference in Kuwait, CEO Christophe de Margerie said the company planned to offer its experience in developing difficult fields, and more specifically its enhanced oil recovery (EOR) technology.

Supply for March 2010 was around 2.28m bpd, well short of estimated sustainable capacity (2.65m bpd) thanks to constraint under OPEC quota guidelines.

Gas supply & demand

The gas sector is largely undeveloped in Kuwait, although efforts are being made to raise consumption, matched by higher production. There have been several important gas discoveries that could ultimately yield considerable production potential for the country.

In 2009, oil was the dominant fuel, accounting for an estimated 55% of primary energy demand (PED), followed by gas at 45%.

Forecast

BMI assumes a rise in Kuwaiti production later in the forecast period, as oil consumption increases in line with a recovering global economy, allowing OPEC to raise output. BMI are forecasting an average of 2.85 million bpd in 2014. Oil consumption of an estimated 303 000bpd in 2009 is set to reach 339 000bpd by 2014.

State-controlled Kuwait Gulf Oil Company (KGOC) in 2009 announced plans to invest US$3.6bn over five years to increase production from the Neutral Zone between Kuwait and Saudi Arabia. Managing director Bader Nasser al-Khashti did not name specific projects that the company would invest in, but said that the five-year plan formed part of a longer-term investment programme to boost output capacity to 2020. KGOC operates fields on the Kuwaiti side of the Partioned Neutral Zone, shared with KSA's Saudi Aramco.

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