Powering ahead?

Kuwait’s economy is turning a corner on the back of strong state spending designed to stimulate private sector activity. But can it meet its own domestic power needs?
Powering ahead?
By Shane McGinley
Thu 28 Oct 2010 04:37 PM

Kuwait’s economy is turning a corner on the back of strong state spending designed to stimulate private sector activity. But can it meet its own domestic power needs?

These are exciting times to be in Kuwait. You need only take a cursory look through third quarter earnings reports to see the big names in the economy are bouncing back from the recession. Gulf Bank has just announced an enormous surge in profits, so has Zain, and the signals coming out of the economy’s other marquee institutions are positive too. The government is deliberately ploughing enormous quantities of cash into infrastructure projects with the intention of not only making the country the envy of the world in terms of roads and utility supply networks, but also to stimulate private sector enterprise. It is an endeavour that is paying off. Companies like the Kuwait Projects Holding Company (or KIPCO as everyone knows it), Wataniya Airways, and, latterly, Kuwait Finance House are all on the up.

Certainly, the country faces challenges — creating enough power for domestic use is one of them. It is ironic to think that OPEC’s fourth largest producer, possessed of nearly eight percent of the world’s total oil reserves — pumping two and half million barrels of the stuff out of the ground each day — should run short of electricity when it comes to using it at home. With oil prices hovering around the $80 mark, it is perhaps unsurprising that the government should wish to sell as much of it as possible on the international market. This summer — a remarkably hot one — the government held emergency sessions on the issue, referring to it as a “national crisis.” This will be a major challenge for the government to address over the coming year.

Next year, in fact, Kuwait expects to add a significant amount to its oil reserves by as soon as March 2011, some of it from the world’s second largest oilfield, Burgan, according to the chairman of the state explorer Kuwait Oil Co.

“More than big quantities will, God willing, enter the oil reserves by the end of the fiscal year (March 2011),” Sami Al Rushaid said last week. Some of the addition will come from the country’s biggest oilfield, Burgan, which currently pumps 1.75 million barrels per day (bpd).

Known as Greater Burgan, the oilfield encompasses the Burgan, Magwa and Ahmadi fields. The field holds around 70 billion barrels, or around 70 percent of Kuwait’s 101.5 billion barrels of reserves, according to US data.

The Gulf Arab state has had a reserve replacement ratio of 100 percent, since 1995 when it started the programme, Rushaid said. He declined to give a figure for the reserves. Kuwait’s plan to boost oil output capacity to 4 million bpd by 2020 is not expected to face difficulties, he said.

The world’s fourth-largest oil exporter’s current output capacity of 3.3 million bpd is sustainable, Rushaid said, adding that Kuwait was complying with its OPEC quota of 2.2 million bpd. Rushaid said KOC plans to spend up to 9 billion dinars ($31.90bn), out of the country’s 30 billion four-year development plan which started this year. Up to 50 percent of the expenditure will go to drilling, he added.

“We now have 54 drilling rigs... and nine under mobilisation... and the plan is to reach 84 (by 2015).” The plan also includes building gathering stations and new pipelines to avoid residential areas, Rushaid added.

Kuwait is focusing on gas exploration more than oil, to meet growing domestic demand for electricity, he said. Gas demand in Kuwait has outstripped supply, forcing the country to import liquefied natural gas (LNG).

Tight supply has been exacerbated by the OPEC-member’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.

“We want to discover an additional 1.5 billion cubic feet of non-associated natural gas by 2030, and the indications are encouraging,” Rushaid said. Project Kuwait, a multibillion-dollar plan to develop the country’s northern oilfields with the help of IOCs, will take a new form, and probably expand offshore, he said.

Parliament has opposed it for years, being against foreign companies getting a share of the oil wealth.

“Project Kuwait has a different concept now,” he said, adding that new models are being considered including enhanced technical service agreements with IOCs like the one it had signed with Royal Dutch Shell.

In February, Kuwait signed a five-year service contract with Shell to develop pure gas fields in the north. “We are currently talking to most of international companies,” he said, declining to name them.

He added that the scope of the project could expand to other areas including offshore exploration for gas. Rushaid said that production from the northern oilfields will reach 880,000 bpd in two weeks, but the help of foreign companies and their technology were still needed.

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