Schedule of ambitious projects is uncertain
Oil is by far the most important economic sector in Kuwait, and despite all efforts to diversify, it will remain so in the medium and long term. Oil and gas production, together with refinery activity, accounted for about half of nominal GDP in 2018.
One of the decisive factors for future production volumes will be whether the US sanctions will lead to a further sharp decline in Iranian oil production. Developments in Venezuela, Libya and Nigeria are also important factors. If production there decreases significantly, Saudi Arabia, Kuwait and the United Arab Emirates could close the gaps.
As a result of production cuts undertaken by OPEC and other oil-producing states in December 2018, Kuwait’s oil production (excluding condensates) in the first half of 2019 will initially be below the 2.74 million bpd (bpd) average from the previous year.
Oil production capacity to increase by one million barrels per day
Kuwait currently has a production capacity of around 3 million bpd (excluding condensates) and thus could expand its production of 2.72 million bpd from January 2019 by around 10%. Capacities (as of March 2018) were divided between fields in the south and east (1.68 million bpd), the north (0.76 million bpd), the west (0.53 million bpd) and several heavy oil deposits (0.02 million bpd). The capacity for condensates (light oil, a by-product of gas production) is currently estimated at 0.2 million bpd. Condensates are not covered by OPEC production quotas.
Kuwait plans to increase its oil production capacity to 4.25 million bpd, according to the revised “2040 Strategic Plan for the Oil Sector”. While 4 million bpd was the 2020 target for some time, this date is no longer realistic.
Just to compensate for declining production volumes, Kuwait must bring new deposits into production and stabilize production in old fields with the help of enhanced oil recovery measures. The largest oil deposit, the Burgan Field, has been in production since 1946.
Kuwait: Oil & Gas sector
|Oil production (in 1,000 bpd) 2)||2,978||2,867||2,954||2,704||2,737|
|Oil exports (in 1,000 bpd) 2)||2,070||1,995||2,128||2,010||2,000|
|Refinery capacity (1,000 bpd)||936||936||936||762 3)||736|
|Oil refinery throughput (1,000 bpd)||905||872||826||711 3)||670|
|Gas production (million cubic meters/year) 4)||15,515||15,029||17,291||17,102||17,500|
|Gas imports (million cubic meters/year)||688||3,025||4,311||4,781||5,000|
Notes: 1) estimates 2) excluding oil condensates 3) closing of the 200,000 bpd Shuaiba Refinery in March 2017 4) marketed production
Sources: Organization of the Petroleum Exporting Countries (OPEC), Kuwait Oil Corporation (KOC), Kuwait National Petroleum Company (KNPC)
Refinery capacities will be modernized and expanded
Following the completion of the two mega-projects, the new Az Zour Refinery and the Clean Fuel Project, Kuwait’s refinery capacity will increase from 0.7 million to 1.4 million bpd. It is projected to be 1.7 million bpd by 2025 and about 2 million bpd by 2035.
The two existing refineries Mina Al-Ahmad and Mina Abdullah have a combined capacity of 0.7 million bpd. Kuwait closed the 0.2 million bpd Shuaiba refinery in 2017, which had been operating since 1968.
As part of the US$ 13 billion Clean Fuel Project (CFP), the Mina Al-Ahmad and Mina Abdullah refineries are currently being modernized and integrated into a refinery complex. About 60% of the project is complete. Some parts will begin operation in 2019, and the CFP is expected to be complete by 2023.
After completion of the CFP, the capacity of the Mina Al Ahmad refinery will be 346,000 bpd. Japan’s JGC and the two Korean companies GS E&C and SK E&C are executing the US$ 4.9 billion modernization contract.
The Mina Abdullah refinery will have a future capacity of 454,000 bpd. Work contracts were awarded in two packages. The first US$ 3.7 billion contract was awarded to British Petrofac, together with Samsung Engineering and CB&I (USA). The second US$ 3.4 billion contract was awarded to Fluor, Daewoo and Hyundai. Siemens also has a stake in the CFP.
The construction contract for the new US$ 14 billion Az Zour refinery was awarded in 2015. The first attempt had failed in 2008. The refinery will have a capacity of 615,000 bpd. The contract to build the central processing plant was awarded for US$ 4.1 billion to a consortium including Spain’s Tecnicas Reunidas, Sinopec (China) and Hanwha (South Korea).
A consortium consisting of Fluor Corporation (USA), Hyundai Heavy Industries and Daewoo Engineering was awarded the contract for the Support Process Units (US$ 2.9 billion). The consortium also received the order for the utilities & offsites of the refinery (Steam Generation Unit, Air Systems, Water Systems, Cooling Water Unit etc.; US$ 2.9 billion). Orders for the construction of tank systems, pipelines and loading facilities have a value of US$ 4.5 billion. Sub-projects will be completed starting 2019, and the overall project is expected to be finished in 2022.
Despite increasing gas production, gas imports will remain strong
Refineries and petrochemical plants consume around 60% of the gas, with the remaining 40% going to power plants. Kuwait will continue to depend on additional imports to meet its gas needs. Kuwait began importing LNG (Liquefied Natural Gas) in 2009. The Mina Al-Ahmadi GasPort was built. It is a floating import terminal that uses tankers as regasification facilities. The terminal has a maximum daily capacity of 600 million cubic feet. Operation of the Mina Al-Ahmadi GasPort is expected to cease after completion of the new LNG import terminal at the Az Zour Oil and Petrochemical Complex.
South Korea wins main contracts
A South Korean consortium of Hyundai Engineering, Hyundai E&C and Korea Gas Corporation was awarded the contract to build the LNG import and regasification terminal at Az Zour in 2016. The regasification plant cost US$ 1.4 billion, and the port and tank facilities US$ 1.5 billion.
The Export-Import Bank of Korea and the Korea Trade Insurance Corporation are the primary sources of financing and insurance for the LNG project. Completion is expected in 2021. The terminal consists of eight LNG tanks with 225,500 cubic meters each and a regasification plant with a capacity of 3,000 billion BTU (British Thermal Units) per day.
According to Kuwait Oil Corporation (KOC), Kuwait’s gas production averaged 1.78 billion cubic feet daily in fiscal 2017-18 (April to March). Associated gas, a by-product of oil production, accounted for 1.56 billion cubic feet daily.
It was not until 2008 that Kuwait started producing non-associated gas from the Sabriya and Umm Naqqa gas fields. Both are part of the large Jurassic gas deposits in northern Kuwait. Jurassic production was expected to rise from 0.2 billion cubic feet to 1 billion cubic feet daily by 2016, though this target was missed, and production has scarcely grown over the last ten years. According to KOC data, production of non-associated gas in 2017-18 averaged only 0.22 billion cubic feet daily, the peak being reached in March 2018 at 0.26 billion cubic feet.
For 2018-19, KOC had planned to increase Jurassic gas production to 0.5 billion cubic feet daily by commissioning a third processing facility (Jurassic Production Facility/JPF) in the East Raudhatain gas field. In November 2018, former Oil Minister Bakheet al Rashidi stated that Jurassic production had reached 0.5 billion cubic feet daily, along with 0.18 million bpd of condensate. In the medium term, four more JPFs are expected to increase capacity to 1 billion cubic feet. The long-term plan is to increase the production of non-associated gas to 2 billion cubic feet daily by 2040.