Global Energy Review
Kuwait: Energy Plans Face Delays
A Report by Dr Paul McDonald Consulting Editor, Oil and Energy Trends
- A survey of Kuwait’s oil reserves and production, including the Neutral Zone;
- Together with a survey of the emirate’s gas reserves and production;
- With details of refining plans;
- Containing forecasts to 2015 and 2020; and
- Links to archive material from OET and hyper-links to relevant web-sites.
Contents
- Introduction
- Crude Oil
- Assessing Kuwait’s Reserves
- Increasing Reserves
- How many Barrels?
- Raising Oil Production
- Production Plans
- Northern Fields
- Other Areas
- More NGL
- The Neutral Zone
- Outlook for Crude & NGL Production
- Natural Gas
- Reserves & Production
- Consumption
- Neutral Zone Gas
- Production Plans
- Outlook for Gas Production
- Refining & Petrochemicals
- Downstream Delays
- Outlook for Refining
List of Tables
- Table 1 Kuwait & Neutral Zone: Oil Profile, 2009
- Table 2 OPEC: Reserve Increases, 1984-90
- Table 3 Kuwait: Oil Reserve Estimates, 1970-2010
- Table 4 Kuwait: Oil Profile, 2009
- Table 5 Kuwait & Neutral Zone: Output and Production Capacity, 2010
- Table 6 Kuwait & Neutral Zone: Production History and Production Plans
- Table 7 Neutral Zone: Oil Profile, 2009
- Table 8 Kuwait & Neutral Zone: Gas Profile, 2009
- Table 9 Kuwait: Gas Profile, 2009
- Table 10 Neutral Zone: Gas Profile, 2009
- Table 11 Kuwait: Refinery Capacities Present and Planned
Introduction
With oil reserves of more than 100 billion barrels, Kuwait should be experiencing no difficulty in increasing its production capacity. Instead, its plans to raise capacity by just 1 million bpd to 4 million bpd have run into a series of problems. Many of these are political but they also raise the question of whether the emirate’s reserves are actually as large as has been claimed.
The numbers used by Kuwait for its ‘proven’ reserves have not been verified by any reliable independent agency. They appear, by contrast, to arise from arguments in the 1980s amongst members of the Organization of the Petroleum Exporting Countries (OPEC) about production quotas.
The political problems centre on the proposed role of foreign oil companies in Kuwait’s upstream sector. The state-owned Kuwait Oil Company (KOC) wants to make use of the technological and financial resources of the international oil industry to develop a series of oilfields that contain heavy oil. Many of Kuwait’s politicians, on the other hand, do not want such levels of outside involvement in the emirate’s oil industry.
The new fields are necessary in order to replace Kuwait’s older fields. Some of these are at their peak or already in decline. They require in any case extensive enhanced oil recovery (EOR) in order to maintain their present output. Even with this, their output may decline in future. Similar problems exist in the Saudi-Kuwait Neutral Zone.
Gas has its own range of problems. Despite apparently possessing vast reserves, Kuwait became a net importer in 2009. Plans to raise production have also encountered political and technical problems.
Nor do things look much better in the downstream sector. Here, again, plans for expansion have fallen behind schedule, with problems over the involvement of foreign companies partly to blame.
Crude Oil
Assessing Kuwait’s Reserves
Kuwait’s proven reserves are assessed at 101.5 bn bbl–plus a further 2.5 bn bbl from its half-share of the Neutral Zone (see below). These are sufficient for nearly 119 years at 2009’s rate of production (see Table 1).
These reserve totals are those declared by the Kuwaitis. As with other OPEC countries, there is no independent assessment available. Indeed, there are indications that they have been overstated. Until 1985, Kuwait claimed a more modest level of proven reserves–around 64 bn bbl. In that year, however, proven reserve levels were increased to 90 bn bbl–a rise of 41%–without there being any justification, such as the discovery of one or more large new fields. Kuwait subsequently attempted to explain the rise in terms of higher recovery rates but without any evidence that these were actually achievable (see below).
Kuwait’s move encouraged other OPEC members to follow suit. In 1988, four other members–Iran, Iraq, UAE and Venezuela–made large upward adjustments to their reserve assessments (see Table 1). The largest in volume terms was that of Iraq, which added 53 bn bbl: an increase of 113%. Iraq’s new total was the suspiciously round number of 100 bn bbl; though no less suspicious was Iran’s new figure of 93 bn bbl, representing a year-on-year rise of 44 bn bbl, or 90%. It should be remembered that not only were no new discoveries announced that might have explained these new totals, but also the two countries were engaged in a war that had led to damage to production capacity lying along their borders.
The other two increases at the beginning of 1988 were the UAE–with 64 bn bbl, or 200%–and Venezuela, which announced a rise of 31 bn bbl, or 124%. As with Iraq and Iran, these upward revisions appear to have been primarily political. Finally, doubtless so as not to be left out of the process, Saudi Arabia made an upward adjustment of 88 bn bbl, or 52%, in 1988, bringing its total to 258 bn bbl.
In all cases the primary motive appears to have been a desire to establish the credentials for an increase in individual countries’ production ceilings. In the case of Kuwait, the motivation may well have been to increase its quota at the expense of the UAE.
Increasing Reserves
Kuwait began the 1980s with proven reserves of about 65 bn bbl. By 2006, this total had risen by nearly 60% to 102 bn bbl (see Table 3). The actual increase is much greater than this, since the several billion barrels of oil that were produced between these dates need to be added as well. Reserve levels have dropped slightly since the start of 2007, but the trend of reporting high levels of reserves remains intact.
Kuwait’s proven reserves actually posted a decline between 1970 and 1984. This was to be expected, given that Kuwait produced around 11 bn bbl during that period. There appears to have been a further downward revision to reserve estimates during this period in addition to those used up by production.
In 1985, however, reserves were raised by 26 bn bbl, or 41%, more or less overnight. Such an enormous upward revision would normally indicate that a number of major new discoveries had occurred during the previous twelve months. No such discoveries, however, had been reported. There were attempts to justify the increase by applying a higher recovery factor to Kuwait’s existing oil reservoirs, but there appears to be little technical justification for this. It is far more likely that Kuwait’s move was made in support of its demand for a higher production quota from OPEC. In the end, however, Kuwait’s move was more or less nullified when several other OPEC members followed suit and raised their own reserve estimates. Kuwait has nevertheless continued to raise its proven reserve levels in the interim despite the lack of any major new finds and annual production of between 700 mn and 800 mn bbl in recent years.
All this has led to speculation that Kuwait’s proven reserves are in fact much smaller than actually stated. The speculation has, if anything, been fuelled by statements by KPC that data on Kuwait’s reserves are ‘highly confidential’ and a declaration by the Ministry of Oil in December 2006 that data on the emirate’s oil reserves would ‘no longer be made public’.
How many Barrels?
Estimates of the true size of Kuwait’s reserves vary considerably. In 2001, KOC was reported to have put the country’s total reserves at 48 bn bbl, of which only 24 bn bbl were proven. ‘Proven’ reserves are reckoned to be those that can be recovered from known reservoirs under existing economic and operating conditions. Even this definition is subject to some degree of interpretation and some oil companies can occasionally get it wrong and overstate their levels of proven reserves.
Kuwait now appears to be trying to add credibility to its own reserve estimates by announcing new finds. In March 2006, for example, it declared that some 10-13 bn bbl of ‘light oil’ had been discovered ‘in the north’. KPC has also hinted that it is applying recovery rates of 60-70% for its fields, whereas something nearer half that level might be considered more realistic.
The controversy over Kuwait’s reserves has spread to the country’s legislature, where many members have demanded that KPC and the Ministry of Oil justify the high levels claimed for the emirate. The government has said that it may release more information on the reserves to a closed parliamentary session; but this is unlikely to satisfy many.
It looks quite likely that the current Kuwaiti figure of 102 bn bbl for ‘proven’ reserves includes many that are more accurately described as ‘probable’. Such reserves would require a great deal more exploration before they could be moved into the ‘proven’ category. The size of Kuwait’s reserves remains a mystery, though they are probably nearer to the KOC figure of 48 bn bbl than the roughly 100 bn bbl claimed recently by officials inside Kuwait.
OET ARCHIVE: ‘Kuwait: Have its oil and gas prospects been exaggerated?’ Focus, Jan 07
HYPER-LINK:
Raising Oil Production
At the core of the emirate’s plans is a proposal to increase Kuwait’s production capacity by one third to 4 mn bpd by 2020. Output in 2009 was 2.4 mn bpd (see Table 1), but the level of reserves suggests that it could comfortably rise to 4 mn bpd. The reserves nevertheless do not tell the whole story. Much of the new production is slated to come from the development of difficult oilfields that will require large inputs of both capital and expertise, which the state-owned Kuwait Oil Company (KOC) believes should come–at least in part–from international oil companies.
In recent years, Kuwaiti production has been close to 2.5 mn bpd. At this level, Kuwait was thought to be close to its production capacity, which several independent outside sources put at 2.6 mn bpd. In 2009, however, the country’s Oil Minister, Shaikh Ahmad Abdallah Al Sabah, announced that Kuwait was capable of sustaining oil production of 3 mn bpd, though there has been no reliable independent verification of this figure.
Under the present arrangements in OPEC, Kuwait has a production target of 2,222,000 bpd (see Table 5). The Minister’s upward revision of the emirate’s production capacity may well be designed to put down a marker in advance of any future discussions concerning the raising or redistribution of quotas within OPEC.
OET ARCHIVE: ‘Kuwait tries again to revive energy sector’ Focus, Jan 07
Production Plans
Under the current plans, Kuwait is to increase its output capacity by 33% to 4 mn bpd by 2020. There had been proposals that it should go even higher after that, but the latest plan is to maintain capacity at a plateau of 4 mn bpd for at least ten years after 2020. The new capacity is to come mainly from:
- New and existing fields in northern Kuwait;
- Enhanced oil recovery (EOR) at existing fields;
- Other oilfield developments.
Northern Fields
The most significant of these developments is the development of oilfields in the north of Kuwait. The aim here has been to double the region’s output to 1 mn bpd under an ambitious plan known as ‘Project Kuwait’. The fields contain heavy oil and the government has been anxious to secure the participation of international oil companies in what is a technologically challenging environment.
Project Kuwait, however, has encountered a number of obstacles since these plans were drawn up in 2000 and the development is now running well behind schedule. The original plan was for the output capacity of the northern fields to be raised from 450,000 bpd to 900,000 bpd in a joint operation between KOC and the international oil companies.
The proposal to involve foreign companies caused a political storm in the National Assembly and elsewhere. Despite this, the government began discussions with potential overseas partners, but these became mired in political controversy and the deals were modified in order to reduce the role of outsiders to a minimum. Instead of being more or less equal partners of KOC, the international oil firms were invited to become consultants to the national oil company, working under service contracts.
In 2009, KOC announced a new schedule for ‘Project Kuwait’ under the new arrangements as follows:
Year |
Target |
|---|---|
|
(th bpd) |
2009 |
650 |
Early-2010 |
730 |
Late-2010 |
800 |
2012 |
900 |
Post-2013 |
1,000 |
The new schedule has yet to be finalized, however, and no firm decision is expected before the end of the year. At present, KOC is involved in discussions with ExxonMobil and Total about what are termed Enhanced Technical Service Agreements covering the heavy oilfields of northern Kuwait. It nevertheless looks unlikely that the targets announced last year will come anywhere near to being achieved. A more realistic target for heavy oil production from northern Kuwait of 270,000 bpd is being proposed–and the timing could be as late as 2030.
One northern field development is internationally controversial. The Ratqa field is part of a structure that extends into southern Iraq, where it reappears as the Rumailah field. A dispute over border fields was given by Iraq as the reason for its invasion of Kuwait in 1990. Baghdad accused Kuwait of extracting oil from formations that lay beneath its own territory. It maintained that Iraq was doubly impoverished by this action: not only was Kuwait stealing its oil but the additional production was contributing to a decline in international oil prices, thereby reducing Iraqi earnings from its exports.
Following the withdrawal of Iraqi troops in 1991, the boundary between the two countries was re-drawn, placing Ratqa and another field–Abdali–wholly within Kuwait; but the controversy over border fields has not entirely been resolved. Under Saddam Hussain, Iraq continued to complain that wells drilled by Kuwait in its side of the border were abstracting oil from formations inside Iraq.
In 2009, Iraq announced it was discussing the possibility of developing jointly the fields that were still shared with Kuwait, but no formal arrangement has yet been agreed. Kuwait meanwhile is trying to press ahead with the development of Ratqa, prompted–no doubt in part–by the recent decision of the Iraqis to award contracts to BP and China National Petroleum Corporation (CNPC) to develop Rumailah.
Other Areas
KOC meanwhile is searching for oil in relatively unexplored areas, such as western Kuwait, where it reported a find of 40° API light crude in 2007, and Bubiyan Island in the Persian Gulf, which could contain an extension of the onshore Bahra field. A further discovery of light crude was announced at Mutraba in December.
KOC’s principal effort, however, is being directed towards increasing production from its existing larger fields. This is to be achieved by a combination of EOR applied to reservoirs that are already in production and exploration that is designed to discover possible extensions to the existing large fields. The main form of EOR currently practised is secondary recovery via water-flooding. This involves the injection of water into reservoirs in an attempt to increase pressure there and so allow more oil to be recovered.
Kuwait recovers about 30% of the oil from its reservoirs at present. To do this requires some 300,000 bpd of water. The Oil Ministry talks of doubling recovery factors to 60%. This is a high proportion and would require far more than simply doubling the volume of water used, creating further problems in terms of both sourcing the water and disposing of the waste water afterwards. On present evidence, Kuwait is unlikely to come anywhere near its 60% target.
KOC is nevertheless determined to proceed with further water-flooding, particularly at its Burgan, Umm Gudair and Minagish fields, which together account for about 65% of its present production capacity. The largest of these three is Burgan. Independent estimates of its reserves are somewhere in the region of 30 bn barrels, which makes it one of the world’s largest single field-complexes.
Burgan, however, is an old and mature field. Production began there in 1938. Kuwaiti plans are for an increase in capacity of approximately 500,000 bpd by 2020, bringing the field’s capability to 2 mn bpd. It is not clear, however, how long production could be maintained at such levels thereafter without extensive and continuing EOR.
More NGL
Kuwait produces about 50,000 bpd of natural gas liquids (NGLs). This is some way below its full potential since Kuwait has neglected the development of its gas reserves. Under new plans to increase the production of gas considerably (see below) there should also be a lot more gas condensate.
The strategy for 2030 forecasts production of light liquids of 350,000 bpd. It is not clear how much of this will be accounted for by NGLs; but the total may well be in the region of 200,000 bpd, most of which is likely to come from the Dorra gasfield in the Persian Gulf (see below).
The Neutral Zone
Kuwait’s oil production is augmented by half the output of the Neutral or Divided Zone, which lies on its southern border and which it administers jointly with Saudi Arabia. Output from the entire Neutral Zone is currently in the region of 540,000 bpd. There are ambitious plans to increase this to 900,000 bpd by 2030.
The Neutral Zone’s production comes mainly from three fields. The largest of these is Khafji, which lies in the Persian Gulf. The principal onshore fields are Wafra and South Umm Gudair. Production began in the Neutral Zone in the 1960s. Since the 1970s, output for the entire Zone has fluctuated between 300,000 bpd and 565,000 bpd. The latter was achieved in 1972, of which Kuwait’s share was 282,500 bpd.
The main fields are in their mature phase and production is maintained by high levels of water-flooding. There have been reports from US geologists of permanent damage to some wells where water has invaded the oil column–a phenomenon known as ‘coning’. Part of the Wafra field–the oldest of the three in terms of discovery–appears to be close to being fully depleted.
The Kuwait Gulf Oil Company (KGOC), which manages Kuwait’s half-share in the Neutral Zone, believes that, despite such problems, output from the whole of the Neutral Zone could be raised to 900,000 bpd by 2030, of which KGOC would be entitled to 450,000 bpd. The additional oil is to come mainly from new, deeper reservoirs of heavy oil.
Much of this extra oil is supposed to come from deeper horizons in the Wafra field. Steam-injection would be required in order to extract the heavy crude. This entails the drilling of wells to inject the steam into the reservoirs. Over a thousand such wells would be required, at an estimated total cost of $10 bn. A pilot programme is underway to test the feasibility of the whole scheme.
Two deep reservoirs have been identified with estimated reserves of 22 bn barrels. This represents oil-in-place rather than recoverable reserves. Less than 2% of the oil is recoverable by conventional means. Steam-flooding, though, could raise this to 15% or 20%. A further 8 bn barrels of oil-in-place is estimated to exist beneath other fields in the Neutral Zone.
Outlook for Crude & NGL Production
Kuwait’s production capacity is unlikely to increase very much between 2010 and 2015, owing to the political opposition to large scale involvement by international oil companies. Much depends on the attractiveness of Kuwait’s proposed Enhanced Technical Service Agreements. Even if some were to be signed during the next two years or so, it is unlikely that much new production capacity would be created.
On the other hand, there may still be time for the 4 mn bpd target to be achieved by 2020, provided agreements can be made with some outside companies with the necessary expertise. In these circumstances, production of crude oil and NGL for both Kuwait and the Kuwaiti Neutral Zone could increase as follows:
|
(mn bpd) |
2010 |
3.0 |
2015 |
3.3 |
2020 |
4.0 |
This is very much a ‘best case’ scenario. Without such agreements, capacity may only go up to 3.5 mn bpd by 2020.
Kuwait Petroleum Corporation (KPC) is the state-owned company with oversight over the oil and gas sectors in Kuwait and oil and gas activities abroad. It also has specific responsibilities for production, processing and transport of oil and gas within Kuwait.
Hyperlink
KPC also operates through a series of subsidiaries, of which the principal are:
- Kuwait Oil Company (KOC), founded as a joint venture between the Anglo-Persian Oil Company and Gulf Oil Corporation to operate a 6,000 square mile concession granted in 1934 and which contained the Burgan oilfield, which began operation in 1938. KOC has been fully owned by the government since 1975. KOC is now responsible for domestic exploration and production. Production in the Neutral Zone comes under the Kuwait Gulf Oil Company (KGOC).
Hyperlink
- Kuwait National Petroleum Company (KNPC) runs the emirate’s three refineries and is in charge of product marketing. The supply of aviation turbine kerosine to Kuwait International Airport is handled by Kuwait Aviation Fuelling Company (KAFCO).
Hyperlink
- Kuwait Oil Tanker Company (KOTC) handles the shipping of crude oil, products and LPG.
Hyperlink
- Petrochemical Industries Company (PIC) controls Kuwait’s fertilizer and petrochemical industries.
Hyperlink
KPC has a number of operations outside Kuwait, of which the principal companies involved are:
- Kuwait Petroleum International (KPI), which operates 4,000 service stations in Benelux, Denmark, Germany, Italy and Sweden and the 81,000 bpd Europoort Refinery in Rotterdam. It does business under the ‘Q8’ brand.
Hyperlinks
- http://www.q8.com/
- http://www.q8.nl/ (in Dutch)
- Kuwait Foreign Petroleum Exploration Company (KUFPEC) handles upstream activities outside Kuwait.
- Global Santa Fe Corporation provides contract drilling services.
Hyperlink
Natural Gas
Reserves & Production
Kuwait claims proven reserves of 63.5 trillion cubic feet, of which 0.5 trillion cf are from the Neutral Zone. Production and consumption are negligible (see Table 8).
| Proven Reserves: | 64 trillion cf * |
| Reserves remaining: | 145 years † (bn cfd) |
| Production | 1.2 |
| Consumption | 1.3 |
| Net Imports | 0.1 |
* As at 1.1.10 |
|
As with oil, it is difficult to identify what precisely Kuwait includes as ‘proven reserves’. For example, at the beginning of 2006, Kuwait reported its reserves (excluding the Neutral Zone) as 55.5 trillion cf. In March of that year, KOC reported ‘discoveries’ of 35.0 trillion cf in the north of the country. Yet, on 1st January, 2007, its reserves were given as 54.5 trillion cf. The following year, they were back at 55.5 trillion cf, before rising to 62.9 trillion cf at the start of 2009 and 63.0 trillion cf, as of 1st January, 2010 (see Table 9).
None of these revisions can be correlated with discoveries announced during the relevant years; nor do they appear to take account of the volume of gas produced in any one year. Kuwait produces about 450 billion cubic feet in any one year; therefore in default of any new discoveries or amendments to existing reserves, Kuwait’s proven reserves ought to decline by that amount from year to year.
If the plans to increase oil production from the Neutral Zone proceed as planned, there may be some associated gas available. Quantities are nevertheless likely to be small and will probably be consumed entirely within the Neutral Zone: either for reinjection into oil reservoirs or to supply oilfield utilities.
Production Plans
The immediate aim is for a considerable increase in the output of non-associated gas. Production is currently running at 150 mn cfd. The plan is to raise this to 1 bn cfd within a decade, which would bring the emirate’s production up to 2 bn cfd. The planned increase in oil production should also raise the output of associated gas, which could bring total gas production to somewhere near 3 bn cfd.
As with the heavy oilfields, KOC requires the assistance of international companies with greater experience of the natural gas business than it has itself. In February 2010, it signed an Enhanced Technical Service Agreement with Shell for a gas development in the six northern fields that are meant to provide the planned 850 mn cfd increase in non-associated gas production outlined above. The agreement is the first to be signed between KOC and a foreign contractor and may be used as a template for service agreements with companies involved in heavy oil extraction in the northern oilfields.
Shell’s contract is reported to last five years, by which time KOC hopes to see output from the northern fields at its planned level of 1 bn cfd. This timescale may yet prove to be too tight, but gas development appears to be proceeding more smoothly than Kuwait’s plans for new oil developments, which continue to be beset by delays.
If Kuwait is unable to meet its 4 mn bpd target for oil production, non-associated gas will become all the more important. At present, Kuwait’s plans for non-associated gas centre on the northern gasfields but these are unlikely to produce much more than 1 bn cfd (see above).
Another prospect exists in the form of the Dorra field, which lies offshore in the Persian Gulf. The field is highly prospective for condensate as well as gas–but it lies in waters claimed by Iran and Saudi Arabia. Kuwait has already agreed to develop the field with the Saudis, but Iran is proving more of a problem.
The field is potentially large. Its reserves are estimated art 20 trillion cf and production could be as high as 1 bn cfd, but progress on its development is unlikely until relations between Kuwait and Iran improve. This could take some time given Iran’s standoff with the US over its military programme and the way that Tehran regards Kuwait and other members of the Gulf Cooperation Council as supporters of the US in its confrontation with Iran.
Outlook for Gas Production
Kuwait’s gas production is unlikely to grow by very much between 2010 and 2015 owing to the problems outlined above in developing the northern fields. The situation may have improved by 2020, but even so, the emirate looks like falling short of its goals. Output is forecast as follows:
| (bn cfd) | |
| 2010 | 1.2 |
| 2015 | 1.5 |
| 2020 | 2.0 |
Refining & Petrochemicals
Downstream Delays
Kuwait’s problems are by no means confined to the upstream sector. Arguments over foreign participation in refining and petrochemicals are causing delays and uncertainty in the downstream sector as well. In 2008, Kuwait cancelled an agreement between its state-owned Petrochemical Industries Company (PIC) and Dow Chemical of the US for a $17 bn joint venture covering both petrochemical production and technology transfer to PIC. The deal would also have given PIC access to a much wider market via the Dow network. The joint venture fell victim to political opposition in both the National Assembly and the press.
A similar level of opposition has developed towards the proposals to build a new oil refinery in the south of the emirate. The proposed 615,000 bpd al-Zour refinery would be the largest in the Middle East; but the project has attracted widespread criticism for its $15 bn price-tag and for alleged irregularities in the awarding of some tenders for the work.
The al-Zour project is part of a more extensive programme both to increase crude distillation capacity and to upgrade the country’s refining system to enable it to produce more clean fuels. The emirate’s three existing refineries require upgrading and modernizing. It is planned to stop processing crude at one of them–Shuaiba–once al-Zour is open; but al-Zour is now some years behind schedule with still no indication when–or if–it will be completed.
Outlook for Refining
The only new refinery capacity likely to be added between now and 2015 is that connected with the planned expansion of Mina Abdallah (see Table 11). On present evidence, it looks doubtful whether al-Zour will be in operation in 2020. Crude distillation capacity is therefore forecast as follows:
| (bpd) | |
| 2010 | 936,000 |
| 2015 | 1,040,000 |
| 2020 | 1,040,000 |
