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NONAV - Kuwait - Oil Gas & Utilities Report
Source: BI-ME , Author: BI-ME staff
Posted: Thu December 2, 2004 12:00 am

KUWAIT. Kuwait has been identified as a medium priority market for the global oil and gas business. This priority is a result of the mature level of investment (now and anticipated) for both oil and gas sectors to maintain the high level of oil production from existing fields. There is potential to develop the gas sector, to increase the capacity of the country's refineries and enhance the petrochemical sector with higher value exports.

Large reserves of both oil and gas will ensure that this market represents a long-term business opportunity. The Kuwaiti constitution forbids foreign ownership of Kuwait's mineral resources, but the Kuwaiti government is moving toward allowing foreign investment in upstream oil development under terms which provide for per-barrel fees to foreign firms rather than traditional Production Sharing Agreements (PSAs).

Kuwait's vast oil wealth (with 9% of world reserves including its share in the Neutral Zone) and substantial investments have created an affluent population with a high GDP per capita of over US$15,000. The economy is almost totally dependent on oil, which currently accounts for 95% of total export earnings and provides around 90% of government revenue. Kuwaiti hydrocarbon wealth is due to oil and associated gas, with all production to date being onshore.

Origins of the sector

In 1938 oil was first discovered in Kuwait by Kuwait Oil Company (KOC), a London-based joint venture of the Anglo-Persian Oil Company (now BP) and Gulf Oil (now Chevron Corporation), under a concession granted by the then Amir of Kuwait, Sheikh Ahmad Al-Jaber Al-Sabah. KOC had been formed in 1934 following more than a decade of concession negotiations. However, development of this bounteous natural resource was delayed by World War II starting the transformation of Kuwait from a largely impoverished desert sheikdom into the modern nation-state it is today.

Over the next three decades, extensive developments occurred both in the upstream and downstream elements of the industry: Kuwait Oil Company started refining operations with the Mina Al-Ahmadi Refinery in 1949; The once state owned Kuwait Oil Tanker Company (KOTC) became a private-sector company in 1957; Kuwait National Petroleum Company (KNPC) was formed in 1960 as a joint venture between the government and private sector and started operations at the Shuaiba Refinery in 1968; Petrochemicals Industries Company (PIC) was formed in 1963, also as a government-private enterprise, and started operations the following year in fertiliser manufacturing. The Emirate became independent on 25 February 1961 under Sheikh Abdullah Al-Salem Al-Sabah.

In the meantime, development had also taken place in the Neutral Zone, which Kuwait shares with the Kingdom of Saudi Arabia. The Mina Abdulla Refinery was built as a result of this partnership.

Then the Supreme Petroleum Council (SPC) was formed in 1974, leading up to nationalisation with the acquisition of 60% of KOC from BP and Gulf Oil.  SPC today has overall responsibility for the entire upstream and downstream oil and gas sector. The following year, the Ministry of Oil was established in its own right, separate from the Ministry of Finance. The private sector's 40% of KNPC was acquired, followed by the remaining 40% of KOC. In 1976, the government acquired all of PIC and 49% of KOTC. In 1977, the Mina Abdullah refinery was acquired from AMINOIL. With the acquisition in 1979 of the remaining 51% of KOTC, the four major operating companies - KOC, KNPC, KOTC and PIC - were fully under state control. For the first time in history, the major elements of Kuwait's oil industry were in the hands of its people.

In 1980, Kuwait Petroleum Corporation (KPC) was formed , which brought together all elements of the industry under one holding company, thus enabling greater and more effective control.

Throughout the 1980's, expansion and integration occurred continued.  In 1998, Kuwait's Supreme Petroleum Council approved a merger between Kuwait Oil Company (KOC) and Kuwait National Petroleum Company (KNPC). This consolidation of the state's upstream and downstream production operations is an indication of Kuwait's desire to streamline costs and improve profitability.

Domestic Operations: All exploration and production operations fell under the command of KOC . In addition, KNPC assumed responsibility of Kuwait's three largest refineries. This allowed each company to specialise in its own field.

Foreign Upstream Operations: In 1981, foreign upstream exploration interests held by KPC and the Ministry of Oil were consolidated into one entity, the Kuwait Foreign Petroleum Exploration Company (KUFPEC). In addition, KPC acquired Santa Fe, a US -based drilling contractor.

Foreign Downstream Operations: Between 1983 and 1987, KPC acquired most of Gulf Oil's refining and marketing operations in Western Europe, in addition to BP's Danish operations. Kuwait Petroleum International (KPI) was established in London to manage these interests. In 1986, the renowned Q8 brand was launched. Other major expansions occurred in early 1990 such as the purchase of Mobil's network in Italy.

With a focus on international expansion, KPI began operations in Spain in 1992 and two years later acquired BP's Luxembourg assets. KPI penetrated the Italian market as well, with a refining joint venture with AGIP at Milazzo, and invested further in Italy's retail stations. Additional investment was made in Belgium and a further joint venture with OKF resulted in the birth of OKQ8; the biggest fuel retail market player in Sweden. In 2004, KPI decided to leave the UK market as the profitability was not sustained. The Company, however, expanded its market shares in the Netherlands by acquiring a part of BP network as well as an Automat network (TANGO). In Belgium, KPI become the second biggest market player due to the acquisition of BP and Aral networks.

Airport refuelling operations throughout Western Europe and Honk Kong were also expanded. Today, KPI markets approximately 30,000 barrels of products per day in Western Europe through more than 4,000 retail stations, and operates its own refinery in the Eurooport and Milazzo. The company is also looking into further international expansion in the Near East and Far East.

Geography of the oil sector

Following the nationalisation of the oil industry in 1975, foreign companies were not permitted to operate in either the upstream or downstream sector oil sector (apart from the Neutral Zone). After the Gulf War, however, the government started to negotiate service contracts for the provision of technical assistance in exploration-production operations.

Kuwait contains an estimated 96.5 billion barrels of proven oil reserves. The Neutral Zone area, which Kuwait shares with Saudi Arabia, holds 5 billion barrels of reserves, half of which belong to Kuwait. Most of Kuwait's oil reserves are located in the 70-billion barrel Greater Burgan area, which comprises the Burgan, Magwa and Ahmadi structures. Greater Burgan is widely considered the world's second largest oil field, surpassed only by Saudi Arabia's Ghawar field, and has been producing oil since 1938. The rest of Kuwait's other producing fields are all onshore.

The Rawdhatain, Sabriya, and Minagish fields have large proven reserves with 6 billion, 3.8 billion, and 2 billion barrels of oil, respectively. All of these fields have been producing since the 1950s. They generally contain medium to light crude oil with gravities in the 30o-36o API range. The South Magwa field, discovered in 1984, is estimated to hold at least 25 billion barrels of light crude oil with a 35o-40o API gravity. In November 2000 Kuwait announced the discovery of significant amounts of light crude oil at Sabiryah.

Another Kuwaiti field - Ratqa - has been the subject of controversy. Once thought to be an independent reservoir, Ratqa forms a Southern extension of Iraq's super-giant Rumaila field. During the weeks preceding Iraq's August 1990 invasion of Kuwait, Iraq had accused Kuwait of stealing billions of dollars worth of Rumaila oil, and had refused to negotiate a sharing or joint development arrangement for Ratqa and Southern Rumaila. After the Gulf War of 1991, a United Nations survey team made a demarcation of the border between Iraq and Kuwait, and this demarcation put all 11 of the existing wells at Ratqa within Kuwaiti territory. Kuwait produces around 40,000 barrels per day from Ratqa.

In early 2003, Kuwait began taking precautions to protect its oil installations in the event of any military conflict with Iraq. For instance, in mid-February, the Kuwaiti government turned much of the Northern part of the country into a military exclusion zone and began to move oil rigs out of the area. Kuwait also began to limit output at its Northern fields, which normally produce around 600,000 barrels per day (bpd), prior to the coalition attack on Iraq.

Along with Saudi Arabia and the UAE, Kuwait is one of a select group of oil-producing nations having significant excess oil production capacity. Kuwait has plans to raise capacity to four million barrels per day by the middle of this decade. But, given the large investments that will be required, achievement of those plans will require significant changes in the way Kuwait has allowed international oil companies to participate in the industry. And, plans to significantly increase oil output also depend upon OPEC quotas, and especially how output from Russia affects demand for OPEC oil. During the turbulent oil markets of 2004, Kuwait has been a staunch defender of OPEC production limits.

Under present market conditions and quotas (Kuwait's November 2004 quota is 2.17 million bpd), Kuwait is producing at only about 60% of capacity. Nevertheless its oil income per head of population represents over US$16,000 per capita at oil prices of US$45 per barrel, the highest of any oil-producing nation. Oil production overall has grown slowly and steadily from 2000 to 2005 within the framework of the OPEC negotiations. Nine rigs are believed to be currently undertaking development activities and the majority of new production stems from the upgrading of existing fields.

Kuwait's hydrocarbon wealth is limited to crude oil and associated gas since it has never discovered any fields of non-associated natural gas. However, the Chairman of Kuwait Oil Company (KOC) claimed in the year 2000 that KOC is "actively exploring for gas" and intends to "play a role in the gas market".

The country exports the majority of its oil to Asian countries, especially Japan. Other oil exports go to Europe and to the US. Kuwait has completed major renovations of Mina al-Ahmadi, the country's main port for the export of crude oil. There are also operational terminals at Mina Abdullah, Shuaiba and at Mina Saud.
Status of refinery and petrochemicals

Kuwait's refining capacity was damaged severely during the Iraqi invasion and occupation in 1990-1991. After losing most of its pre-war capacity of 886,000 bpd, Kuwait had only 200,000 bpd of refinery output by early 1992. At the conclusion of the war, 800 of Kuwait's 950 oil wells had been sabotaged, including 600 that were on fire. The country lost 1.1 billion barrels of oil as a result of the war, some of which was not burned but diverted from ruptured pipelines into low-lying areas and dry lakebeds in the desert, where it is theoretically but uneconomically recoverable.

Restoration of production, however, proceeded swiftly. And after the Gulf War, Kuwait's US$400 million downstream reconstruction programme was completed by mid-1994. From 1998 onwards, Kuwait's domestic refineries were operating close to their pre-war capacity.

Kuwait's three domestic refineries have a combined capacity of around 870,00 bpd. The largest refinery is Mina al-Ahmadi (repared after a major accident see below). Other large refineries include Mina Abdullah (256,500 bpd) and al-Shuaiba (190,000 bpd). The bulk of Kuwait's refined products are exported.

In August 2004 Kuwait’s Supreme Petroleum Council (SPC) gave the go-ahead for the construction of the country’s fourth refinery in Shuaiba which will eventually replace the ageing facility there.  In a bid to expand its loading capacity at the Ahmadi export terminal to handle planned increases in crude production, the State-owned Kuwait Oil Company (KOC) intends to build further oil storage and export facilities.

Engineering, procurement and construction contractors have been invited to submit bits for the estimated US$850 million project which calls for the building of 11.4 million barrels of crude storage capacity.
Kuwait, which is currently estimated to hold one tenth of the planet’s oil reserves, is looking to raise its crude production capacity to between 4 million and 5 million barrels per day (bpd) by 2020 from the current 2.5 million bpd.

In 2000 the Mina al-Ahmadi refinery, owned and operated by KPC subsidiary Kuwait National Petroleum Company (KNPC), experienced an explosion and fire, causing substantial damage to two of three crude distillation units (CDUs), killing six workers, and forcing the facility to shut down. Full capacity was restored only in 2004 at a cost of around US$320 million. In addition, KNPC  has been working to upgrade atmospheric residue desulphurisation at the refinery.

Kuwaiti officials have expressed interest in accelerating development of the country's relatively small petrochemical sector. This would accomplish several goals: boosting the value of Kuwait's crude oil reserves; helping to protect Kuwait's revenues during periods of low crude prices; and boosting Kuwaiti revenues while adhering to OPEC crude oil quota limitations. Historically, Kuwait's Petrochemical Industries Company (KPIC) has mainly manufactured low-value products such as urea, ammonia, and fertilizer for export. PIC is now beginning to move upmarket to production of higher-value products.

According to the Kuwait News Agency, KPIC may increase production at its polypropylene plant by 20% to 120,000 tons per year if the market price of polypropylene continues to rise. PIC's primary markets are Jordan, Syria, the UAE, Morocco, China and Hong Kong, followed by India, Pakistan and countries in Eastern Africa.

The Equate joint venture, involving PIC and Union Carbide, is the country's largest petrochemical project. The US$2 billion industrial complex at Shuaiba, which came online in 1997, includes a 650,000 metric ton per-year ethylene cracker, two polyethylene units with a capacity of 450,000 metric tons per year, and a 350,000 metric ton per-year ethylene glycol plant, all of which are currently operating. The complex primarily serves the Asian and European markets. PIC and Union Carbide each have a 45% share in the project, with the remainder owned by Boubyan Petrochemical Company. The Equate plant was temporarily shut down by the loss of its ethane feedstock from the Mina al Ahmadi refinery in June 2000, but has since resumed operation.

In April 2001, KPIC approved a US$1.5 billion plan to construct "Equate II". This is the second petrochemical complex being planned in Kuwait with ethylene capacity of 850,000 metric tonnes per year with polyethylene capacity at 460,000 metric tons per year, polypropylene capacity at 220,000 metric tons per year and monoethylene glycol capacity of 640,000 metric tons per year. The facilities are due onstream during 2005. It has been reported that ExxonMobil was considering taking a stake in the project, but this has not been confirmed. Another potential investor is Dow Chemical, which is already involved in the Equate I plant.

Among the major industrial projects in the offing is a billion-plus-dollar, integrated petrochemical complex, known as the Olefins-2, in to be built Shuaiba. It will include construction of an 850,000 tonnes per year (tpy) cracker, a 600,000 tpy ethylene glycol unit, a 450,000 tpy ethyl benzene/styrene monomer unit and  an expansion of polyethylene capacity at the existing complex. The completed facility will double the capacity at the existing olefins complex. 

The Olefins-2 complex is a joint venture between Dow Chemical Company and Petrochemical Industries Co (PIC) of Kuwait. The project is expected to break ground early next year for completion in 2007.

Technip USA Corp has been contracted to to provide engineering services for the ethylene plant at the complex.

Buyers and suppliers

Purchasing responsibility in KOC lies with the purchasing and contracts departments, and potential suppliers are required to submit product details to KOC via their local agent or joint venture partners.

There are a number of international oil and gas companies operating in Kuwait (more details later) and also a number of international contracting organisations who have carried out major turnkey contracts. These international purchasers provide good opportunities for international firms to enter the market. The following are some of the main contractors established in Kuwait: Ralph M Parsons, Bechtel, Kellogg, Stone and Webster, ABB Lummus Crest, McDermott-ETPM, Babcock and Brown & Root. These organisations can be contacted via the state oil companies who have an approved list of contractors.

There are many companies supplying the oil sector, including Schlumberger, Halliburton and Hyundai. But for many years it has been the policy of the Kuwait government that Kuwaiti nationals should control domestic commerce and the activities of foreign companies conducting business in the country. For this reason, international firms wishing to do business in Kuwait should do so through a Kuwaiti agent. Firms wishing to do business in the oil sector are strongly advised to register separately with the state-owned companies. Tenders are issued for most projects, and suppliers are required to prequalify.

Customs duties (generally at 4%) are levied on Cost, Insurance and Freight (CIF) value of imported goods. Protective tariffs to cushion local industry existed prior to the Iraqi invasion, but so far have been only reintroduced on lubricating oils and similar products at a rate of 30%.  But it is important to note that difficulties may be created in Kuwait for any company if it is known that they have connections with Israel.

"Project Kuwait" and attractiveness for development

With a reserves-to-production ratio of over 100 years Kuwait already has sufficient oil reserves to produce oil throughout the 21st century, but continues (seismic) exploration activity to refine knowledge of its reserve base and to establish low cost production options. The discovery and development of light crude reserves is paramount as this provides maximum revenue within export volume limits. Kuwait has no general petroleum legislation but is a member of OPEC and abides by its general principles.

Kuwait's current policy, in place since 1975, limits the participation of foreign oil companies to providing technical assistance and construction and maintenance services under contracts, which pay them fixed prices for specific activities. In fact, Kuwait's constitution forbids the award of concessions which give an ownership interest in Kuwait's natural resources to foreign entities. Nevertheless, the government has repeatedly hinted at a desire to find a way to involve foreign oil companies in increasing production without violating the constitution. The Supreme Petroleum Council (SPC) approved foreign cooperation in principle in 1997, but opening upstream activities to deeper involvement by foreign oil companies is highly controversial with opposition members of the Kuwaiti parliament. In February 2000, the Kuwaiti parliament passed a resolution calling on the government not to proceed with the programme until legal issues involving foreign interests in the Kuwaiti oil sector were resolved. New legislation dealing with the foreign investment programme is currently under consideration in the Kuwaiti Parliament. Some in parliament have even accused the government of "selling off" the country.

Unlike PSA's, the structure of the agreements the government is considering, called technical service contracts, allow the Kuwaiti government to retain full ownership of the oil reserves, control over oil production levels and strategic management of the venture. Foreign firms are to be paid a "per barrel" fee, along with allowances for capital recovery and incentive fees for increasing reserves, in their role as service provider/contractor. The country has already opened some of its existing fields to foreign company involvement in the form of these technical assistance contracts, which can run from a few months to three years or more. Companies that are, or have been, involved in these arrangements include: Chevron, BP, Exxon, Total and Shell. Texaco operates onshore fields in the Neutral Zone and the Arabian Oil Company (AOC) operates offshore fields.

The Kuwait Petroleum Corporation had set a target to increase production capacity to 3.5 million bpd by 2005 and 4 million bpd by 2020. This is up from around 2.1-2.2 million bpd in 2002. As part of this plan, known as "Project Kuwait," Kuwait is considering permitting foreign oil companies to invest in upstream production, which would reverse more than two decades of Kuwaiti policy.

Project Kuwait is a US$7 billion, 25-year plan, first formulated in 1997 by the Supreme Petroleum Council (SPC) to increase the country's oil production and to help compensate for declines at the mature Burgan field). It has enlisted the help of international oil companies. In particular, Kuwait had planned to double output at five northern oil fields - Abdali, Bahra, Ratqa, Rawdhatain and Sabriyah - from 450,000 bpd three years ago to around 900,000 bpd by 2005.

To date, Project Kuwait has made little headway, in large part due to political opposition and resistance from Parliament to the idea of allowing foreign companies into the country's oil sector. Only in December 2004 the Kuwaiti Parliament began reviewing the final law to allow the shortlisted operators to bid for the the Kuwait Northfield Development project. Kuwait has already prequalified some 25 operator and non-operator foreign companies for Project Kuwait, including Shell, ExxonMobil, BP Amoco, ENI, Total and Chevron. These companies have formed three consortia, which have submitted bids for the project. Depending on political progress, Indian Oil Corporation (IOC) could be set to make a foray in the Gulf region. It has joined hands with ONGC-OVL to take up 10% equity in a joint venture of BP and Occidental. 

The final selection is expected only after the government finalises the Bill in the Parliament in 2005, sources say. The draft legislation states that “all oil wealth and resources are the property of the state.” The new legislation has been approved by the Cabinet and the Supreme Petroleum Council but foreign participation remains highly controversial, possibly because the project dates back to the time of the first Gulf War in 1991.

In other oil development news, KOC is planning to award a concession to drill at a major new oil field, called Madinah. The field is located around Kuwait City and Kuwait Bay.

Neutral Zone

The Neutral Zone encompasses a 6,200 square-mile area partitioned equally between Kuwait and Saudi Arabia under a 1992 agreement. Oil production in the Neutral Zone, which currently is running around 579,000 bpd (around half offshore and half onshore), is divided equally between Saudi Arabia and Kuwait. Major Neutral Zone onshore fields include Humma, South Fawaris, South Umm Gudair, and Wafra. Offshore fields include Hout and Khafji. Onshore, US-based ChevronTexaco and KPC produce from Wafra, South Fawaris, and South Umm Gudair. Offshore, the Arabian Oil Company (AOC) of Japan operates Khafji and Hout, both of which are connected to Saudi Arabia's Safaniyah, the world's largest offshore oilfield. AOC has a 40% stake in the Kuwaiti portion, with the remaining 60% held by KPC. In July 2002, Kuwait and Saudi Arabia formed a 50/50 joint venture to maintain and increase oil production at offshore Neutral Zone oilfields.

AOC lost its concession in the Saudi sector when it expired in February 2000, and also surrendered its drilling rights over Hout and Khafji in January 2003. In March 2002, the Kuwait Gulf Oil Company (KGOC) was established as a wholly-owned subsidiary of KPC, with the intention of having it take over operation of offshore Neutral Zone exploration and production when AOC lost its rights. In January 2003, AOC began providing training and technical assistance to KGOC, plus US$750 million in financing for Neutral Zone development. In exchange, AOC owns the rights to purchase 100,000 bpd of Khafji crude.

Foreign upstream operations

Even though Kuwait's overall overseas investments are considerably smaller than the period before the 1990 invasion by Iraq, Kuwait holds equity interests in oil production in several countries through the Kuwait Foreign Petroleum Exploration Company (KUFPEC).

KUFPEC is active in Australia, Indonesia, Malaysia, Pakistan, Yemen and Tunisia, among other countries. Most of the interests are either small fields or minority stakes, though, and KUFPEC's revenues have been under US$300 million in recent years, making it a relatively minor but interesting part of Kuwait's state oil establishment. But according to recent statements KUFPEC is back in expansionist mood. The company is aiming to increase its production capacity to 100,000 bpd oil equivalent by 2010.

Foreign downstream operations

The aforementioned KPC currently has around 250,000 bpd of refining capacity in Europe, including half of Agip's 300,000 bpd Milazzo refinery. KPC also owns a 75,500 bpd unit in Rotterdam. These two refineries enable KPC to supply a large share of its European retail outlets directly. In September 1998, KNPC announced the purchase of 157 service stations in Belgium from BP. The move gives KPC an 8% of the retail market share in Belgium.

KPC's subsidiary, Kuwait Petroleum International (KPI), operates approximately 5,500 service stations under the "Q8" banner in ten countries in Western Europe and about 200 sites in Thailand.

Qatar and other gas supply projects

Kuwait produces a relatively modest volume of natural gas, the vast majority of which is "associated gas" (found and produced in conjunction with oil). Kuwait hopes to increase its use of natural gas - both domestic and imported - significantly, especially in electricity generation, water desalination and petrochemcials. A switch to natural gas (from diesel oil) would free up a substantial amount of oil for export, possibly 100,000 bpd by 2006. Kuwait also hopes to reduce flaring of associated gas by tying together gathering centres.

For these reasons Kuwait continues to seek both associated and non-associated gas supplies. In July 2000, Kuwait and Qatar signed a Memorandum of Understanding (MOU) for export of Qatari gas from its offshore North Field - the largest non-associated natural gas field in the world - to Kuwait. In January 2002, the two countries signed a protocol for "gas sale and purchase agreement" on a US$500 million pipeline from Qatar's port of Ras Laffan to Al-Zour South in Southern Kuwait.

Natural gas could begin flowing through the line by fourth quarter 2005 at a rate as high as 500 billion cubic feet per year. Qatar Petroleum and ExxonMobil (operator of Qatar's North Field) have signed an agreement on supplying the gas. A territorial dispute between Qatar and Bahrain had held up the pipeline, but this was resolved in 2001. The Qatar/Kuwait Gas Supply project links the export of sweet lean gas to Kuwait on a long-term basis from the AKG (formerly EGU) project that will also produce condensate, ethane, LPG and sulphur.

Besides Qatar, Kuwait also has signed an MOU with Iran for import of natural gas via pipeline from the huge South Pars gas field. In 2003 it appeared that the two countries were in the final stages of negotiations on a 25-year gas supply deal but the talks have been delayed over a tripartite maritime and energy dispute involving Kuwait with Saudi Arabia and Iran.

Kuwait finalised a maritime boundary accord with Saudi Arabia in July 2000. The agreement sets out the terms for sharing the proceeds of hydrocarbon fields once they are developed including oilfields and the gas-rich Dorra field. Iran, however, claims a stake in the Dorra field and without an agreement between the three, it remains undeveloped. Tehran reportedly encouraged exploratory drilling in the middle of Dorra, but after Kuwait and Riyadh complained, it ceased operations. But it still claims rights to the field, which lies in the Northern Arabian Gulf.

Kuwait has offered to share hydrocarbon development rights for Dorra with Iran, but only if a maritime boundary accord is finalised. No date has been given for trilateral talks between the three to reach an agreement. In the meantime, Saudi Arabia and Kuwait have agreed to equally share the revenues earned from the development of Dorra.

The massive Dorra gas field has been estimated to contain up to 11 trillion cubic feet of recoverable natural gas reserves. The decision by Kuwait and Saudi Arabia to push forward with the talks on the development of the field and the maritime border issues is unpopular in Tehran. All three energy producers, though, are under increasing pressure from the future production of Iraq.

The sooner Kuwait develops its natural gas reserves, the better it will be able to compete with Iran's South Pars and Iraq's Rumaila output. Most natural gas customers sign 20-year purchasing agreements and Kuwait is already behind the curve when compared with other natural gas producers. The development of Dorra will also help Kuwait fulfil its own natural gas demand.

Before 1990, Kuwait received much of its natural gas needs from Iraq. There has been recent talk of resuming these imports and Kuwait's government has been weighing imports from Qatar and Iran. Dorra's development, however, will increase Kuwait's self-reliance and ease its import burden.

The Kuwait-Saudi bilateral talks will increase the pressure on Iran to come to the negotiating table and resolve the issue. Embroiled in an ongoing diplomatic conflict with the US and Europe and worried about the political orientation and development of a post-Saddam Iraq, Tehran will not want to see its Gulf neighbours leapfrogging ahead in the development of the critical energy sector.

Talk of raising production

Kuwait is to enact a new oil strategy in 2005 to supervise and monitor the oil sector. The Ministry of Energy has been readying itself to begin field inspections and supervision of national oil companies and coordinate with them to enhance performance and realise defined strategic goals, the Ministry's Undersecretary Essa Al-Oun is quoted as saying. The Ministry is also planning to raise current oil production of 2.7 million barrels per day (bpd) by 200,000 bpd and establish a fourth refinery in the country.
Prior to the 1990/1991 Gulf War, Kuwait received significant volumes of natural gas from Iraq. The gas came from Iraq's Southern Rumaila field through a 40-inch, 100-mile, 200 million cubic feet per day pipeline. The gas was used in Kuwaiti electric power stations and liquefied petroleum gas (LPG) plants.

Aside from imports, as stated previously Kuwait hopes to increase its domestic natural gas production, both through reduced flaring of associated gas and through new drilling. Exploratory drilling is currently being undertaken at the Rawdhatain oilfield, reaching geological formations much deeper than the oil deposits, which are believed to be gas-rich (the January 2002 explosion at Raudhatain significantly disrupted natural gas production at the field). Negotiations with Iran over its claims to the Dorra gas field are continuing as of early 2005.

Oil prices will continue to determine Kuwait's economic prospects in 2005. The government's current account surpluses are expected to rise even higher in line with the recent rises in global oil consumption. In addition, a number of large-scale investment projects are expected to be launched in the year. This will contribute to further growth in Kuwait's non-oil economy and will increase trade with its major export markets such as the UK and Japan.

Electricity

Kuwait has five power stations (Doha East, Doha West, al-Subiya, Shuaiba South, and al-Zour South) and a total electrical generation capacity of about 9.3 gigawatts (GW). Kuwait's electricity demand has been growing rapidly in recent years, and is expected to continue increasing at a 7% to 9% rate in coming years, necessitating construction of new generating capacity. A 2,400-megawatt (MW) US$2.2 billion thermal plant at al-Subiya came online in 2000, which relieved pressure on the system in the short-term. Over the next ten years, Kuwait reportedly will need to invest US$3.6 billion in its power sector in order to increase generating capacity by another 3,000 MW.

In September 2001, Kuwait's Ministry of Electricity and Water (MEW), which is in charge of Kuwait's power sector, approved construction of three new power plants at a total cost of US$2 billion:

  • a 2,500-MW steam turbine station at Az Zour North (scheduled to come online in late 2006 and to cost US$1 billion, out to tender)
  • a 600-MW gas-fired plant in Shuaiba
  • and a 400-MW gas-fired facility in Subiya.

To reduce excessive power demand and waste, Kuwait is considering trimming some of its power subsidies. Currently, Kuwaitis pay among the lowest prices for power in the world and the MEW has urged them to use power more judiciously. Meanwhile, Kuwait continues to expand its national power grid, and has accepted a proposal to link up with the grids of other GCC countries. This grid link-up should provide each GCC country with additional spare capacity to handle peak demand periods. Kuwait also has discussed broader linkages and cooperation with other Arab countries and its non-Arab neighbour Iran.

In 2005 the Energy Ministry has invited prequalification bids from international companies for the engineering, procurement and construction (EPC) of a 2,500 MW thermal power station to be located in Az Zour North. The plant will have five units of 500 MW output each. This project will be associated with a proposed desalination plant project, which can produce a total of 150 million gallons of water per day.  The latter will be separately pre-qualified and contracted.

Meanwhile, three of the 1,000 MW Az Zour power plant being built by Siemens Power Generation have recently come on stream.

Among other major developments in this sector, Doosan Heavy Industries and Construction has won a US$370 million desalination plant project in Subiya. The plant is expected to be the largest of its kind in the country, capable of supplying the daily potable water requirements for 600,000 people. The construction, on a turnkey basis, is slated for completion in January 2007.

Water and environmental industries

The Environment Public Authority (EPA) was established by Law No 21 of 1995 as amended by Law 16 of June 1966. The EPA is run by a Director General who is Chairman of the Board of Directors, which in turn reports to the Higher Environment Council headed by the Prime Minister. The Environment Protection Council's responsibilities were transferred to the EPA in 1996.

The overall aim of the EPA is to preserve natural resources, personal and public property. Its wide range of activities include monitoring of air, water and soil, and protecting the environment, including marine and other wildlife. Kuwait is a member of the Regional Organisation for the Protection of the Marine Environment (ROPME) which has its headquarters in Kuwait.

The EPA is charged with setting standards for new facilities and projects: a five year plan to achieve their aims is still in preparation. Part of the UN Compensation Commission funds is being used for environmental remediation associated with oil contamination dating back to the Iraqi invasion. Ongoing problems include oil pollution and other contaminants dumped by ships as well as the residue from the oil spills in 1991.

There have been several reports on emissions from medical waste incinerators and oil refineries, whether to centralise disposal of such sources of waste is still being discussed. Also, there has been recent talk of a new incinerator to deal with hazardous and chemical waste.

Meanwhile work on renovation, replacement and additional installation of sewerage systems continues. 

 

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