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OIL
Kuwait contains an estimated 94 billion barrels of proven oil reserves, more than 9%
of the world total. The Neutral Zone area, which Kuwait shares with Saudi Arabia, holds an additional 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. Kuwait's Raudhatain, Sabriya, and Minagish fields have large proven reserves as well, 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.
Another Kuwaiti field -- Ratqa -- has been the subject of controversy. Once thought to be an independent reservoir, Ratqa is actually 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 Petroleum Corporation (KPC) also has been conducting seismic survey work on its largest island, Bubiyan, near Iraq. The initial
data is considered promising, and exploratory drilling is planned.
Current Oil Production
The bulk of Kuwait's oil production occurs at the onshore Greater Burgan field, whose Burgan,
Magwa, and Ahmadi structures produce roughly 1.6 million barrels per day (bbl/d) combined. Most of Kuwait's other producing fields are relatively small and include the 250,000-bbl/d Raudhatain, 160,000-bbl/d
Sabriya, 60,000-bbl/d Minagish, and 60,000-bbl/d Umm Gudair fields.
Construction of new gathering centers is a major focus of Kuwait's upstream capacity expansion program. Prior to the
Iraqi invasion in 1990, Kuwait had 26 gathering centers (GCs), with a total capacity of 4 million bbl/d. All 26 GCs were either damaged or destroyed during the war. By 1993, operations at 18 GCs had been
restored. In January 1996, KPC awarded China Petroleum Engineering Construction Corporation (CPECC) a $390-million contract to build two new GCs, a significant step in Kuwait's efforts to increase its oil
production. CPC is constructing the GCs, designated GC-27 and GC-28, at the Minagish and Umm Gudair fields. The work was to have been completed in 1998, but construction delays have pushed the scheduled
completion date back to early 2001.
Kuwait announced in July 2000 that it intended to launch an international tender later in the year for a package of additional infrastructure
inprovements which would allow it to increase its export capacity to 3 million bbl/d. Plans include the construction of two additional mooring buoys at Mina al-Ahmadi, additional storage capacity, and
additional pumping stations.
Crude Oil Exports
Kuwait exports the majority of its oil to Asian countries, especially Japan.
Other oil exports go to Europe and to the United States, which averaged 223,000 bbl/d of Kuwaiti oil imports during the first quarter of 2000. This compares to the peak of 353,000 bbl/d (4.1% of U.S. oil
imports) reached in 1993. Kuwait's export blend is 31oAPI (a typical medium Mideast crude), and is considered sour with 2.5% or greater sulfur content.
Kuwait has
completed major renovations of Mina al-Ahmadi, the country's main port for the export of crude oil. Kuwait also has operational terminals at Mina Abdullah (repairs completed in September 1992), Shuaiba (restored by
late 1996) and at Mina Saud.
Production Quotas and Pricing
In March 2000, OPEC members agreed to reverse the production cuts
which had taken effect April 1, 1999. In June 2000, OPEC ministers agreed on another round of production quota increases. Kuwait's quota was set at 2.04 million bbl/d, effective July 1, 2000. As of June 2000,
Kuwait was producing 2.1 million bbl/d.
Plans to Expand Oil Production
Although it has undertaken production cutbacks this year in
response to the period of low oil prices in 1998 and early 1999, Kuwait still aspires to increase its production capacity from the current 2.4 million bbl/d to 3.5 million bbl/d by 2005. To facilitate the
increase in capacity, Kuwait is considering permitting foreign oil companies to invest in upstream production, which would reverse more than two decades of Kuwaiti policy.
The 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) in 1997 approved foreign cooperation in
principle, but opening upstream activities to deeper involvement by foreign oil companies is highly controversial with opposition members of the Kuwaiti parliament.
The structure of the
agreements the government is considering, called "Operating Service Agreements," unlike PSA's, allows the Kuwaiti government to retain full ownership of the oil reserves. The foreign firms, however, would
be paid a "per barrel" fee, along with allowances for capital recovery and incentive fees for increasing reserves.
The fields which the Kuwaiti government intends to open to
foreign investment are all currently operating fields in northern or western Kuwait, including Rawdaitain, Sabriyah, Ratqa, Bahra, Minagish, and Umm Gudair. Kuwait's largest field, Burgan, is to remain
off-limits to foreign investment under the new plan.
Kuwait held a formal conference in November 1999 to discuss the upstream opening, but the initiative has been stalled by strong political
opposition. In February 2000, the Kuwaiti parliament passed a resolution calling on the government not to proceed with the program until legal issues involving foreign interests in the Kuwaiti oil sector were
resolved. New legislation dealing with the foreign investment program is currently under consideration in the Kuwaiti parliament.
Neutral Zone
The Neutral Zone encompasses a 6,200 square-mile area partitioned equally between
Kuwait and Saudi Arabia under a 1992 agreement. The Neutral Zone contains an estimated 5 billion barrels of oil and 1 trillion cubic feet (Tcf) of natural gas. Oil production in the Neutral Zone, which is over
500,000 bbl/d, is exported from area terminals. Two joint ventures control oil production in the area.
Onshore, U.S.-based Texaco and KPC produce from the Wafra, South Fawaris, and South
Umm Gudair fields. Offshore, the Arabian Oil Company (AOC) of Japan operates the Khafji and Hout fields, 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. AOC lost its concession in the Saudi sector when it expired in February 2000. Kuwait's intentions on the issue of renewal are unclear.
Foreign Upstream Operations
Even though Kuwait's overall overseas investments are considerably
smaller than 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
Algeria, Australia, China, Congo, Egypt, Indonesia, Pakistan, Thailand, Tunisia, and Yemen. Most of the interests are either small fields or minority stakes, though, and KUFPEC's revenues have been under $200
million in recent years, making it a relatively minor part of Kuwait's state oil establishment.
Refining
Kuwait's refining capacity was damaged severely during Iraqi invasion and occupation in
1990-91. After losing most of its pre-war capacity of 820,000 bbl/d, Kuwait had only 200,000 bbl/d of refinery output by early 1992. Kuwait's $400-million downstream reconstruction program was completed in
mid-1994. As of last year, Kuwait's domestic refineries had a combined capacity of around 864,500 bbl/d. Mina al-Ahmadi is the country's largest refinery with capacity of 427,500 bbl/d. Other large refineries
include Mina Abdullah (247,000 bbl/d) and Shuaiba (190,000 bbl/d). The bulk of Kuwait's refined products are exported.
On June 25, 2000, the Mina al-Ahmadi refinery experienced an
explosion and fire, which caused substantial damage. The facility had to be completely shut down. Kuwaiti authorities have put the cost of the damage at an estimated $330 million and have said repairs will
take at least six months.
Foreign Downstream Operations
KPC is expanding its overseas downstream interests in the hopes of
attaining a combined European and Asian refining capacity of 700,000 bbl/d in the next few years. KPC recently pulled out of a $2 billion refining project in the Indian state of Orissa, but is reported to be
considering acquiring a stake in India's Bangalore Refinery. Kuwait Oil Thailand and Thai Petrochemical Industry are planning to build a 300,000-bbl/d refinery in Rayong, Thailand. KPC currently has 250,000 bbl/d
of refining capacity in Europe, including half of Agip's 300,000 bbl/d Milazzo refinery. KPC also owns an 75,500 bbl/d unit in Rotterdam. These two refineries enable KPC to supply a large share of its 320,000
bbl/d in European outlets directly. In September 1998, KPC 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, operates more than 5,000 service stations under the "Q8" banner in 10 countries in Western Europe and about 200 sites in Thailand.
Petrochemicals
Kuwaiti officials have expressed interest in accelerating development of the
country's relatively small petrochemical industry. 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 (PIC) 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, PIC 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 United Arab Emirates, 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 $2 billion
industrial complex at Shuaiba 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-Ahamdi refinery in June 2000, but has since resumed operation.
NATURAL GAS
Kuwait currently produces only a modest quantity of natural gas. Production
stood at 330 billion cubic feet (Bcf) in 1998 - most of it associated gas from oil production. Kuwait plans to make a significant increase in its use of natural gas, especially in electricity generation. A
switch to gas would free up a substantial amount of oil for export.
Kuwait and Qatar signed a memorandum of understanding (MOU) in July 2000 for export of Qatari gas from its offshore
North Field to Kuwait. ExxonMobil, the operator of the North Field, is conducting a feasibility study. The volume of Qatari gas exports contemplated in the MOU have not been disclosed. Kuwait also signed an
MOU with Iran for the import of gas via pipeline in July 2000. It is unclear whether the two gas import projects could both go forward.
Kuwait also hopes to improve its domestic gas production,
both through a reduction of flaring of associated gas in oilfields and through new drilling. Exploratory drilling is currently being undertaken at the Rawdatain oilfield, reaching geological formations much
deeper than the oil deposits, which are believed to be gas-rich.
In another gas-related development, Saudi Arabia and Kuwait concluded an agreement in July 2000 on the offshore Dorra gas
field, which had been claimed by Saudi Arabia, Kuwait, and Iran. The agreement calls for an equal sharing of the gas resources between Saudi Arabia and Kuwait. Negotiations with Iran over its claims to the
Dorra gas field are continuing.
ELECTRICITY
As of 1998, Kuwait had an electrical generation capacity of 7 gigawatts (GW).
Kuwait's electricity demand has been growing at around 5% in recent years, necessitating construction of new generating capacity. A 2,400-megawatt (MW) thermal plant at al-Subiya came online in early 2000,
which relieved pressure on the system in the short-term. The Ministry of Electricity and Water (MEW) comissioned a study of future power requirements in early 2000 from the German firm Lahnmayer, which
recommended construction of a modest-capacity gas-fired peaking plant to handle short-term demand growth. The al-Zour North (AZN) project, which envisions another 2,400 MW plant near the existing al-Zour power
plant, has been repeatedly delayed due to financial considerations. It is still considered the long-term solution for Kuwait's power needs, however, and current plans call for it to come online by 2006-2007.
Sources for this report include: CIA World Factbook 1999; Dow Jones News Wire service; Economist Intelligence Unit ViewsWire;
Oil and Gas Journal; Petroleum Economist; Petroleum Intelligence Weekly; International Market Insight Reports; U.S. Energy Information Administration; WEFA Middle East Economic Outlook.
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