Kuwait Looks to Offshore Resources

By Simon West

Breakbulk movers keeping close tabs on opportunities in Kuwait will have had their interest piqued by comments from the head of the Kuwait Petroleum Corp. on plans to kick-start offshore drilling activity in territorial waters.

Sheikh Nawaf Saud al-Sabah told reporters at the Qatar Economic Forum in Doha that the country would be moving to its first offshore production as part of a wider plan to meet future oil demand.

Higher upstream capacity would also ensure that Kuwait met any future rises in OPEC+ quotas, which were lifted by a collective 100,000 barrels per day, or b/d, from September.

“We are making the investments necessary to ensure that we can meet any new increases in terms of allocations and also in terms of demand,” Reuters news agency reported al-Sabah saying at the June event. “We always like to maintain spare capacity about 10 percent to 15 percent above where we need to be just in case of supply disruptions around the world.”

The oil sector is the bedrock of Kuwait’s economy, accounting for 90 percent of its revenues. The Greater Burgan oilfield in southeast Kuwait is the country’s biggest asset and one of the world’s largest-producing fields with a capacity of 1.6 million b/d.

The nation also ranks ninth in the world for recoverable crude reserves, holding some 53 billion barrels, according to Rystad Energy. Little wonder, then, that hydrocarbons are the leading source of contracts for project logistics.

“Most of the business in Kuwait is dependent on the oil and gas sector,” said Vipin Rajan, manager of services for business and project development at Kuwait-based heavy-lift specialist Al Bader Shipping. “There are a lot of projects in the pipeline. We are expecting a lot of import shipments for these projects, especially on project, breakbulk and bulk vessels.”


Oilfield Services Rise in Importance

Switzerland-headquartered transport and logistics group Kuehne+Nagel said oilfield services was the most important segment for the company, with many of the major global oilfield services companies counting as its clients.

“Although the exploration will take some time, we believe that developing offshore production and onshore support resources in Kuwait is an opportunity for Kuehne+Nagel,” said Andreas Mohr, the company’s managing director for Kuwait and Iraq.

Still, neither the state-run KPC nor its subsidiary, the Kuwait Oil Co., or KOC, were able to provide any additional information on their offshore plans.

“We have been producing onshore for almost 90 years, and now we are moving on to offshore for the first time,” al-Sabah said in Doha. “We should have good news on that sometime soon.”

Oilfield services provider Halliburton was also reluctant to provide further details.

The Houston-based company and member of the Breakbulk Global Shipper Network was awarded an offshore drilling services contract by KOC in 2019 for six high-pressure, high-temperature exploration wells on two jack-up rigs in the Middle East Gulf.

According to a release at the time, Halliburton would provide and manage drilling, fluids, wireline and perforating, well testing, coring, cementing, coiled tubing and all offshore logistical services. It would also supply the offshore rigs and supply vessels for the project.

The work, reportedly delayed by the pandemic, was slated to begin in mid-2020 after seismic surveys to assess prospectivity in the Kuwait Bay had shown significant potential for commercial hydrocarbon production.

The start-up of the first rig was slated for July 2020, and the second for January 2021.

A spokesperson at Halliburton told Breakbulk that the company was “excited to collaborate with the KOC to implement our integrated services to accelerate offshore development,” but declined to comment on whether work at the offshore rigs had begun.


Moving into Offshore

Offshore exploration is a key initiative in Kuwait’s 2040 oil investment strategy. The strategy’s main goal is to meet current and future demand “by achieving a sustainable crude oil production capacity, including production from the partitioned zone.”

The partitioned zone, a border region between Kuwait and Saudi Arabia created by the British 100 years ago as an area of neutral sovereignty, includes the 300,000 b/d offshore Khafji oilfield, operated by Al-Khafji Joint Operations, a venture between Saudi Aramco and Kuwait Gulf Oil Co., or KGOC, another subsidiary of KPC.

Output at Khafji and other oil and gas fields located in the region are divided equally between the two nations.

Paul Tossetti, executive director at S&P Global Commodity Insights, said a successful offshore drilling campaign would unlikely result in production before mid-decade.

“Kuwait did some seismic work a few years ago and obtained a drilling rig and will explore for oil,” the director said. If they find something, offshore oil production would not commence for a few years, probably post-2025.

According to S&P, Kuwait’s current production capacity is about 2.6 million b/d, with the neutral zone accounting for a further 100,000 to 200,000 b/d. The government is looking to raise capacity to about 3.5 million b/d by 2025, according to state news agency, Kuna.

Ex-KPC chief executive Hashem S. Hashem told the agency last year that output would be lifted through the commissioning of new gathering centers, the construction of water injection facilities, the upgrade of existing production plants and the installation of two new facilities to boost light crude capacity.

Tossetti also pointed to plans to further develop onshore resources, especially heavy oil reserves in the north of Kuwait.

Reuters reported in June that KPC was looking to borrow up to US$1 billion from international banks, including HSBC and JPMorgan, to be used for capital expenditure, including on oil and gas projects.

“Development of offshore production – assuming reserves are found – should not face insurmountable technical problems,” Tossetti said. “But, like all major energy developments in Kuwait, there could be political obstacles if the parliament and the government disagree about the timing of offshore developments. Historically, there [have been] plenty of lower cost reserves onshore, so why worry about offshore where it is likely higher cost than onshore?”

A dispute earlier this year between Kuwaiti lawmakers and the government, which culminated in the entire cabinet resigning, appears – for the time being at least – to have cooled, although Tossetti warned that political difficulties could still delay onshore and offshore oil development.

In early August, Prime Minister Sheikh Ahmad Nawaf Al Sabah, the eldest son of Kuwait’s ruling emir, formed a new government ahead of fresh elections, Kuna reported. The latest government is the fifth in two years, the news agency said.


Onshore Projects Still Viable

Despite the political wrangling, some major onshore projects are moving forward, with Mohr pointing to KOC’s Jurassic oil and gas production facilities JPF-4 and JPF-5 in northern Kuwait, signed off in late 2021.

Kuehne+Nagel is also monitoring the development of the Durra gas field in the maritime neutral zone between Kuwait and Saudi Arabia. The offshore field is expected to produce up to 1 billion cubic feet per day of natural gas and 84,000 b/d of condensate, according to KPC.

Kuwait is investing in downstream capacity as well, with projects such as the Al-Zour oil refinery complex south of Kuwait City boosting the nation’s fuel export capability.

When complete, Al-Zour is expected to be one of the world’s largest refineries, with a capacity to process 615,000 b/d of light export crude. The facility, owned by KPC subsidiary Kuwait Integrated Petroleum Industries Co., or KIPIC, is slated for start-up by year-end.

Large oil and gas construction projects are cyclical, and Kuwait has made some major investments over the last 10 years. At present we are in a low construction phase,” Mohr said. “We remain enthusiastic about these opportunities, not only for Kuwait’s growth, but also to showcase our engineering expertise, chartering solutions, risk assessments and logistics management expertise ensuring our customers’ operations are safe and seamless.”

Project logistics, meanwhile, can count on some solid infrastructure to support buildout.

Inland roads and bridges, as is the case in other Gulf Cooperation Council, or GCC, member countries, are well-maintained, according to companies speaking to Breakbulk, with the flat terrain and relatively short distance between ports and project sites ideal for transporting heavy-lift cargoes.

“Given the land area for the country, it is easier to handle such cargo when compared to Europe or other similar parts of the world,” said Vivek Pawar, sales manager at Alghanim Transportation Logistics and Solutions, or ATLAS, a Kuwait-based logistics provider that has moved heavy cargo for Bechtel, Fluor, Foster Wheeler and other global shippers.


A World Beyond Oil

The Gulf state’s over-reliance on crude, meanwhile, has triggered efforts to diversify its industrial base.

In line with other members of the GCC, Kuwait has launched its own long-term initiative to pivot the economy away from oil and gas towards more economically and environmentally sustainable sectors.

Vision 2035, which will usher in a ‘New Kuwait,’ is seeking to transform the country into a regional financial and trade hub by boosting the role of the private sector and luring more foreign investment towards non-oil expansion.

Breakbulk movers will be buoyed by the government’s target of sourcing 15 percent of electricity generation from renewables by the end of the decade, with plans in place to rapidly expand capacity through a series of utility-scale wind, solar and hydrogen facilities.

Some projects are starting to take shape, such as the four-phase Shagaya renewable energy plant, which is calling for a planned 4 gigawatts of renewable capacity by 2030.

But Emily Hawthorne, senior Middle East and North Africa analyst at risk intelligence consultancy RANE, said that a resurgence in oil markets could hamper development.

“The pace of diversification has been slow and higher oil prices have actually decreased the urgency the Kuwaiti government feels regarding the need to diversify,” Hawthorne said.

“Other sectors in Kuwait’s economy include industrial manufacturing and services related to domestic consumption, including financial services, but these pale in comparison to what oil and gas bring to the economy. The country will also struggle to diversify due to its reticence to aggressively recruit expatriates in its public and private sector, compared with other GCC states like the UAE and Qatar.”

Still, buoyant oil prices and the loosening of OPEC+ quotas have significantly improved Kuwait’s economic outlook and, as S&P Global Commodity Insights’ Tossetti pointed out, its recovery from the pandemic. Such a crucial resource is expected to provide breakbulk and project cargo with a steady source of work for years to come. 


Colombia-based Simon West is senior reporter for Breakbulk.

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