By Alex Kimani for Oilprice.com |A week ago, Kuwait Oil Company (KOC) announced a significant discovery of light oil and associated gas in the offshore Al-Nokhatha field. KOC said that the field, located east of Kuwait’s Failaka Island, covers an estimated area of 96km². Preliminary estimates of the reserves are around 2.1bbbl of light oil and 5.1tcf of gas, or roughly 3.2 billion barrels of oil equivalent (boe). The Al-Nokhatha well is currently producing just 2,800 barrels of light oil and seven million cubic feet of associated gas daily.
And now Kuwait has ambitions to nearly double its oil output over the next decade.
Speaking at the CERAWeek by S&P Global conference, Sheikh Nawaf al-Sabah, CEO of Kuwait Petroleum Corp., revealed that the country plans to ramp up crude production from ~2.4 million barrels of crude per day currently to over 4 mb/d by 2035 by cooperating with international oil majors. According to Sabah, the emirate has lifting costs onshore of just $10/b but has pumped the brakes on drilling due to OPEC+ production quotas. Kuwait expects the capacity additions to come from the Neutral Zone it shares with Saudi Arabia as well as its domestic fields.
In another key development, a joint venture between Kuwait Petroleum Corporation (KPC) and of Saudi Aramco is now poised to soon launch a sizeable engineering, procurement, construction and installation (EPCI) tender for work on the disputed Durra offshore gas field claimed by Kuwait, Saudi Arabia and Iran. The field is expected to produce 1 billion cubic feet per day of gas and another 84,000 barrels per day of condensate.
For Kuwait, Oil Still Rules
Kuwait’s game-plan to sharply ramp-up oil and gas production is, however, a risky gambit. A few days ago, a Reuters poll of economists predicted that the Gulf Cooperation Council (GCC) economies will grow considerably slower in the current year due to the ongoing oil production cuts. A poll of 24 economists has predicted that Saudi Arabia’s economy will expand at an anemic 1.3% clip in the current year, down from 1.9% forecast in an April survey and 3.0% predicted in January.
Overall, GCC economies are expected to average 1.9% growth in 2024. However, Kuwait is expected to fare the worst, with the same poll saying the country will have the highest inflation in the region while its economy will remain in a recession. That’s a sharp contrast from just two years ago when high oil prices powered 85% growth in Kuwait’s oil revenue, translating into 8.5% GDP growth and a 70% decrease in the fiscal deficit–the first drop since Covid hit. In the same year, NBK-Kuwait, the country’s largest bank, saw its net profits increase 40.5% Y/Y to reach $1.7 billion.
Kuwait is a wealthy petroleum-based economy and the fifth richest country globally by gross national income per capita. It’s OPEC’s fifth largest producer and is home to 101 billion barrels in proven oil reserves, the seventh largest in the world. Indeed, Kuwait’s oil reserves are considerably bigger than the U.S.’ ~70 billion barrels. Unfortunately, the country’s economy is too reliant on oil.
According to Kuwait’s Ministry of Finance data, oil accounts for 91% of exports and revenue, making the tiny Gulf nation extremely rich but vulnerable to oil price swings. In contrast, last year, Saudi Arabia’s non-oil revenue hit 50% of GDP for the first time in history thanks to the country’s 2030 Economic Diversification Plan.
At a time when other GCC countries, led by Saudi Arabia, are actively reforming their economies to be less reliant on fossil fuels, Kuwait is looking to double down on oil and gas production.
Like Saudi Arabia, Kuwait enacted its Vision 2035 strategy in a bid to turn the country into a trade and logistics hub. Kuwait had big dreams, including building three new economic zones as well as Silk City, a $130 billion futuristic urban conglomerate that should push non-oil GDP by 13% to 16% and create over 200,000 jobs.
The plan worked at first: In fiscal year 2021-22, Kuwait attracted $350 million in FDI, including a $102 million infrastructure deal between the Kuwait Oil Company and Chinese Egyptian joint venture SinoThawra Building. Last year, Google Cloud partnered with the government of Kuwait to support the country’s digital transition. Unfortunately, Vision 2035 appears to have hit some early snags: In 2022, Kuwait ranked dead last in the Expats Insiders Index, with participants pointing to a lack of business opportunities, poor infrastructure, and an overall negative business culture.
Naturally, Kuwait is now falling back on the low-hanging fruit, which further exposes it to precarious energy markets:
“Oil prices will continue to fluctuate, impacting the GDP of Kuwait. Quick reforms in areas such as economic diversification, fiscal management, labor markets and housing are a must in this stage,” Jehad al Humaidhi, CEO of Ahli United Bank–Kuwait has said.
By Alex Kimani for Oilprice.com
