Page 9 - MEOG Week 43

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Kuwait strips back output targets, expects PNZ restart
KUWait
THE last 10 days have seen two major Kuwaiti oil-related stories that piqued attention for dif- ferent reasons. On October 19, it announced that positive talks remained in progress with Saudi Arabia for the resumption of oil produc- tion from their Partitioned Neutral Zone, while Bloomberg reported on October 24 that Kuwait was planning to rein in targets for increasing oil production.
Deputy foreign minister Khaled al-Jarallah told press that negotiations with Riyadh were “very positive”, following reports in local media that suggested that a deal had been agreed that would see production resume from the offshore Al-Khafji and onshore Wafra oilfields.
Reuters quoted a source as saying that once an agreement was finalised, it would take months to bring production back up to capacity, adding that this would be carried out in stages.
No oil has been produced from the 5,700-square km border area since the fields were shut in because of disagreements between the two governments in 2014 and then in 2015. Output of a combined total of around 500,000 barrels per day remains shut-in, with divisions within the Kuwaiti government said to be among the main factors preventing a restart.
Al-Khafji was shut down on Riyadh’s orders in 2014, purportedly over environmental viola- tions, depriving the equal partners of combined output of around 250,000 bpd.
A series of contracts placed in 2018 by the offshore area’s operating company, Khafji Joint Operations (KJO) sent signals of work intensi- fying on the ground, in presumed anticipation of an imminent restart. KJO is a joint venture of units of government-owned Kuwait Petroleum Corp. (KPC) and Saudi Aramco.
Five-year engineering services contracts were let to Canada’s SNC Lavalin in February and to Japan’s Toyo Engineering in July, the latter explic- itly linked by the contractor to a planned return to production.
On September 5, UK-based Oil Plus announced the award of a contract by KJO to carry out water-injection compatibility studies and engineering work.
The status thornier negotiations on the onshore PNZ, and its producing Wafra field remains unclear. The field also has a capacity of around 250,000 bpd
Chevron shut down operations in mid-2015 on the grounds of frustration of the firm’s work by the Kuwaiti authorities, allegedly born of long-standing pique at Riyadh’s renewal of the US company’s concession in 2009.
This was compounded by a dispute that had erupted two years previously over land leased by
Saudi Arabia to Chevron in the Al-Zour area, where a multi-billion dollar integrated down- stream hub is under development by KPC. Kuwait has long been particularly sensitive about the notion of foreign oil companies producing domestic resources.
Cutting targets
Meanwhile, Bloomberg reported that Kuwait was considering abandoning its long-stated tar- get of increasing crude production capacity to 4mn bpd by the end of 2020 and to 4.75mn bpd by the end of 2040.
Current capacity is around 3.1mn bpd with production running at around 2.7mn bpd.
Next year’s target is apparently being pushed back to 2040 as Kuwait considers the bearish market in which it now finds itself.
Reaching 4mn bpd by the end of 2020 was never likely in any case, particularly given that state-owned Kuwait Oil Co. (KOC) is only responsible for 3.65mn bpd, and much of the gap requiring the PNZ to run at capacity for 2020 in its entirety.
This news does however suggest that Middle East NOCs are beginning to take notice of the challenges posed by clean energy movements throughout the world and the impact these will have on demand. No longer, or at least not in the medium-term, will state hydrocarbons behe- moths simply pump at capacity and expect the market to simply soak it up.
Perhaps this is a little premature, but either way, the demand argument provides Kuwait with the perfect cover to excuse itself from an unattainable objective.™
Week 43 29•October•2019 w w w . N E W S B A S E . c o m P9