Kuwait Petroleum Corporation is planning for the long haul by building additional pipeline capacity with its neighbours and inviting foreign investment after the Iran war choked off its access to the Strait of Hormuz and led to a collapse in production, its chief executive said.
Oil production in Kuwait, Opec's fifth-largest producer, fell by 53 per cent to 1.21 million barrels per day in March. Unlike Saudi Arabia or the UAE, Kuwait lacks the alternative pipelines to bypass the waterway, through which 20 per cent of the world's energy supply passes.
Sheikh Nawaf Al Sabah, who is also deputy chairman of the company, said one action the company took “as we saw that this war was about to commence” was to return its tanker fleet home and deplete all its storage to push as much product through the strait.
“Being all the way up into the north-west part of Hormuz with no direct access outside the strait, we have had to react differently in how we do our business,” Mr Al Sabah told an energy conference in Washington.
Kuwait cut production to the level needed only for local consumption and sold its refined products within the Gulf. Kuwait is home to some of the region's largest refining complexes, including the 615,000 bpd-capacity Al Zour and 346,000 bpd Mina Al-Ahmadi, which was targeted during the war.
KPC's strategy of selling product to Saudi Arabia, Qatar, the UAE and Bahrain, while importing liquefied natural gas from Qatar, which could not sell volumes via Hormuz, created a “mini economy” of intra-Gulf trade, Mr Al Sabah said.
Calling Kuwait's geographical position “stubborn”, Mr Al Sabah said the country plans to work collectively with the Gulf Co-operation Council to mitigate supply risks in the future.
“It's tough for us to change our geography … The GCC states are working together better than we have in quite some time, and really looking at how to address these situations collectively,” he said.
Kuwait is in discussions with Saudi Arabia and the UAE to look at expanding the existing pipeline system to accommodate Kuwaiti barrels, he said.
About 80 per cent of Kuwait's shut-in production could be returned in less than a month, with the last 20 per cent taking up to three to four months, he said.
Saudi Aramco, which operates a 1,200km pipeline that allows for crude from the Eastern Province to be delivered to Red Sea export terminals, is operating it at its maximum capacity of 7 million bpd. The UAE can also export oil through the Gulf of Oman through its 380km pipeline from Abu Dhabi to Fujairah. The emirates recently announced plans for a new pipeline to double its export capacity through Fujairah.
Mr Al Sabah noted that the region's pipeline infrastructure required better insulation and stronger air defences around critical infrastructure in co-operation with the US and European partners.
KPC also leaned on its trading arm to keep customers supplied as well as possible, he said. On Tuesday, Kuwait offered to sell its crude to refineries in Asia for the first time since the war broke out, with at least 4 million barrels offered to refiners in China and South Korea, Bloomberg reported.
In the weeks before the war, Kuwait's prime minister said the country was preparing to invite international oil and gas firms to develop new hydrocarbon discoveries, including the ones at Al-Jlaiaa last year and Al-Mokhatha in 2024.
Two key projects in pipeline infrastructure and offshore fields that involved foreign investors will continue, Mr Al Sabah said.
Project Peregrine, announced a day before the war began on February 28, would see KPC lease back its export pipelines to international investors, in the biggest foreign investment to date.
“[They] are bidding on the assumption that this war never happened, and that production has never been interrupted,” Mr Al Sabah said, noting that final bids would be made in the coming weeks.
Project Seif, the second project, which invites international companies to develop Kuwait's offshore fields, is “still in the nascent stages”, he said. KPC has drilled four wells so far.
However, the Iran war is injecting new uncertainty into the flow of financial investment into Kuwait. The country's airport came under Iranian drone attacks on June 3, leaving one dead and 60 injured.
“Kuwait, like the rest of the GCC, will have to deal with the risk premium of this conflict in future investment attraction,” said Karen Young, a senior research scholar at Columbia University's Centre on Global Energy Policy.
