Investment delays, political disputes and bureaucracy have held back Kuwait’s reputation as a place to do business in recent years. But with renewed emphasis from the state on developing its natural resources and a US$33.4 billion pipeline of projects, Kuwait appears to remain resilient.
While some of the world’s most hydrocarbon-dependent countries need to sell oil at a high price to balance their budgets, Kuwait has one of the lowest break-even levels around, according to the IMF. On top of this, a tight control on spending means Kuwait often runs budget surpluses, albeit smaller ones in recent times because of lower oil revenues.
The award of new upstream contracts has been relatively sluggish in Kuwait over the past few years, but new technology is breathing life into some of the country’s more mature fields. After a period of slow development, Kuwait last year announced some of the largest oil and gas projects planned for the region.
Despite the recent decline in oil prices, there is a feeling regional governments would refrain from curbing output even if prices were to fall as low as $40 a barrel.
Kuwait Oil, a upstream subsidiary of the country’s national oil company Kuwait Petroleum Corporation (KPC), recently invited five international oil companies to bid for a contract to develop Ratqa, the country’s biggest heavy oilfield. Ratqa is to produce 60,000 barrels per day by 2018 to 2019. The new contract is part of a wider push to ramp up production in the country to four million bpd by 2020, and demonstrates Kuwait’s focus on developing heavy oil projects.
Kuwait has shown a particular interest in boosting output of refined fuels to supply its domestic market as well as for export, recognising that refined products can fetch a higher price on international markets than raw crude. Another KPC subsidiary, Kuwait Foreign Petroleum Exploration, recently made a high-profile $1.5bn investment in acquiring a 30 per cent stake in Chevron’s Canadian Duvernay shale unit, a move seen as part of a wider drive by many Arabian Gulf states to acquire shale technology.
To help attract new investors and spur economic growth, last year Kuwait introduced a law on Public Private Partnerships (PPPs). Since Kuwait’s economy is dependent on government spending, the launch of PPP projects is important to developers, construction companies and suppliers, as well as the financial institutions that might fund these projects.
Although not aimed solely at oil companies, it will have an increasing effect on petrochemicals, refineries and other planned downstream oil infrastructure.
Despite its small geographic size, Kuwait is a giant in the oil and gas industry. Oil and gas account for about 60 per cent of the country’s gross domestic product and about 95 per cent of its export revenue. Proven crude oil reserves amount to over 101 billion barrels, with 2,925,000 bpd produced and 2,058,000 bpd exported. Its marketed production of natural gas stands at 16,311 million cubic metres, while output of refined petroleum products stands at roughly 992,100 barrels per day.
There is a possibility of projects being re-evaluated over time. We have seen this across the region and it is to be expected, but the state’s implementation of new laws, investment in advanced technology to enhance the recovery of natural resources and the billions of dollars’ worth of investment due to be awarded in projects over the coming year, shows an oil and gas industry with strength and determination, when other oil-rich countries might be looking a bit more conservative.
Jason Rosychuk is a senior associate and Damian Crosse is a partner at the Dubai office of the law firm Pinsent Masons.
