Kuwait: Increasing output

Oil production in Kuwait continues to increase, having reached 3m barrels per day (bpd) as of early December. Output could expand further in the longer run, according to officials from the Kuwait Oil Company (KOC), which recently said that it would be necessary to tap into the country’s heavy oil reserves to reach its 4m bpd capacity goal by 2020. At the same time, the country is also looking abroad for additional energy sources, with the Kuwait Petroleum Corporation (KPC) involved in joint energy projects in Asia and elsewhere.

Kuwait has been steadily increasing its crude oil output since the spring of 2011, when it, along with Saudi Arabia, upped production in response to a sharp drop in exports from fellow OPEC state Libya. By September 2011, Kuwait’s output had reached 2.9m bpd, compared to an average of 2.5m bpd during 2010. Mohammad Al Busairi, Kuwait’s minister of oil, revealed the most recent boost during an interview with state news agency KUNA in Vienna, where he was attending a meeting of OPEC ministers. On December 14 the 12-nation bloc announced that it would set its official production ceiling at 30m bpd.

While this figure is broadly in line with current output by OPEC members, it is substantially higher than the 24.8m bpd cap that the organisation set in late 2008, when the group reduced production levels in response to a collapse in global demand for oil. However, most OPEC members are generally understood to be producing above their official limits. According to a report released by OPEC prior to its meeting in Vienna, output by member states – excluding Iraq, which is not subject to quotas – hit 27.7m bpd in November. Including Iraq, the total amounted to 30.4m bpd.

Kuwait has plans to further increase its output in the future, aiming to reach 4m bpd by 2020. To achieve this goal, however, the country will need to develop its heavy oil deposits, according to Sami Al Rushaid, the chairman of KOC, speaking at a conference in Kuwait City in early December. “To achieve the 4m bpd target, we need to develop our very large heavy oil reserves,” he said. KOC is the state-owned enterprise that manages exploration and production of the country’s oil resources.

Most of the country’s heavy oil reserves are located in its northern fields, which until recently were not seen as commercially viable due to their depth and complexity. With a density between 11 and 18 API, the oil in these fields is heavy and difficult to extract by conventional means. According to Al Rushaid, the company plans to inject steam into the deposits to heat the oil, allowing it to flow into the wells. The initial goal is to produce 60,000 bpd of heavy oil in 2016, increasing to 270,000 bpd by 2030.

KOC may seek assistance from international oil companies to develop its heavy deposits, Al Rushaid said. He added that the company has had discussions in the past with French oil company Total and ExxonMobil, but a final agreement had yet to be reached with either entity.

Development of the country’s heavy oil reserves may be just one part of a much larger investment programme for the hydrocarbons sector. According to Al Busairi’s interview with KUNA, Kuwait plans to invest up to KD76bn ($272.82bn) in the sector by 2030, with projects to include a new domestic refinery, a petrochemicals complex and refinery in China, joint energy projects in Vietnam and a natural gas venture in Australia.

In early December, Ali Al Shammari, the deputy chairman of Kuwait Foreign Petroleum Exploration Company (KUFPEC), told Bloomberg that the company will soon start drilling for crude oil and natural gas in Vietnam. KUFPEC, a unit of the KPC, the state-owned energy company, has had three blocks in Vietnam since 2009 and plans to begin drilling exploration wells in 2012.

KUFPEC is aiming to produce 200,000 barrels of oil equivalent from abroad by 2020, most of which will come from new joint ventures. Besides its operations in Vietnam, the company is investigating opportunities elsewhere, including in North and South America and Europe. In Australia, which is a major focus for the company, according to Al Shammari, KUFPEC owns a 35% stake in a joint venture that is developing two natural gas fields in the west area of Australia’s north shelf.

Kuwait’s efforts to expand exploration and production operations abroad will likely supplement rising output at home, as the country seeks to expand domestic capacity by tapping new sources of oil.