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Kuwait in bid to boost oil and gas output

Five oil giants — Shell, BP, TOTAL, Exxon Mobil and Chevron will bid for the tender to be issued by Kuwait Oil Company for a five-year contract aimed to boost the country’s oil and gas production.

The project, which is to be executed in 2015 for five years, is aimed to increase the daily production of crude oil to 3.65 million barrels and revamp the gas production process, as the country produced 15.6 billion cubic meters of gas in 2013 but consumed 17.8 billion cubic meters, requiring it to import gas.

The Jurassic gas project, which was launched in 2010 in Umm Nigah and Sabriya areas after the Shell Company and KOC signed a technical service agreement, unfortunately did not make any significant progress. The main reasons for the lack of progress were irregularities in the contract, political hindrances and insufficient funding.

Since these gas fields hold reserves of about 991 billion cubic meters, their development is necessary to meet the country’s requirement for gas.

Earlier in 2010, KOC had granted a contract worth $1.5 billion to a Kuwaiti company Kharafi National to construct facilities in those gas fields with the aim of producing 14.4 million cubic meters of gas daily by 2015. Even though a contract was signed with the British company Petrofac in 2012 to handle the construction, procurement and engineering aspects of the project, very little progress was made especially since the contractor was unable to obtain the funding for implementing the project. In addition, political challenges also hindered Shell company’s chances of making faster progress on the project. In 2012, Kuwaiti lawmakers had referred a contact worth $800 million to the Public Prosecution for investigations over alleged contradictions in the agreement.

Kristian Coates-Ulrichsen, from Rice University’s Baker Institute said, “The nature of the relation between the government and opposition has negatively impacted the oil and gas sector of Kuwait. The opposition does not trust the government to perform efficiently. In addition, temporary alliances among political and business interests and senior members of the ruling family complicate the matter and hinder any such contracts”.

Meanwhile, a Gulf energy analyst at Oxford University Justin Dargin said, “Kuwait’s gas sector suffers not only of technical complexity but also political constraints, as the political opposition in the country has made it very difficult for any company to deal with Kuwait even though the current Parliament is considered as pro-government compared to previous Parliaments”.

He added, “Some political groups that are represented in the Parliament are associated with certain commercial entities. When some companies try to benefit from these contracts, other companies try to obstruct them from doing so”.

Regarding LNG imports, Kuwait had signed agreements in 2014 to import 32 LNG shipments each of 80,000 tons per year from Shell, BP and Qatar Gas for meeting the requirements of the local power stations for increased gas supplies.

A senior gas consultant of Wood Mackenzie, Gavin Law said, “Increasing the LNG imports, which is expensive as it costs about $13 to $14 per mmbtu, will result in increasing the electricity tariffs or the subsidies provided to the electricity sector”.

Even though Kuwaiti officials are hopeful that the Jurassic gas project will help meet the country’s future need for gas, Kuwait’s politics will continue to be a hurdle for any company that is considering bidding for KOC’s new consultancy contracts. Considering this aspect, importing LNG seems to be a simpler solution.
Source: Arab Times Online

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