Japan set for cooperation scheme with Kuwait to help boost oil production

Japan is set to sign March 31 an energy cooperation deal with Kuwait, including providing insurance for $1 billion in finance to help the Middle East oil producer boost its oil production, a Japanese government source told S&P Global Commodity Insights March 30.

Japan’s Nippon Export and Investment Insurance will sign a memorandum of cooperation with Kuwait Petroleum Corp. during an online bilateral meeting between Japanese Minister of Economy, Trade and Industry Koichi Hagiuda and Kuwaiti Deputy Prime Minister and Oil Minister Mohammed al Fares over 0700-0720 GMT March 31, just hours ahead of the OPEC+ meeting.

The move will come as part of Japan’s serialized efforts to request major oil producing countries, particularly in the Middle East, to contribute to stabilizing the global crude oil market by boosting production amid Russia’s invasion of Ukraine, the source said.

The latest development comes after Japanese Prime Minister Fumio Kishida recently had “an intense discussion on countermeasures against oil price increases” with Saudi Arabia’s Crown Prince Mohammed bin Salman March 17.

Kuwait pumped 2.60 million b/d of crude in February, according to the latest Platts survey of OPEC+ production by S&P Global. However, the Gulf state is quickly running out of further production capacity.

S&P Global’s Platts Analytics estimates the country has under 40,000 b/d of output upside remaining. There is some additional potential in the Neutral Zone, but so far technical problems have prevented a full ramp-up there to pre-shutdown levels.

Overall, Kuwait’s oil sector has been plagued by political instability and frequent turnover at the oil ministry and state-owned oil companies. This has led to delays in projects, including in reinvigorating its giant, aging Burgan field whose capacity continues to decline. Many of the fields where new growth could come from are geologically complex and will require significant technical expertise and investment to develop.

Kuwait deal
Under the memorandum, NEXI will provide the insurance for the $1 billion in finance to be signed by Japanese mega-banks and Western banks in the next few days to help KPC boost its oil production as well as its work on decarbonization technology as part of energy cooperation, the source said.

The memorandum will also explore Japanese companies’ business opportunities and participation in the area of energy and decarbonization in Kuwait, as well as consider exporting Japanese equipment and plants such as for LNG, the source said.

Kuwait was the third-largest crude oil supplier to Japan after Saudi Arabia and the UAE in 2021, accounting for 8.5% of the total oil imports of 2.49 million b/d, according to METI data.
In December 2020, METI signed an agreement with KPC to lease out 500,000 kiloliters, or 3.14 million barrels, of oil storage capacity at Kiire in southwest Japan for commercial purposes in exchange for prioritizing supply to Japan in the event of an emergency.

The agreement with KPC increased Japan’s leased oil storage capacity to the three Middle East producers to 3.1 million kiloliters, or 19.5 million barrels, with Saudi Aramco and Abu Dhabi National Oil Company each holding 1.3 million kiloliters, or 8.2 million barrels, of capacity.
Source: Platts