Kuwait: The Transformation Game

Kuwait’s first commercial production of oil began in 1946, some 65 years ago. Up until 1990, its production had been dominated by a few reservoirs. Burgan Al Kabeer Field (Greater Burgan) had the biggest share of the total production reaching 70-80 percent.

At that time, all its production was natural flow, water free and average oil rate per well was significantly high. Reserve to production ratio was exceptionally high. In addition, Capital Investment and Operating Cost during that time were relatively low considering the high incremental production which reached almost 4 million barrels of oil per day (bopd) at one time.

However, such luxury and blessing can’t continue forever. Over the past 20 years, and following the Iraqi invasion, Kuwait Petroleum Corporation (KPC) has exerted much effort to re-shape the oil sector to get ready for the future.

As the era of easy oil is drawing to a close, Kuwait seems to be ready for the next phase and have already started to plan for tapping the development of difficult reservoirs as well unconventional resources in the country.

“Talking about the contribution of easy oil is decreasing, and tougher to find and difficult oil is increasing,” said Sami Al Rushaid, chairman and managing director, Kuwait Oil Company (KOC).

Kuwait is currently the fourth-largest oil exporter in the world, with its population of 5 million consuming only 10 percent of its oil domestically, and is now pushing at the limit of its production capacity. By 2020, Kuwait hopes to have production capacity of 4 million bopd, and has already announced a series of ambitious projects to make this happen.

“Our investment plans are strong and schedule to deliver this capacity, and most of the growth is coming from primary and secondary recovery schemes in easy to medium complexity reservoirs,” said Al Rushaid. “However, it is our strategy to not over exploits our easy oil, we plan to create a more [manageable] transition to the more difficult oil structure,” he added.

This means that Kuwait is entering the more difficult unconventional arena, much earlier than needed, as it still has some easy-to-find fields.

“But this will allow the country to create an organic growth in capability and skills within the company,” Al Rushaid said.

Kuwait’s energy transformation to difficult to extract and unconventional hydrocarbon will come mainly from heavy oil recovery, deep sour gas and enhanced oil recovery.

In this regards, Kuwait is well advanced in producing deep hot sour gas and also beginning to experience heavy oil recovery, both of these activities are taking place in the North Kuwait Reservoir.

“We are also fast tracking the evaluation of [enhanced oil recovery] technique to use it in our fields,” said Al Rushaid.

Kuwait is also working on developing associated services and products to better serve the industry.

“We are not just facilities injection, production and treatment of the last drop of oil, but we are also trying to provide required chemicals of extraction, the logistical challenge of their application in massive quantities for our giant fields.”

More gas please

While Kuwait is not on the rush to immediately develop its unconventional and difficult oil reservoirs, the country needs to take a swift action to meet the increasing domestic demand on gas.

“The need now is mainly for the gas, therefore, we will be starting on developing shale gas,” said Al Rushaid. “We have – it’s called the ‘Kerogen’ and that is the area we intend to develop with shale, that is our intention and hopefully we’ll do that soon,” Al Rushaid said during the Middle East Oil and Gas Show (MEOS), which was held in Bahrain early this year.

KOC is also developing high pressure and high temperature (HPHT) Jurassic sour gas fields as part of its effort to meet the local demand. These deep exploration wells present some of the most challenging drilling conditions currently known.

The country has capital investment projects to reach self-sufficiency in gas. These investments aim to increase free gas production capacity to 1 billion cubic feet per day (Bcf/d)by 2016.

Currently, the north’s Jurassic gas fields, Umm Niga and Sabriyah, produce a total of 50,000 barrels per day of light oil and condensate mixed with 140 million cubic feet per day (ft3/d) of sour gas.

KOC is relying on exploration to find fields that will produce a total of 1billion ft3/d of gas, to be able to achieve its target of 4 (Bcf/d) by 2020, this includes a 2.5Bcf/d of non-associated gas.

The Jurassic fields’ final target is 1billion ft3/d by 2016. Dorra is expected to produce 500 million ft3/d by 2017. The associated gas target is 1.5 billion ft3/d – up from the current 1.3 billion ft3/d.

But the Shell’s 1 billion ft3/d Jurassic Gas Project in Kuwait is facing more delays, as the local parliament is investigating Shell’s $800 million enhanced technical services agreement (ETSA), looking into whether state-owned KOC overstepped its authority in issuing the consultancy contract to help develop the 1 billion ft3/d Jurassic gas project in the northern fields of Umm Niga and Sabriya and if Shell has operational control.

Under the contract signed between Shell and KOC, Shell was to deploy technical experts to Kuwait to support KOC in its management of the ongoing development of the Jurassic Gas fields. This project is both complicated and challenging, due to unconventional geological formations, difficult reservoir conditions and complex gas compositions.

Political meddling

Kuwait’s attractiveness as a destination for foreign investment in the energy sector is often opposed by the meddling of local parliament that causes the country huge losses. In December 2008, the Supreme Petroleum Council (SPC) decided to reverse its prior approval of the agreement between Dow Chemical and Petrochemical Industries Company (PIC) to enter into the $17 billion K-Dow Petrochemicals 50/50 joint venture. In May 2012, the International Court of Arbitration of the International Chamber of Commerce (ICC) award held that PIC was liable for the fudged merger, and awarded damages to Dow of $2.16 billion.

But things seem to be changing in the country, since the opposition boycott of Kuwait’s last elections means the new parliament is more pro-government than its predecessor. This can be easily noticed through the progress of the $16 billion Clean Fuels project, a large scale initiative to upgrade Kuwait’s Mina Abdullah and Mina Al-Ahmadi refineries, which is progressing very well.

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