Why is gas vital to Kuwait?

The country of Kuwait isn't normally one that you associate with gas, in that this energy powerhouse is known for having the world's fourth-largest oil reserves, but not for being an importer of gas. So why is the discovery and development of its domestic gas resources of vital importance to the country as it looks to not only secure its foreign account balance, but fulfil its growing domestic utility needs with a cleaner and more efficient alternative to oil?

It's estimated that Kuwait holds eight percent of the global oil reserves, and according to the BP Statistical Review of World Energy 2009, produces around 2.78 million barrels per day - roughly accounting for 3.5 percent of global production. But despite the fact it produces 140 million cu feet per day (cfdp), this figure isn't enough to cover what it needs locally.

Kuwait is also one of the world's largest per-capita consumers of electricity, especially in summer months when demand soars. It is expected that during the peak demand period of 1 April to late October of this year, Kuwait will be importing liquefied natural gas from global companies at a rate of 500,000 cfpd, Global Arab Network reports.

Northern fields extraction

In 2005, an estimated 35 trillion cf of non-associated gas was discovered in the country's northern fields. Despite this find five years ago, very little extraction has taken place. The field contains gas with high concentrations of toxic and corrosive hydrogen sulphur, and are considered technically challenging to manage. In February, the country reached a deal with Royal Dutch Shell, valued at an estimated US$700 million, to enable the energy giant to provide expertise and technology to help tap the reservoirs. The five-year "technical services contract" could ultimately see the output from several northern gas fields reach one billion cfpd.

The move is not only considered a landmark deal in that not only will it provide a significant boost to the country's domestic utilities capacity, but it also signals a move towards greater collaboration and participation of international oil companies (IOCs) in the country's upstream activity.

With operating oil fields maturing and newly discovered oil and gas reserves requiring enhanced recovery techniques, Kuwait is considered to be behind its production potential, partly as a result of a clause that bars foreign ownership of hydrocarbon resources.

Gas future

Speaking in an interview with Marcopolis.net, where he was asked 'Are you going to play a major role in the future as a major exporter of gas or will you only cater to your domestic needs and power generation?' Kuwait Oil and Gas, Kuwait Oil Company (KOC), Chairman and Managing Director, Sami Al Rushaid said, "Realistically i think it will only cater to our domestic needs although we have been making discoveries and have undertaken a major aggressive exploration program to go after deep gas reserves. We are very optimistic we will be able to find additional reservoirs of gas, however. Although I don't think we will become major exporters, we are exporting LPG extracted from natural gas in small amounts and this will increase as we increase our production."

Asked about his worries for the future, Rushaid said, "The major challenge that we have is gas. We see the energy demand in Kuwait rapidly increasing and the gas has great value for the country. During peak demand time in the summer due to power consumption we are importing energy and this is a concern. Additionally, it is cleaner for the environment than the fuel we are burning and also, in the non associated gas production we are not limited by OPEC and we can produce what we want to produce. We can replace the oil that is burned and consumed by power plants to free it for export."

At present, there has been no indication of the new gas capacity that could come online being allocated to exports. Instead, it will most likely all be consumed domestically for electricity generation, water desalination and as feedstock to the country's industrial sector - in particular, the petrochemicals sector.

Ahmed Mouti, the chairman and managing director for Shell Kuwait said, "If more gas is produced domestically, not only will this reduce the need for costly imports required to meet local electricity demand, but it can help grow the local petrochemicals industry, which will serve as a critical diversification effort for the country by providing a value-added export revenue stream."

With oil revenues accounting for nearly 90 percent of the national treasury, many point to the advancement of the petrochemicals sector as a logical and viable means for the country to increase its industrial base and diversify its dependence on oil exports for future income generation.

 

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