According to Oil & Gas Journal, as of January 2011, Kuwait had an estimated 63 trillion cubic feet (Tcf) of proven natural gas reserves. Kuwait’s reserves are not significant and this has spurred an extensive drive in natural gas exploration. Vast discoveries of non-associated gas in the north of the country attracted interest from international oil companies (IOCs) however unattractive contract structures and political uncertainty remain principal impediments to any rapid expansion of both reserves and production. Additionally, new discoveries are geologically more complex, being mainly tight and sour gas deposits which require more sophisticated and costly development.
As in the oil sector, all of the natural gas resources are owned by the Kuwait Petroleum Corporation (KPC). The Kuwaiti constitution prohibits any use of production-sharing agreements (PSAs) that allow for an equity stake by an IOC in development projects. Therefore, Kuwait is using technical service agreements (TSAs) in order to bring in IOCs to develop more difficult projects. In February 2010, Shell signed an enhanced technical service agreement (ETSA) for the 2006 natural gas discoveries in the north, known as the Jurassic fields, amounting to 35 Tcf of reserves in place, the nature of which are too sour for local firms to develop.
Exploration and Production
In 2010, Kuwait produced 1.17 billion cubic feet per day (Bcf/d) of natural gas. This volume was an increase of around 8 percent compared with 2009. Given the predominance of associated natural gas in Kuwaiti production, domestic natural gas supplies decreased as a result of lower OPEC crude production quotas. Kuwait increasingly requires supplies of natural gas for the generation of electricity, water desalination, and petrochemicals, as well as increased use for enhanced oil recovery (EOR) techniques to boost oil production. Kuwait is shifting its exploration drive in order to focus on natural gas discoveries to mitigate imports of liquefied natural gas (LNG) and decrease the proportion of oil used domestically. KOC has announced a production target of 4 Bcf/d by 2030, about four times the current production level.
Associated natural gas production makes up the vast majority of Kuwait’s overall production. In 2010, approximately 1 billion cubic feet per day (Bcf/d) was produced from associated gas, while non-associated gas production amounted to only 150-200 million cubic feet per day (MMcf/d). Production of non-associated natural gas from the north is seen as the most promising future source of natural gas production growth. Given Kuwait’s fiscal and political climate, not much progress has been made in exploring the mainly offshore prospects, leaving Kuwait to focus on its natural gas discoveries in the north.
The Jurassic non-associated gas field was discovered in 2006, with an estimated 35 Tcf of reserves. This project has been described as the most difficult in the world, for its geologic composition and the technical complexities that this presents. A first phase envisioned 175 MMcf/d and 50,000 bbl/d of condensate by 2008 however it seems to have reached a production plateau at 140 MMcf/d. The second phase is being constructed by Kharufi National and Saipem with a projected capacity of 500 MMcf/d due to come online by 2013. Original development plans of Jurassic forecast production of 600 MMcf/d by 2012 and 1 Bcf/d and 350,000 bbl/d of light crude or condensate, the classification of which is still undetermined, by 2015, although industry experts see this as unlikely, if not impossible at this point. Shell has been developing the Jurassic project through its 2010 ETSA.
The other prospect for non-associated natural gas production is the Dorra gas field offshore PNZ. This field is shared by Kuwait, Saudi Arabia, and Iran, which calls the field Arash. Kuwait and Saudi Arabia have already announced plans to begin production at Dorra by 2017, providing an additional 500-800 MMcf/d. Iran, in response, has indicated that it will develop its own side of the field in the near future. Political tensions between the Gulf States and Iran are at their highest in recent history, which will preclude any near-term settlement of mutual development.
Kuwait is also expanding its gas processing infrastructure in order to meet rising domestic demand. Daelim of South Korea is currently constructing Kuwait’s fourth gas processing plant, its largest to date at 800 MMcf/d. This unit will be on the site of the Ahmadi refinery and give Kuwait a gas processing capacity of 2.3 Bcf/d by 2013. A fifth train, the same size as the fourth is also in the planning stages, taking potential capacity over 3 Bcf/d. However, neither the current production plans nor the expansion of processing facilities is expected to meet the growing levels of domestic demand.
Consumption and Imports
In 2010, Kuwait consumed approximately 529 Bcf of natural gas, which is equal to 1.45 Bcf/d. Since 2008, Kuwait has consumed more natural gas than it has produced. This has compounded the problem of electricity outages by making the availability of feedstock precarious. As such, Kuwait has had to resort to imports of liquefied natural gas (LNG) to make up for this supply gap. In 2010, Kuwait imported 270 MMcf/d of LNG, largely from regional neighbors, Yemen and Oman. Re-exports of LNG from Qatar via Abu Dhabi were also necessary, as Saudi Arabia disallowed a pipeline directly linking Kuwait with Qatar three years ago. Kuwait’s electricity demand, the generation of which is fueled increasingly by natural gas, has outpaced natural gas production during the summer months, resulting in the shutdown of refinery and petrochemical operations to meet the increased demand of electricity.
In June 2009, Kuwait signed a deal with Shell to import LNG, receiving the first cargo in August 2009. KPC made another deal with international energy trading firm, Vitol, in April 2010, which will supply Kuwait with LNG cargoes through 2013. Kuwait takes delivery of the LNG at the Persian Gulf’s first regasification terminal, Mina al-Ahmadi GasPort. The regasification capacity of al-Ahmadi is approximately 500MMcf/d of LNG. A study is expected to be completed by the end of 2011 to explore the need for permanent LNG import facilities and expanding the current LNG import volumes.
Kuwait has also recently exhibited interest in supplies from the impending natural gas project in Southern Iraq. Royal Dutch Shell, Mitsubishi and Iraqi state-owned Southern Oil Company (SOC) are developing infrastructure to gather associated natural gas from Iraq’s southern oil fields. A potential pipeline from Iran’s South Pars gas fields has been placed on hold, as political considerations make the project less likely. These prospective imports would still not mitigate the need for continued LNG imports.