Post the Gulf war Kuwait has seen steady growth in its oil and gas sector. The production quota of almost 1.9 million barrels per day (bpd) was cut down sharply after the burning of oil wells during the war. Today, Kuwait’s estimated proven oil reserve stands at 104 billion barrels and Kuwait harbors about 8% of world’s oil reserves, which ranks it 4th among oil producing countries. It is a notable fact that 95% of the Kuwait government fiscal budget comes from oil revenue, also 80% of the government income and about 52% of the country’s GDP is from the oil sector. The bulk of Kuwait’s oil is located in the Burgan field, south of the capital Kuwait City, and has three oil refineries – Shuaiba, Mina Abdullah and Mina al-Ahmadi with a total refining capacity of approximately 930,000 bpd.
Kuwait Petroleum Corporation (KPC) which is the largest oil company in Kuwait and a state owned entity is responsible for Kuwait’s hydrocarbon interests throughout the world. The company is spearheading a US$340 billion investment master plan to transform the nation’s energy policy. In the next five years, KPC is due to spend US$90 billion on oil and gas projects which is a substantial step in taking the sector forward. It is also pursuing the aggressive capital program to boost government revenues and is looking at reaching a sustained target of 4 million bpd by 2020. With soaring oil revenues and a 15% year-on-year rise in oil receipts in 2012, Kuwait is set to emerge stronger in comparison to other competing oil rich countries in the Middle East.
The oil and gas industry being capital intensive also has its share of challenges for Kuwait; there is an increased need for local exposure and foreign direct investment (FDI). The bane of the Kuwait oil and gas sector is that it is a closed market and is also the hardest market to penetrate. Despite all these factors, the sector has seen a lot of contracts and sustained growth. Going ahead, most of the investments in the sector are likely to be in upstream activities with a scheduled expenditure of over US$-55 billion.
With oil being the top driver of the Kuwait economy, there is a tremendous opportunity hiding behind the veils of a difficult to penetrate market. The scope of FDI multiplies along with increased demand for oil worldwide and Kuwait is fast becoming the fulcrum around which the sector revolves.
The major oil and gas projects in store for Kuwait call for advanced technology. Oil wells in Kuwait need advanced technological support and increased investments in research and development. Such measures can assist Kuwait to arrive at cost effective solutions to tap into the abundant resource and ensure that the perpetual demand is satiated. Currently, Kuwait is in a comfortable situation as it deals with a low fiscal break-even price in oil at US$ 44 per barrel which is even less in comparison to Saudi Arabia at US$ 72 per barrel.
Kuwait has seen increased revenues on the back of soaring oil rates, for example, between April to November 2012 alone the revenues stood at US$ 76.7 billion with 10% increase in oil production. This indicates that there is huge growth potential in this sector.
There is tremendous opportunity for oil and gas investors to capitalize on Kuwait, which is looking for expansion and installing measures to become competitive with the more established Middle East leaders in this sector. FDI is essential for Kuwait to see accelerated growth. Brickwork Sourcing works with global oil and gas companies and has the capability of providing end-to-end sourcing, vendor and supply chain management solutions.
Do you think the Kuwait oil and gas sector is a closed market?