CERAWEEK: Kuwait Petroleum plans offshore oil exploration for first time

Kuwait Petroleum Corp. is planning to move offshore in the Persian Gulf for the first time and will seek help from international oil majors, the company's CEO said March 19, as the country aims to boost its flagging production capacity.

"We're looking at a new model to bring expertise from around the world," said Sheikh Nawaf al-Sabah, speaking at the CERAWeek by S&P Global conference.

Kuwait, which holds the world's seventh largest crude reserves, is currently producing below 3 million b/d capacity because of OPEC+ cuts but is seeking to expand to more than 4 million b/d, Sabah said, adding the emirate had lifting costs onshore of $10/b. The country pumped 2.44 million b/d in February, slightly above its quota, according to the latest Platts survey by S&P Global Commodity Insights.

In October, state-owned KPC unveiled its latest strategy with plans to hit 4 million b/d of capacity by 2035 and 2 Bcf/d of non-associated gas by 2040. The capacity additions are to come from its domestic fields, as well as the Neutral Zone it shares with Saudi Arabia.

Reaching those goals will require significant investments, with the country's main producing field, the Greater Burgan, facing natural decline, while other fields are proving technologically challenging to develop.

In the Neutral Zone, operational challenges have hampered plans to expand operations, which were restarted in 2020 after a hiatus of more than four years due to a political dispute with Saudi Arabia.

That dispute has now largely been settled, but competing claims on the offshore Durra gas field by Iran, which calls the reservoir Arash, have now reemerged, with Tehran saying in September that it would begin drilling there.

S&P Global previously reported that Kuwait and Saudi Arabia are expected to complete a pre front-end engineering and design study for the Durra field by the fourth quarter. The field is estimated to hold 20 trillion cubic feet (567 Bcm) of gas.

Durra "will be developed jointly between us and Saudi Arabia," Sabah said. "We are in the ... front end engineering and design stage of that process. We should be finishing that in the next few months and will take a final investment decision to start building ... moving on to development of that field."

Red Sea tensions

Sabah added that KPC had been forced to divert cargoes around the Cape of Good Hope because of attacks in the Red Sea and had started to swap some cargoes with counterparties between regions as a consequence of the disruption. He added that Kuwait Petroleum had also given its tanker captains "autonomy" on whether to sail into the Red Sea.

Iranian-backed Houthi militia have since October been targeting vessels transiting the southern Red Sea and the Gulf of Aden, in stated solidarity with Palestine in the Israel-Hamas war.

Further highlighting the geopolitical risks to Kuwait, on March 6, an Iranian court ordered the country's authorities to seize an estimated $50 million Kuwaiti oil cargo from a previously captured tanker, the Marshall Islands-flagged Advantage Sweet. The tanker, which had been chartered by Chevron and loaded Kuwaiti crude from Kuwait's Mina Saud port, was impounded by Iran's navy in April 2023, bound for Houston.

As for the energy transition, Sabah, who is a member of Kuwait's ruling family, said the emirate was acutely aware of the need to diversify its economy away from economic dependence on hydrocarbons. Kuwait relies on hydrocarbon revenues for some 90% of its government budget and has seen its Gulf neighbors Saudi Arabia and the UAE launch aggressive pushes into LNG, hydrogen and renewables, while using their oil revenues to expand their non-oil economic sectors.

Kuwait has yet to unveil similar strategies, with KPC's October strategy overhaul including consideration of green hydrogen, second-generation biofuels, renewables and carbon offsetting, among other greening measures, but without specific plans or timelines.

"Do not rely on the oil industry to continue to fund state budgets," Sabah said.