Top oil exporter Saudi Arabia will go it alone in boosting the capacity of an offshore oil field in its shared neutral zone with Kuwait after the neighboring Persian Gulf state withdrew from the project due to political deadlock between parliament and the government, two people familiar with the matter said.
Top oil exporter Saudi Arabia will go it alone in boosting the capacity
of an offshore oil field in its shared neutral zone with Kuwait after the
neighboring Persian Gulf state withdrew from the project due to political
deadlock between parliament and the government, two people familiar with the
matter said.
Kuwait
had
initially told Khafji Joint Operations, the joint venture that oversees and
develops the operations at the neutral zone, that it would participate in the
Khafji offshore project, but later pulled out due to political troubles in the
country, the people said.
"
Kuwait
has
several problems between its parliament and the government that are causing
delays in several projects including Khafji, which is not a top priority for
the government at the moment," said one person familiar with the matter.
"No official wanted to make a decision on sharing the costs of the project
and get questioned later by the parliament for one reason or another, so they
pulled out," the person said.
Khafji produces 300,000 barrels a day and is an extension of
Saudi
Arabia
's Safaniya field, the world's
largest offshore oil field, which produces around 1.3 million barrels a day. KJO,
set up by Aramco Gulf Operations, a subsidiary of state oil giant Saudi Aramco,
and Kuwait Gulf Oil Co., plans to increase Khafji production capacity to
400,000 barrels a day by 2019 under a $7 billion development plan that will
bring online other oil and gas fields in the neutral zone.
"
Kuwait
will
not take a share of the incremental production since they did not share the
costs of Khafji's development," a Saudi official said.
Saudi Aramco declined to comment. Officials at KJO and Kuwait Gulf Oil Co.
didn't return requests for comment.
This year, Saudi Arabia and Kuwait, both members of the Organization of the
Petroleum Exporting Countries, shelved their project to develop the Dorra
offshore gas field in the neutral zone after disagreeing over how to share the
gas back on land. The field is estimated to hold 35 trillion to 60 trillion
cubic feet of gas, according to Saudi Aramco.
Kuwait-based oil analyst Kamel Al Harami said Kuwait's withdrawal from Khafji
would mean that the Gulf state won't meet its crude-oil production target of
four million barrels a day by 2020, "as the neutral zone is a key
component in its plan."
"Other projects also face delay...but perhaps failing to meet the target
is not a bad thing since there is a lot of extra capacity expected to come on
stream from OPEC and non-OPEC members in the future," Mr. Harami said.
Kuwait
has a
production capacity of around 3.2 million barrels a day and has recently said
it is producing at similar levels, which are higher than the 2.9 million
barrels estimated by Gulf-based analysts.
In the past several years, however, disputes between the Gulf state's cabinet,
which is led by a prime minister appointed by the ruling emir, and the
parliament, which has greater say than in neighboring Arab monarchies, have
crimped development in its energy sector.
The country recently shuffled the ministers in its cabinet, the 12th such move
since 2006, following parliamentary elections in July that were boycotted by
the Islamist, nationalist and liberal opposition.
People familiar with the matter had already told The Wall Street Journal in
October that
Kuwait
would
miss its production target and might be able to add only 500,000 or 600,000
barrels a day by 2020. Those estimates assumed
Kuwait
would
help to expand capacity at Khafji.
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