Prior to the 20th century, Kuwait’s merchants and pearl divers leveraged the country’s location to offer their wares on trade flows connecting British India with the Ottoman Empire’s Arabic-speaking realms. The 1938 discovery of oil in the Burgan field did not disrupt those trade flows but replaced their cargoes with oil, which became the country’s strongest economic driver. While government planners aim to diversify Kuwait’s economy, oil is still king. Even after oil and gas prices tumbled in mid-2014, non-oil exports still only make up just over 10% of the country’s total, according to the IMF.

A founding member of the Organisation of the Petroleum Exporting Countries (OPEC), Kuwait and other members together hold just over 80% of the world’s proven oil reserves. Kuwait has 101.5bn barrels, or 6% of those reserves, according to BP’s “Statistical Review of World Energy 2015”.

After the Second World War the country’s role in newly global energy markets gradually increased, with production growing to 1m by 1955. Following independence in 1961, the country spent two decades bringing its energy resources under the government’s purview by acquiring shares in oil operations. In 1980 the authorities founded Kuwait Petroleum Corporation (KPC) to bring all state-owned oil operations under a single organisation. In the resulting structure, KPC manages the sector through its subsidiaries, which handle upstream, downstream, transport and petrochemicals operations.

Global Environment

Low oil prices have been a defining feature of global energy markets since mid-2014. Prices had been relatively stable at around $105 per barrel before plunging to less than $60 in 2014 and under $40 in 2015. A combination of factors led to the price collapse, including unforeseen upward trends in unconventional supplies such as US shale oil, changing policies within OPEC, weakening global demand and a stronger US dollar, according to a World Bank report published in March 2015. In April 2016 OPEC members met in Doha to discuss implementing tighter supply controls to address the glut, but the meeting did not produce any such agreement, decreasing the likelihood that coordinated action among the world’s largest producers will shore up prices in the short term. Some predict that the glut will sort itself out. Falling production and rising demand could reduce the global surplus of crude to 200,000 barrels per day (bpd) in the second half of 2016, down from 1.5m bpd in the first half of the year, according to the International Energy Agency (IEA).

Stakeholders’ desire to raise output has been a defining feature in Kuwait in recent years. The government and various state agencies have coordinated action with global partners to increase the country’s oil production. The authorities want to raise it to 4m bpd by 2020, up from an average of 3.1m bpd between 2012 and 2014, according to BP’s “Global Energy Statistics 2015” report.

Staying The Course

Given the current price environment, moving ahead with major oil investments may at first seem counter-intuitive. However, investing now could offer several important benefits for the country’s energy industry. First, the projects that are under way are not producing for today’s price environment, or even for tomorrow’s, but for markets up to five years away, when projects are complete. Second, even if oil prices stay low after these projects are complete, investments in expanded production could still give the energy industry more flexibility, as it would be able to export not only crude but also various downstream products, which can help sustain margins even when prices are low. Finally, Kuwait is perhaps best suited among OPEC members to weather low prices. With one of the lowest fiscal breakeven prices and largest fiscal buffers in the region in 2015, according to the IMF, Kuwait has more flexibility than nearly all other petroleum exporters.

Major Players

A wide array of stakeholders steer the sector’s development. The Supreme Petroleum Council (SPC) leads oil-related decision-making. Sitting on the council are the ministers of finance, oil, foreign affairs, and commerce and industry, along with the state minister for cabinet affairs, according to the SPC’s founding decree. The body meets quarterly to set the policies that will guide the petroleum industry’s development, making decisions about exploration, drilling, storage, refining and marketing. The Ministry of Oil, meanwhile, supervises the implementation of these policies and the direction of investments by KPC and its various subsidiaries.

In light of lower oil prices, KPC has been reducing expenditure and cutting back on less-profitable operations. “Low oil prices have been a prominent feature of the market since the second half of 2014, and could stay lower for longer,” Nizar Al Adsani, the CEO of KPC, told an energy conference in January 2016. Still, as the company engages in streamlining, it is also doubling down on projects it believes will increase profitability and flexibility in the future. Major projects ahead include the KD3.7bn ($12.2bn) Clean Fuels project, a KD1bn ($3.3bn) liquefied natural gas (LNG) import and regasification terminal, a KD2.12bn ($7bn) Olefins III plant in the Al Zour Refinery, KD1.2bn ($4bn) for heavy oil development in the Lower Fars fields, and a KD1.7bn ($5.6bn) contract for non-associated gas reserve development expected in 2016.

As it invests in its core businesses, KPC is also tweaking the ways it raises money for these investments. The company recognises that lower prices have changed its own fiscal flows, and is taking steps to diversify funding sources with instruments like bonds and sukuk (Islamic bonds). In addition to providing cash, drawing on bond markets could also prompt major international credit agencies to give the firm an investment rating, Al Adsani said in January 2016. His statement came just after the company signed a memorandum of understanding with two South Korean credit agencies, K-sure and Koexim, paving the way for $11bn in financing for upstream, downstream and distribution projects.

In addition, the KPC and the relevant authorities are creating more incentives for foreign investors to participate in expanding the sector. International oil companies (IOCs) can provide not only upfront capital but also expertise to allow the country to exploit its more difficult-to-extract reserves. Kuwait’s constitution bans foreign ownership of natural resources, including oil, however. As a result, the industry cannot draw on production-sharing agreements (PSAs) that are the standard elsewhere. With PSAs, IOCs win the right to execute an exploration and extraction contract from a national government. Once the desired field is produced, the IOC recovers its costs with a portion of the oil produced and splits the remainder with the national government as revenue. Instead of PSAs, Kuwait’s oil industry relies on other agreement structures that do not require concessions. These include the incentivised buy-back contract and enhanced technical service agreements (ETSAs), both of which could facilitate more IOC involvement.

According to Baraa Abdulaziz Al Jenae, Chairman of Petrogulf, an oil and gas industry service provider, the entry of international players is not likely to majorly diminish industry demand. “Given Kuwait’s drive to increase oil production by 44% before 2020, a wave of rig tenders has ensued, attracting strong interest from both local and international operators”, Al Jenae told OBG. “Recent years have seen global operators such as the Chinese exponentially increase their drilling services in Kuwait, but demand remains high, ensuring an even playing field for new tenders”.

Current Production Sites

Kuwait’s onshore oil-producing regions are many, but can be sub-divided by geographic area: Greater Burgan, Lower Fars and the Partitioned Neutral Zone (PNZ). The south-east of Kuwait hosts the Greater Burgan field, thought to be the world’s second-largest onshore oilfield after Ghawar in Saudi Arabia. The area, which includes the Burgan, Magwa and Ahmadi oil resources, has been the core production centre of Kuwaiti oil for decades, with average production in recent years between 1.1m and 1.3m bpd, according to a 2014 report from the US Energy Information Agency (EIA). Greater Burgan mostly produces crude of the medium to light grades, which do not require as much refining as their heavier counterparts. These mature fields reached peak production of 1.7m bpd in 2005, according to KOC, however, prompting the company to begin drawing on enhanced oil recovery (EOR) techniques to extract deeper, heavier reserves.

The north of the country holds the Lower Fars deposits, Kuwait’s largest reserves outside of the Burgan area. The Raudhatain field and the adjacent Sabriya field have capacities of 450,000 and 100,000 bpd, respectively, according to the EIA. A 2006 discovery in the Sabriya and Umm Niqa areas, meanwhile, contributed a further 20bn-25bn barrels to the country’s reserves. However, these new discoveries are also largely made up of heavier, sour grades that are likely to require more technically challenging, and thus more costly, extraction and refining techniques.

Finally, in the south-east, Kuwait shares oil reserves with neighbouring Saudi Arabia. The Kuwaiti-Saudi boundary in the area had not been clearly defined until the oil discoveries piqued the interest of both governments. Key sites include the onshore Wafra and offshore Khafji fields, whose combined capacity exceeds 500,000 bpd. As shared fields, production requires the consent of both governments. Production came to a halt at Khafji in 2014 and Wafra in 2015, although Kuwaiti officials have said they are working with their Saudi counterparts to resume output.

Untapped Potential

While onshore reserves have been central to oil production in Kuwait, officials are also keen to explore offshore areas. Exploration operations are planned for March 2017, Jamal Jaafar, CEO of Kuwait Oil Company (KOC), said at the April 2016 Kuwait Oil and Gas Conference in Kuwait City. “We are going to start drilling next year,” Jaafar told delegates. “We have finished the seismic and data interpretation [work]. We are currently identifying where we need to drill. We have six potential areas where we are going to start delineation in 2017.” The programme aims to search for reserves between the surface and Palaeozoic formations at depths of 300-7300 metres, KOC representatives told local media. Exploration was initially set to begin in 2016, but oil prices prompted KOC to hold off for a year. The delay could turn out to be a blessing. Lower oil prices have dampened demand for rigs, reducing their prices and therefore the exploration programme’s anticipated cost, which was estimated at $1bn-1.5bn in 2014, Interfax news agency reported.

The shift in focus to offshore reserves demonstrates a broader strategy of drawing on as yet untapped reserves in a bid to boost output. Given that the country’s oil and gas industry has more experience with onshore oil than with offshore gas, any findings would likely prompt officials to seek an IOC partner to expedite and streamline the development of any discoveries, said Hosnia Hashim, vice-president for operations at KPC subsidiary Kuwait Foreign Petroleum Exploration Company (KUFPEC). Gas makes up 60% of KUFPEC’s foreign investment portfolio, and the firm has successfully used new technologies to lower extraction costs for offshore developments. These technologies, Hashim said, could be useful for Kuwait as it invests in offshore developments.

Refined Products

Lower oil prices do not affect downstream services in the same way that they affect upstream production. As they are not providing a raw commodity but a finished product, downstream services can to some extent maintain their existing margins on the refined goods they sell.

Kuwait National Petroleum Company (KNPC), the downstream subsidiary of KPC, has three refineries: Shuaiba, Mina Abdullah and Mina Al Ahmadi. Shuaiba, built in 1968, is the smallest of the three. Its crude distillation unit has a capacity of 200,000 bpd, but following a fire in August 2015, it began operating a reduced capacity of around 120,000 bpd.

The refinery is set to close permanently by April 2017, a company spokesperson said in November 2015. Mina Abdullah Refinery, built in 1958 but significantly expanded in 1988, has two crude distillation units with a total processing capacity of 270,000 bpd.

Mina Al Ahmadi Refinery, meanwhile, is the largest of three. Built in 1949 but continually upgraded and expanded through 2002, the refinery has three crude distillation units with a combined production capacity of 466,000 bpd, according to KNPC.

Recent years have seen renewed focus on refining and other downstream investments. Refinery upgrades will likely be necessary in order to tap into more of the country’s heavy oil reserves in a bid to reach the government’s production expansion goals. Indeed, as fields producing lighter, sweeter crude continue to mature, stakeholders are turning to the country’s northern fields, which hold significant amounts of heavier, sour grades. As these types of petroleum require greater amounts of time and technically difficult refining, a series of investments are under way in order to expand and upgrade Kuwait’s existing refining and distribution facilities.

Keeping Up To Date

To that end, upgrades to existing refinery stock, such as a revamp of sulphur-handling facilities at Mina Al Ahmadi, will likely be crucial. KNPC awarded the $514m contract for this project to South Korea’s Daelim Industrial in May 2013. The new facilities are set to increase both the amount of sulphur the refinery can handle and the size of ships that can be loaded with sulphur, and speed up transfer times from plant to ship. KNPC expects the project to be finished by the end of 2016. The firm is also working to upgrade its Mina Abdulla and Mina Al Ahmadi refineries to expand and improve the quality of production. The Clean Fuels project, with a budget of KD4.7bn ($15.5bn), is scheduled for completion in mid-2018. The upgrades are set to raise the two refineries’ combined capacity from 736,000 to 800,000 bpd and lower their petroleum products’ sulphur content. These refining techniques’ ability to remove sulphur and other impurities could enable Kuwaiti downstream industries to produce products that meet higher European standards.

The industry is also working to bring new refining capacity on-line in the form of the Al Zour refinery. The SPC gave KPC and KNPC the green light for the Al Zour project in February 2012. In October 2015 KNPC awarded a KD1.3bn ($4.3bn) contract to a consortium that includes Spain-based Técnicas Reunidas, China’s Sinopec and the South Korea-based company Hanwha Engineering and Construction. Upon completion in July 2019, the project is set to refine 615,000 bpd. This will raise total capacity to 1.4m, KNPC’s CEO, Mohammad Ghazi Al Mutairi, said.


Kuwait’s energy industry has revolved around the country’s oil reserves, but that formula is slowly changing, with a combination of factors driving the shift. First, domestic consumption of gas, which provides electricity and freshwater supplies, has continued to grow with the expanding population. In 2009 Kuwaiti gas consumption began to outpace production growth, according to BP. Between 2009 and 2014, the difference between Kuwait’s natural gas production and consumption averaged 2.67bn cu metres per year, although the gap has steadily widened, from 0.9bn to 3.7bn cu metres per year.

Second, in addition to powering electricity and freshwater production, natural gas is also important for powering the country’s growing industries like refining, petrochemicals and other industrial ventures. Developments on these fronts could add flexibility to the oil and gas sector. Prior to the early 2000s, Kuwait’s gas production depended on its OPEC production cap, as gas supplies were in associated reserves, meaning that gas extraction required oil extraction. The 2006 discovery of non-associated gas reserves, however, freed the industry from this limitation, allowing it to extract gas resources from Jurassic reservoirs Rahiya, Mutriba and Umm Niga. Total natural gas production in the country climbed from 12.5bn to 16.4bn cu metres between 2006 and 2014, according to BP’s “Statistical Review of World Energy 2015”. While officials are optimistic, they have also revised their expectations for boosting gas output. “We are not going to see 1bn cu ft per day by 2020 – hopefully by 2022. By that time the new facilities will be ready to produce,” Jaafar said in April 2016. Still, there have been more optimistic signs recently. KPC is set to sign three agreements using the ETSA framework by the end of 2016, Jaafar said, which should give onshore oil and gas a boost.

Thermal Power

Kuwait relies on natural gas for power generation, which is critical both for electricity and freshwater production. Demand for electricity – and therefore LNG – tends to rise between March and November, when the use of power-hungry climate control peaks. Average temperatures climb to 30-40°C and as high as 51°C during these months, according to the Meteorological Department of Kuwait’s Directorate General of Civil Aviation.

To address the gap in supply and demand, KPC has inked import agreements with global suppliers. In March and April of 2016 it finalised gas deals with BP, Royal Dutch Shell and Qatargas to import a total of 2.5m tonnes of LNG per year up to 2020. The BP and Royal Dutch Shell agreements bring in 1m tonnes per year each, Nabil Buresli, KPC’s marketing chief, told state-run Kuwait News Agency in April 2016. The four-year Qatargas deal, meanwhile, supplies 500,000 tonnes of LNG. To facilitate rising imports, KNPC has plans for a near-$3bn upgrade to its LNG infrastructure at Al Zour. The new facility is set to raise LNG import capacity by 3000 British thermal units per day.

KNPC awarded the project’s contract, worth $2.9bn, to a consortium made up of South Korea’s Hyundai Engineering, Hyundai Engineering & Construction, and Korea Gas Corporation. The downstream service provider is expecting to pay a total of $142m for engineering, $965m for associated imports and a further $1.67bn for construction costs, Mohammad Ghazi Al Mutairi, KNPC’s CEO, said following the contract signing ceremony in March 2016.

Cost Controls 

While newly modernised facilities will help facilitate smooth utilities operations, the authorities are not only looking to expand but also to reshape Kuwait’s utilities landscape. Utilities costs have grown far faster than revenues.

Total fuel costs for electrical power stations and water distillation operations grew over fivefold, from KD532m ($1.8bn) to KD2.86bn ($9.5bn), between 2004 and 2014, according to the Ministry of Electricity and Water. Although the authorities generate some revenues from power and water provision, the subsidised rates paid by consumers do not cover the costs. The gap between the two has widened significantly, expanding from KD471m ($1.6bn) to KD2.68bn ($8.9bn) between 2004 and 2014.

Given the country’s current fiscal challenges, the government has introduced measures to bring rising costs under control. In August 2016, authorities announced petrol prices would increase significantly as of that September, with price hikes ranging from 40% to more than 80% depending on the grade. The announcement marked the first time in nearly two decades that the state has increased petrol prices. Had the petrol and other subsidies remained intact, it would have cost Kuwait some KD16bn ($53bn) between 2016 and 2019, according to Khalifa Hamada, undersecretary of the Ministry of Finance.

The government had long advocated reforms to the existing subsidy structure as a means of reducing the state’s utilities spending and encourage consumers to reduce consumption. The reduction of kerosene, diesel and aviation fuel subsidies alone in January 2015 had potential to generate savings worth up to 0.3% of Kuwait’s GDP, according to the IMF.

Some in parliament oppose adjustments to subsidies, however, and the former subsidy framework was reinstated, although discussions between legislators and the government continue (see analysis).


In addition to adjusting subsidy systems, the government is exploring investments in utilities infrastructure with cost-saving technologies. Indeed, as governments across the region reshuffle spending priorities in the face of lower revenues, many are seeking to generate long-term savings through installing more efficient infrastructure.

For countries like Kuwait, where the government offers subsidised water and electricity tariffs, cost-saving technologies have been a tough sell in the past. “Because customers here tend to go for products that promise immediate benefits, it has been difficult for us in the past to promote the concept of energy efficiency with a promise of long-term returns on cost, but we are glad it is picking up now and will certainly define future demand,” Joseph Gomes, general manager of South Africa-based Pedrollo’s Gulf operations, told Utilities Middle East in April 2016. With lawmakers in Kuwait’s parliament already raising concerns about the government’s proposed subsidy cuts, investing in more efficient technologies might present an alternative or complementary tactic for reducing the long-term utilities burden.

As well as generating long-term savings for the state, these adjustments could build utilities providers into more valuable assets. In January 2016 stakeholders in the government were considering creating a new sovereign wealth fund to take over some holdings from the country’s sovereign wealth fund, the Kuwait Investment Authority, local daily Al Anba reported. The new fund, endowed with assets worth $100bn, would acquire domestic holdings, including utilities providers, with the aim of eventually privatising some of them. In this way, prudent investments could generate future pay-offs by raising the operating efficiency of these assets, making them more attractive to potential buyers.

Another avenue for fuel cost reduction, renewable energy, is making headway in Kuwait. Although they can carry higher price tags for lower output, renewables carry significant benefits. In addition to the environmental advantages, they provide power at a consistent variable cost, avoiding the vagaries of global energy markets. As an added bonus, renewable energy could reduce LNG imports and save oil for export. In 2015 the government made significant progress on renewables, awarding contracts for 70 MW of renewable energy in 2015. A $403m contract went to Spain-based TSK to install 60 MW of solar energy capacity – 50 MW from a thermal solar plant and 10 MW from a photovoltaic plant.

An EPC contract worth $26m, meanwhile, went to Spain’s Elecnor and Kuwait-based Alghanim for a 10-MW wind farm project consisting of five 2-MW wind turbines (see analysis).

Generating Results

While increasing efficiency and more investments in renewables could help control utilities costs and emissions in the long run, the authorities have also laid out bold plans to expand conventional production. A new framework for public-private partnerships (PPPs), they hope, can help reduce state capital expenditure up-front and enlist foreign expertise. The new PPP framework, finalised in 2015, builds on amendments to PPP laws made in 2008. The Az Zour North Independent Water and Power Project (IWPP), $1.43bn worth of financing for which was agreed upon in January 2014, was hailed as an early success under the evolving PPP framework.

The first phase, which was completed in January 2016, is set to produce a total of 1500 MW of electricity and 105m imperial gallons per day (MIGD) of desalinated water. In February 2016, meanwhile, the Kuwait Authority for Partnership Projects began tendering the project’s KD820m ($2.7bn) second phase, which is expected to produce an additional 1800 MW and 102 MIGD of desalinated water.

Global Connections

In addition to extracting hydrocarbons and fulfilling domestic energy needs, energy stakeholders in Kuwait also own major operations in Europe, Asia and the Americas, connecting the country’s products to buyers around the world. Taking the lead on this is KPC subsidiary Kuwait Petroleum International (KPI), often known by its retail brand Q8. In addition to its network of more than 4000 retail petrol stations, the firm sells industrial lubricants, diesel and aviation fuel around the world.

KPI used to own two refineries in Europe, one in Rotterdam, the Netherlands and the other in Milazzo, Italy. In February 2016, however, KPI announced that Rotterdam’s 88,000 bpd Europoort refinery, which included crude refining units as well as gasoline and lubricant production facilities, had been sold to Swiss commodity trader Gunvor Group. The company’s remaining European refining capacity is constituted by its stake in the Milazzo refinery, the ownership of which it splits with Italy’s Eni.

Although the sale of Europoort significantly reduced the company’s European refining capacity, the firm indicated that the move was not a turn away from European markets. “We are expanding in Europe with our retail and logistics,” Khaled Al Mushaileh, KPI’s vice-president for Europe, told a Brussels conference in September 2015. “When you have a footprint, it’s easier to expand the trade.”

In addition, projects like Clean Fuels are aimed at creating products that meet European quality standards, Al Mushaileh said, indicating the firm’s continued interest in one of its core markets.

KPI has also been working to expand its footprint across Asia. The firm has a 35.1% stake in a $9bn refinery and petrochemicals complex in Nghi Son, Vietnam, which it shares with Japan’s Idemitsu Kosan (35.1%) and Mitsui Chemicals (4.7%), as well as Vietnamese state-owned PetroVietnam (25.1%). The project is set for delivery in 2017. In April 2016, meanwhile, KPI and Idemitsu applied to register a joint venture company for selling products from the forthcoming refinery. The two aim to secure an outlet for output in what they say is a growing market. Approval of the application would make the joint venture, Idemitsu Q8, Vietnam’s first fully foreign-owned oil product distributor and retailer. KPI has also been in talks about joining investments in China and Indonesia.

A potential $9bn refinery with China-based Sinopec in the country’s Guangdong province is still awaiting a final investment decision, while a potential joint project with state-owned Indonesian operator Pertamina is also in its early stages, Bakheet Al Rashidi, KPI’s CEO, told Arabian Business in September 2015.


Although low prices have affected global energy markets, Kuwait’s energy sector has so far proved its mettle. With officials reaffirming their commitments to energy developments and hydrocarbons firms working to diversify funding sources to include partnership projects, bonds and sukuk, the sector has been able to forge ahead with bold investment plans. These continual investments are set to boost upstream production and downstream output, and that combination could be potent.

Increased output could allow for a production ramp-up when needed, while more downstream capacity can provide the option to produce value-added products, useful for mitigating the effects of fluctuating oil prices. As for domestic energy, low prices have spurred conversations at the highest levels of government, with legislators and the Cabinet in discussions on ways to control costs, reform utilities and boost investments. Potential stumbling blocks lie not in financial or economic but in logistical considerations. Continued coordination among stakeholders will be key. Given the autonomy of the country’s energy sector, however, stakeholders have been able to avoid the gridlock faced by other sectors.

Assuming that remains the case, Kuwait’s energy sector faces the future on a firm footing. Indeed, in both the export-oriented and domestic industries, firms are drawing on accumulated resources to make coordinated and long-sighted investments that can safeguard margins and increase flexibility over time.