Kuwait’s upstream oil activities and crude oil exports are the central pillars of the country’s economy. In recent years the government has embarked upon an economic diversification drive to reduce vulnerability to oil price volatility and generate sustainable longterm growth. Nevertheless, infrastructure expansion works are taking place, or have recently been completed, at each stage of the hydrocarbons value chain with the aim of maximising revenue to fund broad-based economic development.
Renewable energy production is also targeted for expansion as Kuwait works towards fulfilling its climate commitments, while natural gas reserves are being harnessed to a greater extent and will play a central role in the national energy transition. Indeed, gas has made an increasing contribution to Kuwait’s energy mix in recent years. Opportunities for investment exist throughout the energy sector, with both public-private partnerships (PPPs) and 100% foreign business ownership offered in selected areas. Kuwait’s growing population and increased energy consumption are among the key demand drivers.
Structure & Oversight
Kuwait’s hydrocarbons policy is formulated, and its implementation overseen, by the Supreme Petroleum Council (SPC). The council is led by the prime minister with members appointed by the emir, and comprises six ministers, including the minister of oil; six private sector representatives; and the heads of both the Central Bank of Kuwait and the Kuwait Petroleum Corporation (KPC), the national oil company. Meanwhile, the Ministry of Oil is in charge of day-to-day regulation of the oil sector, supervising the implementation of policies passed by the SPC. Among its duties and responsibilities are ensuring Kuwaiti oil receipts reflect and serve the financial needs of the country, working to maintain and strengthen Kuwait’s standing in regional and global markets, and augmenting its position and relationship with international oil-related organisations, such as the Organisation of the Petroleum Exporting Countries (OPEC), the Organisation of Arab Petroleum Exporting Countries and other such bodies, including those affiliated with the UN and those of GCC origin.
KPC was formed under Law No. 6 of 1980, forming a single umbrella entity to take ownership of all of Kuwait’s oil and gas industry operators. KPC has eight subsidiaries, also known as the “K companies”: Kuwait Oil Company (KOC), which is responsible for all exploration, drilling and production activities within the country; Kuwait National Petroleum Company (KNPC), which is responsible for oil refining, gas liquefaction and the distribution of petroleum goods in the domestic market; Petrochemicals Industry Company, which is a petrochemicals producer; Kuwait Oil Tanker Company, a marine hydrocarbons transport firm; Kuwait Integrated Petroleum Industries Company (KIPIC), which operates and manages the integrated Al Zour refinery and petrochemicals complex; Kuwait Petroleum International, KPC’s international refining and marketing arm; Kuwait Foreign Petroleum Exploration Company, which is engaged in exploration and production outside of Kuwait; and Kuwait Gulf Oil Company (KGOC), which represents Kuwait’s hydrocarbons interests in the Partitioned Neutral Zone (PNZ) shared with Saudi Arabia. This portfolio makes KPC responsible for Kuwait’s domestic and international upstream, midstream and downstream activities.
Proposed Restructuring
In 2020 plans to restructure KPC were approved by the SPC. Raising efficiency was the central goal of the project, with phase one set to see the number of K companies reduced from eight to three through a series of mergers. By consolidating and streamlining internal processes, KPC hopes to eliminate bottlenecks that had hindered infrastructure and capacity expansion projects for a number of years. The second phase of the restructuring strategy would involve converting the KPC parent company into a commercial entity.
The three entities resulting from the KPC mergers would focus on crude production and exploration, refining and other downstream activities, and KPC’s global oil industry operations. Implementation of the programme was set to begin in 2021 but was delayed by the Covid-19 pandemic, with a new commencement date of the first quarter of 2023 established. Indeed, plans appeared to be moving forwards throughout 2022, as May saw KPC draw up a contract for the sale of shares in KNPC, while in December, tenders were floated for the consultancy study regarding the exploration of financing options for the intended mergers. However, with the official process not yet in motion by June 2023, KPC announced that it had cancelled the aforementioned tenders and that it would return all submitted finances back to bidding parties. No further updates were available as of early 2024.
Following Suit
Structural reorganisation is also on the agenda in the utilities sector. In January 2023 the government announced that it planned to transform the Ministry of Electricity and Water and Renewable Energy (MEWRE) into a corporation – a move designed to lower costs, raise efficiency, and boost financing and resources for renewable energy projects.
The reform is also beginning the process of eliminating utilities subsidies to reduce strain on government finances. Under the plan, a self-governing parent corporation would be formed, which would then establish subsidiary companies focused on developing the country’s electricity, water and renewable energy sectors and markets. The drive to localise the utilities and energy sectors is central to the restructuring, with finance generated by the partial privatisation of MEWRE to be used to train and onboard Kuwaiti workers, particularly in technical fields such as systems operation and maintenance. Streamlining and modernising processes is another core goal of the project. For example, mobile technologies could be harnessed to facilitate convenient and timely payment of bills for customers of the new utilities entities, with a centralised online portal also set to be established.
Amendments to utilities subsidies have the potential to bring significant savings for the government. The current allowance, which is enforced by a 2016 law, amounts to around KD6.7bn ($21.8bn) of public funding over the last five years – a figure primarily driven by the operation of power and water treatment plants. Kuwait’s per capita water and electricity consumption is around 350% higher than the global average. Indeed, per capita water consumption averages around 500 litres per day, In addition, the government pays around KD370m ($1.2bn) annually for water desalination, and the Kuwait Institute for Scientific Research forecast that the current rate of spending and anticipated growth in population, and subsequent consumption of desalinated water will see the cost to the government exceed the value of oil revenue by 2050.
Investment Regulation
Private investment is not permitted in Kuwait’s domestic upstream oil and gas activities, but opportunities exist for foreign investors in a range of sector-related activities such as consulting, engineering, procurement and construction and secondary recovery systems, among others. The US Department of Commerce’s International Trade Administration stated in late 2022 that Kuwait’s capacity expansion plans, particularly in the areas of heavy oilfield and offshore production development, should generate sizeable demand for private and international investment over the coming decade.
Indeed, the restriction on foreign investment in upstream oil and gas activities was reaffirmed in 2015, when the Council of Ministers directed the Kuwait Direct Investment Promotion Authority – which was established with Law No. 116 of 2013, also permitting 100% foreign business ownership in select sectors and activities – to enforce an updated list of activities restricted from foreign and private investment. Oil- and gas-related activities on the negative list for foreign investors include extraction of crude petroleum, extraction of natural gas, manufacture of gas, distribution of gaseous fuels and manufacture of fertilisers and nitrogen compounds, with the last point primary activities in the petrochemicals sector.
Full foreign business ownership in relation to the construction and operation of vital infrastructure is permitted, with areas such as power generation, water and wastewater plants among those targeted by the government to attract private investment. PPPs have also been successfully implemented in those areas. Law No. 39 of 2010 regarding the Incorporation of Kuwaiti Joint-Stock Companies allows for the establishment of independent water and power plants (IWPPs) and is therefore also known as the IWPP Law. It was amended in 2012 and again in 2015, with the latter alterations following the 2014 bringing into force of Law No. 116 of 2014 regarding PPPs (the PPP Law).
The implementation of the PPP Law is managed and overseen by the Kuwait Authority for Partnership Projects, which was also created in 2014. Notably, the enforcements of the PPP Law apply to IWPP projects in cases where the IWPP Law does not contain sufficient detail and coverage. PPPs in the energy and utilities sectors in the pre-planning or design and construction stages as of late 2023 include the 2000-MW Al Shagaya renewable energy park; the $1.7bn Al Khairan IWPP, phases one, two and three; and the Umm Al Hayman sewage wastewater treatment plant.
Strategic Importance
In 2022 Kuwait was OPEC’s fifth-largest producer of crude oil and the world’s eighth-largest producer of natural gas liquids, according to the Energy Institute’s “Statistical Review of World Energy 2023”. At the end of 2022 Kuwait had proven oil reserves of 101.5bn barrels, or 8.2% of OPEC’s total according to the group’s “Annual Statistical Bulletin 2023”. In the second quarter of 2023 the Central Statistical Bureau reported that oil revenue accounted for 92.4% of Kuwait’s total export revenue.
National economic development strategies rolled out in recent years have contained a strategic focus on industrial and economic diversification to reduce the country’s reliance on hydrocarbons revenue. The need to do so is imbued with increasing urgency, given the global shift away from fossil fuels towards clean energy production and consumption and reducing industrial carbon emissions. That said, as is the case across the GCC, New Kuwait 2035 – the government’s overarching economic development blueprint – positions the oil and gas economy as the engine of the diversification drive, establishing a core focus of ramping up hydrocarbons production in order to provide financing for cross-sector development.
Indeed, the Ministry of Oil reaffirmed this strategy in October 2023, announcing that the target of achieving oil production capacity of 4m barrels per day (bpd) featured in KPC’s Strategy 2040, launched in 2018, still stood. In November 2023 Kuwait’s oil production was 2.6m bpd, according to the “OPEC Monthly Oil Market Report”, with the country aiming to reach 3.2m bpd during the period 2025-26. KPC has pledged to invest $410bn during the Strategy 2040 timeframe in pursuit of its energy sector transformation goals, announcing that it would meet funding requirements through a mix of cash flow, debt and joint ventures.
As of late 2023 KOC accounted for around 90% of Kuwait’s crude oil production, with an installed capacity of 2.6m bpd as of September of that year. Under the strategy announced by the Ministry of Oil, KOC plans to boost its capacity to approximately 3.6m bpd by 2035, a move that would add an estimated KD3.4bn ($11.1bn) to annual government revenue during the 2035-40 period. To help meet these goals, in June 2023 KOC announced that it plans to invest $43bn in oil projects, such as drilling for new wells, boosting output, and revamping and developing facilities. The company estimates that by the end of 2025 it will have expanded its capacity by over 200,000 bpd, reaching 3m bpd. Once it reaches its target capacity, KOC plans to remain at that level through to 2040.
Size & Performance
Oil export revenue equalled KD28.8bn ($93.7bn) in 2022, up 51.4% from KD19bn ($61.9bn) in 2021. The 2022 figure was equal to 94% of total export revenue in 2022, illustrating the importance of hydrocarbons trade to Kuwait’s economy. According to preliminary figures from the IMF for 2022, the average export price for crude oil was $102 per barrel, a 32.6% increase from $69.20 in 2021. Crude production also increased, climbing just over 3m bpd in 2022 from 2.7m bpd in 2021. Real oil GDP, including the output of the country’s refineries, increased 11.6% between 2021 and 2022, while oil revenue was equal to 48.2% of total GDP in the latter, up from 35.7% in 2021. Oil consumption in 2022 was 431,000 bpd, up from 422,000 bpd in 2021.
Other significant indicators published by OPEC show that Kuwait’s proven natural gas reserves came to 1.8trn cu metres in 2021, while marketed production of natural gas amounted to 13.9bn cu metres. Kuwait’s refinery capacity of 1m bpd in 2021 underwent a significant increase in recent years, especially given the opening of the Al Zour refinery. The facility, which entered into commercial operations in January 2023, increased the country’s capacity by 615,000 bpd.
Looking ahead, Kuwait’s upstream market is forecast to register a compound annual growth rate of 3.5% during the 2023-28 period, according to Indian market research firm Mordor Intelligence. Expansion across key areas such as consumption of petroleum, gas and petrochemicals, and exploration and drilling activities are expected to drive the uptick.
Implementation of new technologies throughout the upstream segment in recent years – aided in some cases by collaboration with global firms – is allowing for innovative production methods and helping maximise output. “Partnerships are an invaluable means for propelling innovation. Through partnerships with Aramco Gulf Operations Company and Saudi Arabian Chevron, KGOC has harnessed the potential of new technologies and transformed opportunities into tangible business value, thereby accelerating hydrocarbons resource optimisation while infusing sustainability throughout the entire value chain,” Khalid Nayef Al Otaibi, acting CEO of KGOC, told OBG.
Oil
The majority of Kuwait’s crude oil – which comprises a mix of light and heavy oils – and natural gas production takes place at onshore facilities. The country’s key oilfields include the Greater Burgan oil reserve in the south, believed to be the world’s second-largest oilfield behind the Ghawar field in Saudi Arabia. The Greater Burgan reserve houses the eponymous Burgan field as well as smaller sites, such as the Magwa and Ahmadi fields. Other fields are spread throughout the country, the most significant of which is the Wafra oilfield, which is estimated to contain around 4.9bn barrels of recoverable reserves. The Wafra field is the largest oil reserve in the PNZ.
In recent years Kuwait has commissioned eight new pipelines to support the oil and gas sector. Those pipelines have a combined length of 450 km and all terminate at the Al Zour refinery. A further development came in June 2023 when KOC announced the opening of a new north-south, 140-km gas pipeline, which has a capacity of 900m standard cu feet (scf). It runs from gas booster station 132 in the north, through gas and condensate processing facilities, terminating at KNPC’s Mina Al Ahmadi refinery.
The opening of the Al Zour refinery is set to boost Kuwait’s downstream capacities. The first phase of the $16bn refinery was commissioned in November 2022. “Kuwait is competitive in the international energy industry, with significant potential to grow in the downstream oil segment to capitalise on rising global demand and recent infrastructure investment,” Waleed Khaled Al Bader, CEO of KIPIC, told OBG.
The Al Zour site became fully operational in October 2023 after its third unit, which carries 205,000 bpd refining capacity, was commissioned in July of that year. The development is intended to provide feedstock for downstream industries and value chains. However, the petrochemicals complex designed to neighbour Al Zour has yet to attract expected interest from the private sector. As such, in August 2023 Saad Al Barrak, the minister of oil, said further studies were being prepared to attract partners.
Electricity
Traditional power generation methods provide most of Kuwait’s installed electricity generation capacity, with 8970 MW of capacity supplied by steam turbine units, 8116 MW by gas turbine units and 3094 MW by combined cycle gas turbine units in 2022. The country’s three largest suppliers of electricity are the Subiya, Al Zour South and Doha West power stations, with capacities of 7047 MW, 5991 MW and 2440 MW, respectively. While there is a focus on boosting the supply of renewable energy, traditional energy generation infrastructure is also set for a significant upgrade and expansion in the coming years.
Eight new power projects designed to add 17,300 MW to the national grid were announced in 2021, with a further 16 renewable energy-related projects announced in the same year. Furthermore, the year 2023 brought news of a raft of energy projects with the combined capacity to add around 13,000 MW to Kuwait’s energy capacity, with conventional power generation plants accounting for 8000 MW and renewable energy projects, the remaining 5000 MW.
Natural Gas
Gas is considered relatively cleaner than oil and is therefore key to Kuwait’s energy strategy. KPC has moved to harness the country’s Jurassic gas reserves, with new facilities opened in 2018 and 2021. Indeed, KOC’s expansion plans include a focus on gas, as the company aims to raise its gas production capabilities to around 1.5trn scf by 2040. In 2021 oil and gas consumption in Kuwait amounted to 217.9 TWh and 197.6 TWh, respectively, while in 2022 the same categories were registered at 223.8 TWh and 217.9 TWh. While oil remains the primary fuel for energy generation, the balance has levelled out considerably since 2013, when oil provided 243.8 TWh to annual energy generation and gas, 177.7 TWh.
Another major infrastructure project hit by delays in recent years is the development of the Durra gas field, which is said to hold natural gas reserves of 20trn scf. Kuwait shares the facility with Saudi Arabia, although Iran also stakes a claim for partial ownership. Nevertheless, the project is said to be seeing forwards movement, with the Ministry of Oil announcing that it is slated to be fully commissioned by 2029. The successful realisation of the Durra project will be an important step to KOC achieving its production goals.
Renewables
Around $110bn of the $410bn KPC investment is set to be channelled into the country’s energy transition plans. In 2012 Kuwait was planning for renewable energy sources to comprise 15% of its total energy mix by 2030. That goal has since been tweaked so that the country now intends to see renewables account for 15% of the country’s projected peak load by the same year. By 2030 Kuwait is expected to have a total installed capacity of 32 GW, a peak load of 26.7 GW and a minimum load of 9.9 GW. Furthermore, Kuwait has set a date of 2050 for net-zero carbon emissions for its oil and gas industries and a 2060 target for other sectors.
MEWRE estimates that the country will need to achieve a capacity of 4500-5000 MW of renewable energy in order to meet its 2030 aims. In 2022 the proportion of Kuwait’s total installed capacity for electricity generation contributed by renewable energy sources was 0.35%, equal to 70 MW. That amount was composed of concentrated solar power (CSP) with 50 MW, photovoltaic (PV) solar power (10 MW) and wind power (10 MW). Total electricity generated by solar power throughout 2022 came to 179,097 MW. The pilot facility of the Al Shagaya renewable energy park, launched in 2019, provided 177,375 MW. The Al Shagaya facility is being developed in four additional phases. It was announced in September 2023 that preparations were progressing following multiple delays in recent years. The request for qualifications (RFQ) was to be launched for phase one within three months of the announcement. Once complete, phase one will add 1100 MW to Kuwait’s renewable energy capacity, all to be generated by PV solar panels. The RFQ for the second phase is under development, with that part of the project to feature a 200-MW CSP station. The third and fourth phases, meanwhile, will add 1500 MW and 1700 MW of renewable capacity, with RFQs set to be released mid-2024. MEWRE envisages contracting four separate developers for the remaining phases, harnessing Kuwait’s IWPP and PPP laws.
A significant development came in June 2023 when MEWRE announced that it was set to allow entities operating in Kuwait to purchase renewable energy from third-party sources. Notably, government and industrial sector operators were not included, with specific regulations relating to those entities to be drawn up at a later date. The implementation of the new policy is designed to incentivise investment in the installation and delivery of solar power systems, as well as diversify revenue streams. The move comes following studies carried out in relation to similar initiatives successfully implemented in the GCC.
Outlook
Hydrocarbons revenue will continue to be important to Kuwait’s economy over the coming decades, as oil and gas derivatives will remain the most utilised fuel sources for the foreseeable future. Moving forwards, it will be crucial that the government strikes a balance between maximising direct income from its most abundant and valuable resources, and opening areas of the sector to private and foreign investment. The implementation of new technologies in the sector should continue to provide investment potential, as should plans to diversify downstream industries, provided the relevant bodies are able to offer regionally competitive incentives to investors. While further privatisation appears likely, the government’s drive to localise the hydrocarbons and energy sector workforces indicates that the array of opportunities presented by the country’s most important economic sectors will continue to drive prosperity.
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