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Kuwait’s $300bn energy target is a big test

24 July 2023

Long-running domestic political issues mean that Kuwait is likely to struggle to hit its targets of investing $300bn in the country’s energy sector by 2040 and boosting its oil production capacity to 3.2 million barrels a day (b/d) by the end of the 2024-25 fiscal year, according to stakeholders.

Kuwait’s oil minister Saad al-Barrak set out the bold targets for the country’s energy sector in July, shortly after Kuwait unveiled its fifth cabinet in less than a year.

Though the targets signal to investors that Kuwait is serious about developing and expanding its energy sector, they have been greeted with scepticism by market participants.

One major hurdle is ongoing political disputes within the country that have paralysed policymaking and prevented major decisions from being made regarding strategic infrastructure projects.

Kuwait has had three elections in three years, creating policy uncertainty that has significantly impacted businesses and led to a contraction in the country’s energy sector.

Projects decline

Between the start of 2020 and the beginning of May this year, Kuwait’s total value of all active oil, gas and chemicals projects declined by 65 per cent, from $67.1bn to just $23.5bn.

Many industry stakeholders say that breaking the political deadlock is essential for reversing the slowdown in activity in the country’s oil and gas sector.

While the makeup of the latest cabinet has slightly improved confidence among stakeholders in the country’s energy sector, many of the significant issues that have stopped decision-making in recent years remain unresolved.

According to regional projects tracker MEED Projects, the total value of contracts awarded in Kuwait’s oil, gas and chemicals sectors so far this year is just $281m.

This is a small fraction of the awards made during the mid-2010s, when there were $16bn-worth in contract awards in 2014 and $18.3bn in awards in 2015.

According to data collected by MEED Projects, the total value of contract awards in Kuwait in 2022 was just $372m, the lowest the country has seen since 2004.

One Kuwaiti contractor commented on the situation: “What we are seeing right now are historic lows in terms of the value of energy sector contracts being awarded.

“There is potential for a bounce-back in spending and development, but for this to happen, there needs to be unity and a willingness among the political class to prioritise the economy over political squabbling.

“It is going to be impossible for Kuwait to invest $300bn by 2040 if we continue to see an inability to make key decisions about major projects.”

Contractors retreat

Adding to the pessimism, the lack of contract awards in recent years has led to some international contractors shutting their offices in Kuwait.

It has also led to many Kuwait-based contractors increasing their investment outside of the country by opening offices in Saudi Arabia, Kuwait and Oman, in an effort to win business in other GCC markets that are seeing more large contracts being tendered.

Many industry stakeholders expect that energy sector project activity will take longer to reinvigorate now because so many companies have shifted their resources away from Kuwait.

Increasing production

The target of boosting oil production capacity to 3.2 million b/d by the end of the 2024-25 fiscal year has been met with even more scepticism by industry participants, many of whom believe that failure to invest in upstream oil and gas projects in recent years will make this virtually impossible to achieve.

According to the Opec Monthly Oil Market Report published in July, Kuwait produced an average of 2.6 million b/d in June.

The chief executive of state-owned upstream operator Kuwait Oil Company (KOC), Ahmed Jaber al-Aydan, said in June that the country’s production capacity was 2.8 million b/d.

At the time, he announced a more modest target of reaching 3 million b/d in 2025.

One critic of the new targets said: “It is very hard to see how production will be boosted in line with the recently announced target of 3.2 million b/d.

“Kuwait has not produced more than 3 million b/d for more than 10 years and, given the recent lack of investment in the upstream sector, it is very hard to see how there could be a significant uptick over the next couple of years.”

While it seems unlikely that Kuwait will hit its targets, it is not impossible. In the wake of the latest cabinet being announced, contractors based in Kuwait expect a series of major personnel changes at state-owned oil and gas companies including Kuwait Integrated Petroleum Industries Company, KOC and Kuwait National Petroleum Company.

If Kuwait quickly appoints new staff to fill critical roles, it is likely to boost optimism among contractors about a future uptick in energy sector activity.

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Wil Crisp

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