Kuwait looks to imports to meet natural gas needs

Sunday 24/07/2016
Mohammad Ghazi Al-Mutairi (C-L), CEO of the Kuwait National Petroleum Company (KNPC) shakes hands with Jung Soo-Hyun (C-R), South Korea’s President and CEO of the Hyundai Engineering and Construction (HDEC), after signing documents as part of a Liquefied

Washington - By moving ahead with plans to build its first perma­nent liquefied natural gas (LNG) import terminal and announcing long-term LNG supply deals after 2020, Kuwait is all but acknowledging that it can­not develop its own gas resources quickly enough to meet burgeoning demand.
Kuwait signed a $2.93 billion con­tract in March with three South Ko­rean firms — Hyundai Engineering Company, Hyundai Engineering & Construction Company and Korea Gas Corporation — for the construc­tion of an LNG import terminal at al-Zour, near the border with Saudi Arabia, that will include a regasifica­tion facility and eight LNG storage tanks.
The terminal, designed to have a regasification capacity of 22 mil­lion tonnes per year, will be part of a larger complex at al-Zour that is to include a new refinery and petro­chemicals plant.
The LNG terminal is to be com­pleted in the first quarter of 2021, which explains why state oil firm Kuwait Petroleum Corporation (KPC) has indicated it would transi­tion from short-term supply deals to contracts of up to 15 years and in­volving 6 million-7 million tonnes of imported LNG annually after 2020. KPC recently signed contracts with three LNG suppliers to provide 2.5 million tonnes of gas to Kuwait to meet the emirate’s needs through 2020.
Kuwait in 2009 became the first member of the Gulf Cooperation Council (GCC) to turn to LNG im­ports, taking in its supplies at a floating LNG terminal at al-Zour. Ini­tially the supply arrangements were seasonally driven. Kuwait imported small LNG volumes to accommo­date peak electricity demand during summer months. The emirate was forced to boost its import volumes, however, and shifted to year-round supplies in 2013.
Kuwait uses natural gas primarily for power generation, water desali­nation and in its petrochemicals in­dustry. Domestic electricity demand has skyrocketed thanks to increased usage during the summer and as a result of heavily subsidised electric­ity costs.
The government intends to more than double its current power gen­eration capacity from around 14 gi­gawatts (GW) to more than 31 GW by 2030. Most of the new power plants will run on natural gas, requiring even greater LNG imports.
Kuwait is the only GCC coun­try that has yet to cut expensive energy-related subsidies after low oil prices prompted other regional governments to increase fuel, water and power prices to reduce budget deficits.
Kuwaiti Emir Sabah Ahmad al- Jaber al-Sabah declared in January that the government would lift sub­sidies and raise domestic prices on petrol, water and power but offered no time frame.
Ahmed al-Jassar, minister of Elec­tricity and Water, recently told par­liament the government was spend­ing $8.8 billion a year on water and power subsidies. He argued that without water and power subsidy reductions, domestic consumption in Kuwait was expected to triple by 2035 with subsidy costs for the government reaching $25 billion per year.
The issue of subsidies is sensi­tive in Kuwait. In April, parliament passed a bill that would substantial­ly raise power and water prices on expatriates and local businesses but only after legislation that included increases for Kuwaiti nationals was modified to exclude citizens. The bill requires a second vote, which has not yet been conducted.
To boost domestic gas production significantly, Kuwait must develop its tight, sour gas fields in northern Kuwait. Exploiting the fields would be expensive, involve lengthy lead times and require foreign expertise and investment. The Kuwaiti parlia­ment, citing constitutional grounds, has opposed prospective deals that it perceives would allow interna­tional firms to control or unduly profit from the emirate’s oil and gas assets.
As far back as 2000 Kuwait sought a steady external source of gas to meet domestic consumption by looking at possible pipeline sup­plies from its Gulf neighbours. Ku­wait and Bahrain entered into ne­gotiations with Qatar for a 25-year gas supply deal that would have re­quired a $2 billion underwater pipe­line to be constructed from Qatar to Kuwait and Bahrain.
The proposal hit a wall because Saudi Arabia refused in 2005 to al­low a portion of the line to pass through its territorial waters, a move perceived as a political effort by Riyadh to prevent Doha from get­ting the upper hand in a long-term arrangement with the kingdom’s closest Gulf allies.
Kuwait and Bahrain at around the same time entered into negotiations with Iran over a potential 25-year pipeline supply agreement but pric­ing and technical problems proved difficult to overcome. Increasing tensions between the GCC and Teh­ran over its nuclear programme and fears of its hegemonic regional in­terests effectively ended any serious consideration of an agreement.