Kuwait has ambitious plans for its oil and gas sector, making moves to leverage the 101.5 billion barrels of proven oil reserves on which it sits, as estimated at the end of 2019 in BP’s 2020 Statistical Review of World Energy.

It planned to invest $100 billion between 2018 and 2023 to boost its production, with the investments “majorly done”, according to a report by Mordor Intelligence. The nation holds almost 6% of the world’s total proven oil reserves, making it seventh in the world following Venezuela, Saudi Arabia, Canada, Iran, Iraq, and Russia. It is OPEC’s fourth largest producer.

In 2019, most of Kuwait’s oil production came from onshore, but it is planning to expand its offshore production capacity. Still, the nation’s goal of reaching production capacity of 4 million barrels per day (bpd) by 2020 has been repeatedly delayed.

“In Kuwait, the progress on expanding oil production capacity will likely remain limited, hindered by low oil prices, political opposition, and technical constraints, since it could require developing complex deep oil and offshore reserves,” says Vinod Raghothamarao, consulting director on energy transition and cleantech at IHSMarkit. “As oil sector growth moderates, the nonoil sector will be increasingly relied on to drive economic expansion.”

But that does not mean that Kuwait’s upstream sector is stagnant. Although the Greater Burgan field accounts for approximately half of the country’s production, in January 2021 its national oil company made three oil and gas discoveries, with one next to Burgan.

Kuwait Oil Company discovered the Homah oil field in the northwestern region of Kuwait, an area that has not been highly explored. In northern Kuwait, the second discovery was made in al-Qashaniyah field, producing 1,819 bpd of light oil and 2.78 million cubic feet of associated gas per day. North of Burgan, the final discovery came from several wells yielding conventional oil at a rate of 2,000 bpd.

“In Kuwait, production is dominated by mature albeit large assets while new source volume growth depends on the timely restart of the Partitioned Neutral Zone (PNZ) assets,” Raghothamarao says. “The restart of the PNZ will support Kuwait’s near-term goals of ramping up production, especially as delays persist domestically on development of new reserves in the Jurassic non-associated and the Lower Fars heavy oil development EOR projects.”

In February 2020, the first wave of oil from the Neutral Zone’s offshore Al-Khafji field reached onshore processing facilities, after a five-year shutdown. This followed an official agreement signed between the Saudi Arabian and Kuwaiti governments in December 2019, pushing forth plans to resume production from the contested assets.

The partial startup of operations from the Neutral Zone could herald significant positive motion for both countries, with a long-term potential capacity of 500,000 bpd combined. Al-Khafji Joint Operations, which led the startup of Al-Khafji field, told Oil & Gas Middle East in a December 2020 interview that it kicked off production at a minimum rate of 80,000 bpd.

The country is also focused on the Jurassic gas and heavy oil fields in the Northern Fields, and recently extended bidding for two key Jurassic gas projects (Jurassic Production Facilities 4 and 5) to 4 April. While the tenders were issued two years ago, with the original bidding deadline set for December 2020, it was postponed due to cost adjustments.

“Kuwait Oil Company (KOC) has been focusing heavily on its non-associated gas developments (Jurassic natural gas, which has high liquids content), and many of the projects under way reflect this,

Raghothamarao says. “KOC is also continuing to upgrade its oil-gathering centers so it can cater for the increasing water cut in its produced oil, which is expected to have some incremental effect on production capacities.”

Much like the rest of its oil-dependent peers, Kuwait was heavily impacted by the COVID-19 pandemic. With lockdown orders and travel restrictions in place, oil demand plummeted. “The demand collapse in Kuwait was estimated to be more than 20% in April 2020,” Global Monitor wrote. “Lack of demand for crude oil saw prices collapse quickly.”

“The oil price collapse and COVID-19 are dual shocks affecting Kuwait,” Raghothamarao says. “Kuwait’s outsized reliance on oil and the public sector has exacerbated susceptibility to oil price swings and hindered broad-based economic growth. Kuwait’s production capacity is about 3.0 MMb/d, but output has been below this capacity as the country cooperates with the Vienna Alliance.”

An ongoing agreement between the Organisation of Petroleum Exporting Countries and its allies (collectively OPEC+) has placed limits on oil production in an attempt to balance supply and demand in a year of unprecedented challenges—with plummeting demand sparking a global storage crisis, oil price crash, and tension between OPEC+ leaders.

However, the January 2021 OPEC+ Ministerial meeting saw the group loosen its cap on oil production, with vaccinations underway and potential for growth in the second half of the year giving hope for growth in oil demand. Kuwait’s target production level is 2.329 mbpd, an increase of 32,000 bpd.

With easing restrictions, “the slow return of the market to normal conditions is underway,” Global Monitor wrote. “Though lockdown restrictions in the country are ending, the full return of pre-COVID19 fuel consumption level has yet to be seen.”

Still, the country has many other challenges to overcome to achieve its growth and development goals for the upstream segment, with complex resources to leverage and technical hurdles to tackle.

“Kuwait’s resource potential is large, especially for heavy oil and EOR. However, technical expertise is lacking and international oil companies (IOCs) are needed to move these projects forward,” Raghothamarao adds. “While KPC and Kuwait’s executive branch support the partnerships, the Kuwaiti legislature remains opposed to foreign investment in Kuwait’s hydrocarbon sector, leading to significant project development delays.”

Raghothamarao notes, however, that 24 unsanctioned projects, mostly related to EOR, are planned to start up post-2021, a potential boost to the nation’s production and a step towards its goal of 4 MBPD of production capacity. But it will need to focus on foreign partnerships and international expertise in order to truly leverage the potential of its natural resources.

The country is already making moves to transform—Kuwait National Petroleum Company (KNPC) signed a memorandum of understanding with the Organization of Arab Petroleum Exerting Countries (OAPEC) to cooperate in an overhaul of the oil sector and its digital transformation, according to state news agency KUNA. The MoU would allow both parties to exchange expertise on rapid technological development and could bring modern technology to the forefront of the nation’s oil and gas sector to cut costs and produce cleaner petroleum products.

“Kuwait can leverage its position as one of the lowest-cost oil producers in the world, with production-weighted operating costs for Kuwait estimated at about $10 per barrel of oil equivalent,” Raghothamarao says. “Kuwait can leverage global integrated oil companies for technical expertise and experience across different asset types, including domestic shallow-water exploration and heavy oil projects.”

While Kuwait appears to have no shortage of ambition, and a large volume of oil and gas resources to exploit, it will have to get more creative in its approach to growing and redeveloping its upstream sector to reach its goals after the turbulence of the COVID-19 pandemic.