Saad al-Shuwaib, chief executive of state Kuwait Petroleum Corp. (KPC), has made some progress in reforming Kuwait's energy industry and advancing major projects, especially downstream, since taking the reins six months ago with a promise of revamping the sector (EC Jul.27,p2). The delayed Al-Zour refinery is moving ahead, KPC's subsidiaries are being restructured, and a new international advisory board is in place. Now, al-Shuwaib told Energy Compass in Kuwait this week, a breakthrough should come soon in upstream negotiations with international oil companies -- a development desperately needed to deliver long-term expansion.

A strategic plan from 2003 envisages Kuwaiti oil production capacity reaching 4 million barrels per day by 2020, based on the involvement of foreign companies in several upstream projects, especially the development of northern fields under Project Kuwait and of heavy oil deposits.

Project Kuwait remains shelved, although al-Shuwaib believes it still stands a good chance of being approved by parliament. "The Supreme Petroleum Council still believes in it, and I hear from parliament that they want all projects for Kuwait to move, not just in the oil sector," he said.

Four projects based on enhanced technical service agreements (ETSA) seem better positioned. This new model builds on existing but modest service contracts, and was designed to circumvent parliamentary opposition to deeper foreign involvement (EC Sep.21,p2).

US major Exxon Mobil last year signed a preliminary agreement for an integrated heavy oil project in the north. Exxon is still some way from finalizing a deal that defines contractual terms, whereby it would play a role in the upstream without violating Kuwait's constitutional ban on foreign investments in that sector -- based on an ETSA (EC Oct.26,p10). Negotiators also need to define the role of a joint venture to transport, upgrade and market the heavy crude.

Among others, BP hopes soon to sign a preliminary agreement for oil fields in western Kuwait, outlining the scope, duration and operating mode of its ETSA, ahead of firming up the contractual and legal structure of a deal. Chevron is discussing an ETSA for the giant Burgan and adjacent fields in southeast Kuwait, although disagreement over costs is holding back progress. And Royal Dutch Shell is negotiating a joint venture to treat and process newly discovered non-associated gas reserves, while playing a role in the upstream gas sector under an ETSA.

"I'm very happy with what our people are doing with the ETSA, and we will deliver," said al-Shuwaib. "The framework has been done, it's all there," he added. Foreign oil executives retain some skepticism about securing government approval for the four projects. However, al-Shuwaib is encouraged by his success in circumventing red tape with the Al-Zour refinery -- a KPC tendering committee, backed by the government, bypassed the central tendering committee, and construction contracts are expected to be awarded next month. He is betting on a similar approach to advance the ETSAs.

Even if both Project Kuwait and the ETSAs get the green light, the formal capacity goal seems a long shot, even for al-Shuwaib. "We are confident we will be achieving 4 million b/d, but whether we can do it by 2020, I cannot say it's 100% definite. But I think we have a very big potential," he said. Nearer term, KPC is still targeting capacity of 3 million b/d by 2010 and 3.5 million b/d by 2015, from a current 2.7 million b/d, which includes Kuwait's share of the Neutral Zone shared with Saudi Arabia.

Increments would also come from enhanced oil recovery programs being launched by KPC's upstream arm, Kuwait Oil Co. (KOC), at producing fields in the west and north, following upgrades of surface facilities and construction of new gathering centers. In the offshore Neutral Zone, Kuwait is working with Saudi Arabia on expanding existing capacity of 300,000 b/d by 50,000 next year. Kuwait's export facilities will be able to handle 3 million b/d by the end of this year, al-Shuwaib said.

Gas Launch

New condensate-rich gas discoveries would also contribute. The first phase of Kuwait's first non-associated gas development should be launched in March with production of 175 million cubic feet per day and about 50,000 b/d of condensate. Kuwait is targeting 600 MMcf/d of gas by 2010, and about 1 Bcf/d by 2015. Officials estimate that the top rate will yield about 300,000 b/d of condensate.

Gas-poor Kuwait is launching a summer-only LNG import scheme as a temporary solution for power generation until the new refinery comes on stream in four to five years. The plan is for US firm Excelerate to provide and operate a regasification vessel off Kuwait for six months a year starting in 2009. KPC is negotiating with LNG suppliers Qatar, Oman and Egypt, and companies such as BG and Shell. The plan, if it succeeds, would allow Kuwait's first gas imports for two decades.

Ruba Husari, Kuwait

Compass Points

• SIGNIFICANCE: Kuwait plans to spend $51 billion over the next five years on major upstream and downstream projects, including modernizing upstream facilities, expanding export terminals and carrying out intensive drilling. But money alone cannot achieve Kuwait's goals, officials admit -- foreign help is also needed.

• CONTEXT: The new KPC chief's main achievement has been to shake the oil sector out of its lethargy. His biggest challenge in his current three-year term is to forge pragmatic approaches using international oil companies where they are needed, upstream and downstream.

• NEXT: Al-Shuwaib will hold a series of meetings with the chief executives of companies involved in upstream negotiations over the next two weeks, in a bid to advance the ETSAs. Then, he will have to navigate domestic hurdles, including a parliament suspicious of government deals and of any foreign involvement, in order to send the message that Kuwait is open for business.