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Nizar Al-Adsani, Deputy Chairman and CEO of Kuwait Petroleum Corporation (KPC)

28th November 2014

Nizar Al-Adsani deputy chairman and CEO of Kuwait Petroleum Corporation (KPC) talks about Kuwait’s position in the Middle East oil market

Gas is oil's little brother in the Middle East's hydrocarbon industry, but many desert nations are struggling to meet their domestic energy demand and need to improve natural gas production and transmission to maintain economic growth - Nizar Al-Adsani deputy chairman and CEO of Kuwait Petroleum Corporation (KPC) talks about Kuwait’s position in the Middle East energy market

Nizar Al-Adsani deputy chairman and CEO of Kuwait Petroleum Corporation (KPC) talks about Kuwait’s position in the Middle East oil market
Nizar Al-Adsani deputy chairman and CEO of Kuwait Petroleum Corporation (KPC) talks about Kuwait’s position in the Middle East oil market

The Middle East is a major player in global oil markets in terms of current production and the availability of spare capacity.  As it holds over 48 per cent of global oil reserves, as well as 40 per cent of global gas reserves, it remains pivotal to providing the world economy with oil in the future.

To this end, countries are rapidly raising investment spending on oil exploration and the development of new oil fields. Despite that, the Middle East has massive petroleum reserves. Gas production in almost all of its countries, except for Qatar, and is struggling to keep abreast with demand especially from the industrial and power generation sectors.

Bahrain, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates are facing an increasing gas shortage. Demand in the Middle East for power generation from industrial/commercial sectors has far outpaced gas exploration and production. As a result, Middle East countries find themselves in an almost contradictory position of having to import gas, when they have exported gas for decades.

“In Kuwait, the oil and gas growth strategy is aimed towards bridging the demand gap, as well as making energy more accessible to consumers in emerging economies and the developing world,” Nizar Al-Adsani deputy chairman and CEO of Kuwait Petroleum Corporation (KPC) explains.

“This strategy includes: achieving four million barrels per day crude oil production capacity in Kuwait by 2020 and maintaining it till 2030, maximising the exploration, development and production of non-associated natural gas in Kuwait, expanding refining capacity locally and internationally, pursuing growth in petrochemicals in Kuwait and in international growing markets, as well as entering into commercially viable refining and marketing investment opportunities outside Kuwait through joint ventures which focus on high growth strategic markets. 

“Kuwait demand for gas will significantly increase as demand for electricity increases due to population growth and local companies’ and industries’ expansion. It is expected that by year 2030, peak electricity demand will be more than doubled reaching 31 Gigawatt, from 14 Gigawatt in 2013.”

Kuwait has been using lean gas, heavy fuel oil, gas oil and crude oil for power generation. This mix will continue for some time in the future. During summer Kuwait consumes about 350,000 barrels per day of oil equivalent, of which 35 per cent is accounted for gas. Currently Kuwait consumes approximately one billion standard cubic feet per day of natural gas, of which 60 per cent is consumed by the refining and petrochemical sector while the remaining 40 per cent is consumed by the power generation sector.

“In Kuwait, as it is also applicable for all other Middle East countries, the peak period for electricity consumption is in the summer, as soaring temperatures lead to an increase in the usage of air conditioning,” Al-Adsani continues. “Natural gas consumption matched production in previous years, but in recent years Kuwait’s electricity demands have significantly increased, creating gas shortage especially during the summer months.

“Our plan is to use more gas for power generation and local industries in order to free up additional liquids for export, and hence achieving both environmental and economic values. However, this will be a big challenge. Today gas availability consists of around 1.4 billion standard cubic feet per day being associated, and only 140 million standard cubic feet per day is free gas. To meet future electricity demand by 2030, we need a total gas of around 4 billion standard cubic feet per day. Most of the additional gas will be coming from the newly discovered free gas reservoirs which were announced in 2006.

“To mitigate the gas demand shortage, Kuwait has established LNG import facilities, and commenced commercial LNG in 2009 in the amount of 500 million standard cubic feet per day during summer months. Plans are underway to expand the period to cover the entire year.

“In addition and as I mentioned earlier, Kuwait will develop the desired non-associated gas and light oil. Free gas production commenced in 2008 at an average rate of 140 million standard cubic feet per day through early production facilities, and will reach 1 billion standard cubic feet per day by 2020. In addition, one of KPC subsidiaries, KUFPEC, has invested in Wheat Stone LNG project in Australia, and we are exploring other gas opportunities in East Africa. Currently KUFPEC is the second gas producer in Pakistan.”

Over the long term, Middle East countries can address the supply–demand imbalance by raising local gas prices and electricity tariffs gradually, improving energy efficiency through new regulation, increasing penetration of alternative power sources in the energy mix, investing in alternative methods for enhanced oil recovery, and providing incentives for international oil companies to participate in the upstream gas sector to develop both conventional as well as shale gas.

“Such an approach would require national oil companies, utilities, and regulators in the region to work together to develop a Middle East-wide approach and even to embark on building a regional gas grid.  Time is of the essence and Middle East need to act now and take advantage of the unique opportunity in the global gas markets to make economic decisions to serve consumers, such as to stop burning more valuable liquid fuels in power plants and use gas instead, or redirecting gas required for enhanced oil recovery, the usage of renewable in power generation.”

A key challenge for the Middle East in the next decade therefore will be to manage energy, water and food resources to ensure both high living standards and sustainable growth in the long term. Being aware of these challenges, Gulf Arab states are undertaking a variety of measures to ensure long term sustainable growth. These include introducing energy-efficiency measures, investing in clean fuel and renewable energy supplies and changing the consumer mind set and promoting conservation.

“Kuwait has not only proved its role as reliable supplier, but its commitment to the security of Asian supply. It has also achieved this not only by providing steady oil supplies, but also through maintaining and expanding its relations with the countries in the region.

Last but not least, investments are necessary, worldwide, and in all sectors, to alleviate the tightness in both upstream and downstream, to ensure reasonable prices for providing energy. While everyone’s participation is needed and therefore, highly appreciated in achieving market stability and supplies’ security, Kuwait is already in full throttle to help improve the current situation utilising every means possible in its grasp.

But there are other challenges facing the oil sector in Kuwait. The Kuwait oil industry is undergoing a transformation stage that will enable it to better meet future challenges in accordance with the overall mission and long term strategy.

“The world is constantly changing, but we have to be in a position to respond to changes as they develop,” Al-Adsani adds. “The market has witnessed for the past few years, a significant upward trend in oil prices as a result of strong market fundamentals and geopolitical tensions. Energy security remains the cornerstone of economic growth. However, the oil industry as been able to meet the increased demand for energy consistently over time.

“Meeting future energy demand would certainly require the optimum utilisation of all resources including; people, capital, and technology, as well as the collaboration with main players in the industry on partnership basis. The focal point for KPC to have an edge in the future is dependent on its success to promote the talents required.

“Currently, the world oil industry is facing a shortage of skilled manpower. KPC indeed, suffers from shortage of engineers which represents some 40 per cent of announced job opportunities for recruitments. We have tailored training programmes through different means; consultants, institutions, major oil companies, besides scholarships in certain specialties that are needed within the oil sector.“

Not only manpower but technologies. The oil industry continues to need new technologies that can help find, develop, and produce more oil and gas. The oil industry is devoting sufficient people and capital to develop innovative and breakthrough technologies.

“KPC’s long term strategy is driven by technology applications which include enhanced oil recovery, water injections, production of heavy crude,” he says. “Some of the technologies will be developed in-house. To this end, the oil sector has embarked on establishing a research and technology centre.

“In our journey towards achieving the set strategy, we would certainly require the assistance of International oil companies to use their technical capabilities and technologies in the field of enhanced oil recovery, and to develop heavy crude oil as well as light crude oil potentials in Kuwait.

“Moreover, in this market competitive environment, KPC has opted to implement the Enterprise Risk Management in-house, to support its efforts to create systematic value, and achieve comprehensive value chain optimization, among other targets.”