Kuwaiti oil and gas industry gathering momentum despite falling oil prices, experts say

The award of new contracts for upstream contracts has been relatively sluggish in Kuwait over the past few years, but now new technology is being sought to bring life to Kuwait's mature fields. Last year, after several years of slow development, Kuwait announced some of the largest oil and gas projects planned for the region, and despite the decline in oil prices there remains a sense within the region that governments will refrain from curbing output even if prices fall as low as $40 a barrel.

The Kuwait Oil Company (KOC), a subsidiary of Kuwait's national oil company the Kuwait Petroleum Corporation (KPC), recently invited five international oil companies to bid for a contract to develop the country's Ratqa heavy oil field. This will involve constructing Kuwait's biggest heavy oil reservoir which will produce 60,000 barrels a day by 2018/19 . The new contract is part of a wider push to ramp up production in the country to four million barrels a day by 2020, and demonstrates Kuwait's focus on developing heavy oil projects.

Kuwait has also taken a particular interest in boosting output of refined fuels to supply its domestic market and also to export, as the state recognises that refined products can fetch a higher price on international markets than raw crude. Another KPC subsidiary, the Kuwait Foreign Petroleum Exploration Company (KUFPEC), also recently made a high profile $1.5bn investment to acquire a 30% stake in Chevron's Canadian Duvernay shale play, which is largely seen as part of a drive by many Gulf states to acquire shale technology.

Last year  Kuwait introduced a law on Public Private Partnerships (PPPs) (35-page / 319KB PDF) to help attract new investors and spur economic growth. Since Kuwait's economy is still very much dependent on government spending, the successful launch of PPP projects is very important to developers, construction companies and suppliers, as well as the financial institutions that might fund these projects. Although not aimed solely at oil companies, it will have an increasing impact on petrochemicals, refineries and other planned downstream oil infrastructure.

Despite its small geographic size, Kuwait is a giant in the oil and gas industry. Oil and gas currently accounts for about 60% of the country's gross domestic product and about 95% of its export revenues. Proven crude oil reserves are currently at 101,500 million barrels, with 2,925,000 barrels of crude oil produced and 2,058,000 barrels exported per day. Its marketed production of natural gas currently stands at 16,311 million cubic metres whilst its output of refined petroleum products stands at roughly 992,100 barrels per day.

The International Monetary Fund (IMF) estimates that Kuwait can withstand a crude oil price of $54 per barrel before it reaches the fiscal break even point. So even in a climate of falling oil prices, Kuwait's oil and gas projects remain viable. The state's implementation of new laws, investment in advanced technology to enhance the recovery of natural resources and the billions of dollars worth of investment due to be awarded in its projects market over the coming year shows an oil and gas industry that is gaining momentum.

Damien Crosse is a litigation expert and Jason Rosychuk is an oil and gas expert at Pinsent Masons, the law firm behind Out-Law.com. Both are based in Dubai.