Divided Zone differences

28 April 2015

Saudi Arabia and Kuwait need to increase cooperation on shared projects

Production at the Divided Zone’s last remaining operational oil field is expected to be wound down over coming weeks as Kuwait continues to deny the field’s operator, Saudi Arabian Chevron, work visas and access to imported equipment and materials.

No satisfactory reasons have been revealed by Kuwait as to why it is placing these restrictions on Chevron, which operates the 240,000 barrel-a-day (b/d) Wafra field in the Divided Zone on the behalf of Saudi Arabia.

The expected shutdown of production has made the planned $5bn Wafra field development project the third major upstream scheme to stall in the area over the past three years, with no satisfactory explanation provided from either the Saudi or Kuwaiti authorities.

The cancellation of the Dorra gas field development in 2013 cost both countries a share in its potential production of 600,000 cubic feet a day (cf/d) of gas, and the shutdown of the Al-Khafji oil field in October last year saw Divided Zone oil output drop by 310,000 b/d.

Part of the problem at the heart of all these project failures is the nature of the Divided Zone and the challenges presented by carrying out projects in an area has been split into two sovereign regions but remains a single economic zone.

Relations between Saudi Arabia and Kuwait are generally good and cooperation has been increasingly close over the past two years, but the two countries have still struggled to agree on compromises needed to make schemes work in the Divided Zone and take full advantage of resources in the shared area.

If Kuwait and Saudi Arabia fail to improve their coordination over Divided Zone projects, the future cost could be high, especially for Kuwait.

Later this year, Kuwait is hoping to award contracts for its flagship $14bn Al-Zour New Refinery Project, which is slated to be built on the Kuwaiti side of the Divided Zone.

The scheme has already run into problems, with bids from contractors coming in billions of dollars over budget.

Any quarrelling over the land being used for the project would further complicate the work, increasing the likelihood of long delays.

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