Kuwait Oil Company (KOC) and its parent, Kuwait Petroleum Corporation, have a major decision ahead of them. They must decide whether to retender a major gas production scheme that has stalled for three years.
The $1.56bn Jurassic gas scheme, awarded to the local Kharafi National in 2010, used a build-own-transfer (BOT) contracting model, where the contractor would provide the financing for the construction. After appointing two separate subcontractors, no progress has been made and the blame has been laid on the procurement model.
At stake is Kuwaits fast-approaching production expansion target of 1 billion cubic feet a day of gas, which is due in 2016
At stake is Kuwaits fast-approaching production expansion target of 1 billion cubic feet a day (cf/d) of gas, which is due in 2016. Its gas resources are currently stretched thin due to rapidly rising power consumption. Increasing non-associated gas production from the Jurassic fields was meant to alleviate the shortages and replace the need for expensive liquefied natural gas (LNG) imports.
Kuwait has explored the possibility of other alternatives such as the development of the Dorra gas field in the Gulf, which it shares with Iran and Saudi Arabia, although the scheme has now been shelved. Other proposals include the resurrection of a pipeline from Iraq.
Despite its increasing energy consumption, as long as oil prices remain high, Kuwait can easily bear the cost of burning LNG in its power plants, giving the government little incentive to push ahead with technically challenging gas development plans that will require help from international oil companies. But this is hardly a long-term solution.
If the country is to resurrect its gas expansion plans, KOC must soon make a decision on whether to retender the deal, dropping the current contracting model that is causing the delays, or to continue as it is, leaving the scheme idle.