Kuwait probes Shell gas deal

23 August 2011

Political opposition threatens to derail a scheme that could solve the country’s worsening power issues

In February 2010, UK/Dutch oil major Shell Group became the first international oil company to sign an enhanced technical services agreement (ETSA) in Kuwait. Under the estimated $800m five-year deal, Shell will help state-owned Kuwait Oil Company (KOC) develop and manage its 13 trillion cubic feet of reserves in the northern Jurassic gas fields.

Under Kuwait’s constitution, it is illegal for foreign companies to own any of the country’s natural resources, making traditional production sharing agreements impossible. This makes ETSAs the only way forward. But a year and half into the deal, the politics threaten to derail the scheme.

The National Assembly launched a probe into the deal in June, following complaints from parliamentarians. This has now been followed by Kuwait’s Oil Ministry, which appears unsatisfied with KOC’s answers. The probe is an indication of the kind of political opposition the government can expect to face as it prepares to launch a series of oil and gas projects over the coming years.

The US’ Dow Chemical Company faced similar opposition and was forced out of a $17.4bn petrochemicals joint venture in 2008.

The country can hardly afford a replay with the Shell deal. Its gas resources are currently stretched thinly with rising power consumption. Increasing non-associated gas production from the Jurassic fields was meant to provide ethane feedstock for a planned new olefins cracker, but Kuwait is now looking at mixed feeds to make up the shortfall if the project is delayed.

The country’s frequent political crises mean that ambitious expansions look unlikely in the near future.

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