Construction has stopped on the $200m Wafra Main Gathering Centre Upgrade after the Divided Zone upstream operator, Kuwait Gulf Oil Company (KGOC) issued the Korean engineering, procurement, and construction (EPC) contractor, SK Engineering and Construction (SKEC). with a suspension notice.
According to a senior figure connected to the project who asked to remain anonymous, the suspension is due to the ongoing Divided Zone land dispute.
Construction and procurement work has now completely stopped, he said.
Administrative and engineering work is continuing according to the source.
Before the suspension notice was issued, the project was on course to be completed in September 2015.
The suspension of construction work on the gathering centre is the latest in a number of project disruptions that have been attributed to an escalation of tensions between Kuwait and Saudi Arabia by insiders.
In late October, Kuwaiti officials told the Wall Street Journal that Saudi Chevron had been ordered to move out of its offices in because of the dispute, and said Kuwait had stopped issuing work permits for Chevron staff.
Chevron operates Saudi Arabias 50 per cent share of the Wafra field, which is located in the Divided Zone and produces about 200,000 barrels a day (b/d).
Failure to resolve the dispute could lead to production ceasing at Wafra, according to a letter sent from Chevron to the Kuwait Oil Ministry and seen by the Wall Street Journal.
Insiders also claim the unexpected shutdown of the Al-Khafji offshore fields on 16 October is a result of the rising tensions, though this was denied by Kuwaits Foreign Ministry Undersecretary Khaled al-Jarallah, in a statement on 26 October.
The current Divided Zone land dispute dates back to 2007, when Kuwait outlined plans to build its $14bn Al-Zour refinery on land that included a site that was under lease by Saudi Arabian Chevron.
The dispute flared again in 2009 when Saudi Arabia renewed Chevrons Divided Zone concession and Kuwaiti sources complained to the media that there had not been proper consultation with the Kuwait government.
The exact chain of events that led to the latest escalation in tensions is uncertain, but some sources say Kuwaits recent plans to build a $680m liquefied natural gaz (LNG) import and regasification terminal in the Divided Zone are to blame.
The LNG terminal is due to be built on a site that borders a tank farm operated by Chevron.
The project is currently in the pre-tender phase with EPC prequalification applications due to be submitted on 16 December.
Kuwaits Al-Zour refinery project is adjacent to the LNG terminals site, but EPC sources involved in the project say it is unlikely to be affected by the land dispute.
Progress on the Al-Zour refinery is unlikely to be impacted by the ongoing dispute, said one EPC source involved in the tender process. Too much is at stake for Kuwait. Kuwaiti authorities will be prepared to make large sacrifices to keep the project on track.
The spate of project disruptions has also raised concerns that the ongoing $5bn oil field development project on the Wafra site could also be disrupted.
Front-end engineering design (feed) work is currently being carried out on behalf of the clients, Chevron and KGOC.
Chevron declined to comment on the projects progress.
The feed for the scheme is expected to be completed later this year and the project is expected to be commissioned in 2020.