Tackling the gas crunch in Kuwait

18 July 2011

Kuwait is making progress on plans to reduce natural gas flaring and harness associated gas reserves in the Neutral Zone to meet rising domestic demand

Key fact

Kuwait aims to increase gas production to 1 billion cf/d by 2016

cf/d=Cubic feet a day. Source: MEED

Kuwait’s downstream industrial ambitions have long been thwarted by a combination of political paralysis and a lack of gas. But progress now is being made in tackling the latter problem at least.

Kuwait has a shortage of both associated and non-associated gas. It produces 500-600 million cubic feet a day (cf/d) of gas, but consumption is more than double this.

To make up the shortfall, 5.2 million tonnes of liquefied natural gas (LNG) is imported annually into the regasification terminal at Mina al-Ahmadi. This equates to 728 million cf/d of gas.

The main problem Kuwait has had to overcome is that the majority of its associated gas is flared off. The country has worked hard to reduce flaring and has built several gas processing stations close to its oil fields. In 2006, Kuwait flared 240 million cf/d of gas, but has now cut that figure to 174 million cf/d.

Reducing gas flaring

Within five years, state-owned Kuwait Oil Company (KOC) hopes to lose only 1 per cent of its gas through flaring. It aims to increase production to 600 million cf/d by the end of 2012 and 1 billion cf/d by 2016.

A network of gas gathering centres and booster stations have now been built in Kuwait to stop the wastage from flaring.

The majority of Kuwait’s gas is sour so it needs to be processed to make it useable. The gas is separated into high and low pressure and then sent to a booster station.

The low and high pressure gases are then compressed and sent to a liquid petroleum gas (LPG) plant. The condensate left over from this process is also collected, dehydrated and also sent to the LPG plant. 

The gas also has its high sulphur content reduced after compression, before going to the LPG plant, at an acid gas removal plant.

Capturing and processing sour gas is not cheap. Building an extensive gas network has required multibillion-dollar investment from the government. Recent large contracts include the $888m contract won by South Korea’s Daelim Industrial to build a gas fractioning column at the Mina al-Ahmadi refinery. The project is aimed at enabling Kuwait to process associated gas produced in the north and southeast of the country.

It is a positive sign Kuwait has realised that flaring large amounts of gas is unacceptable

Contracting source

“It is no coincidence that Kuwait is looking to secure extra gas in order to provide the feedstock for its downstream ambitions at the same time large refinery projects are being approved,” says a Middle East-based contracting source. “It is a positive sign that Kuwait has realised that flaring large amounts of gas is unacceptable.”

Kuwait’s Supreme Petroleum Council (SPC), the highest decision-making body in the country’s oil industry, approved the $14.5bn New Refinery Project (NRP) in late June. The NRP was approved twice before by the SPC and both times failed to leave the drawing board due to various reasons. But it is just one of many projects planned in Kuwait that will require additional gas.

Regional projects tracker MEED Projects estimates that there are more than $27bn-worth of power projects planned in Kuwait, as well as more than $30bn of refining projects and a further $4bn of petrochemicals schemes. The majority of the projects will use natural gas as a fuel or feedstock source.

Furthermore, many of Kuwait’s older power stations, refineries and petrochemicals facilities use oil as a feedstock. The government is keen to harness its associated gas to power these plants and free up oil for export. It is estimated that an extra 100,000 barrels a day (b/d) of oil would be made available if the switch to natural gas occurs.

At the same time as endeavouring to boost gas output domestically, Kuwait is looking to increase the volume of gas produced in the Neutral Zone.

Kuwait’s Neutral Zone

The Neutral Zone is an area between Saudi Arabia and Kuwait, measuring around 5,770 square kilometres in size, with significant hydrocarbon deposits which are shared equally between the two countries. 

The Neutral Zone currently produces 600,000 b/d of oil, which is extracted by Khafji Joint Operations (KJO), a joint venture between Saudi Aramco and Kuwait Gulf Oil Company (KGOC). About 60-70 million cf/d of associated gas is also produced, the vast majority of which is flared.

The most controversial gas field in the Neutral Zone is the offshore non-associated Dorra field. Dorra has estimated gas reserves of about 7 trillion cubic feet and could produce 600 million-1.5 billion cf/d. The figure dwarfs the amount of gas currently being flared from oil. 

KJO has ambitious plans to harness the gas, but the field has been the subject of disputes since the 1960s, with Iran also claiming rights over the field. While plans are in place to start development of Dorra, there has been no indication that a deal has been struck with Iran.

KJO has a solid reputation in oil production and has a series of initiatives both onshore and offshore to its credit. But it lacks experience in gas. “KJO has teamed up with companies such as [the US’] Chevron and [France’s] Technip on various schemes to maintain the oil production, but nothing has been done in regards to the gas until now,” says the contracting source.

KJO is currently tendering several contracts aimed at supplying Kuwait with gas for use in power generation, as well as feedstock for the planned refining projects.

Gas packages in the Neutral Zone

There are two main packages to upgrade the current facilities in the Neutral Zone and add new facilities to process the gas currently being flared. For the onshore package, the scope of works includes the construction of a crude and gas treatment plant, gas and natural gas liquids (NGL) collection and distribution facilities, with associated onshore gas facilities.

The offshore package includes the demolition and replacement of some existing offshore platforms, the laying of a 50-kilometre pipeline to the onshore facilities, as well as monitoring stations. 

The two packages are estimated to be worth $600m and have attracted the attention of international engineering, procurement and construction (EPC) contractors.

“Bidding for KJO work is very similar to bidding for work in Kuwait in that there is a tenders board and any suitable [EPC] contractor can request to be prequalified to bid,” says the contracting source.  “This makes it an easier process than if it was Aramco led.” At least 13 EPC contractors are bidding for the contracts, with six bidding for the onshore work and seven bidding for both.

The bid deadline has been extended to 1 August, with a decision expected by the end of 2011. Work is expected to take 36 months, with completion due by the end of 2014.

“Adding an extra 60 million cf/d of gas is going to make a contribution to Kuwait’s plans to replace oil with natural gas,” says the contracting source. “What is surprising is that Aramco didn’t also stake a claim for [the gas] too.”

The gas will be transported to Kuwait City via a $114m pipeline that is currently being tendered and is due to be completed in 2014. The pipeline will transport natural gas, as well as NGLs from fields in the Al-Khafji region of the Neutral Zone.

After years of wastage, Kuwait is finally starting to get its house in order with its gas reserves. As more progress is made, the government will have one less reason to stall on planned industrial projects.

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