Key fact

Kuwait will have a peak load demand of 25,000MW by 2025, compared with 10,000MW in mid-2011

Source: GE

For Kuwaitis who have become accustomed to summer power shortages, there is an understandable reluctance to take at face value government assurances that blackouts are now a thing of the past.

Rolling power outages have become a regular source of annoyance for the country’s citizens as consumption grows perilously close to capacity in the summer months. 

Nonetheless, Electricity and Water Ministry officials were confident that blackouts would be kept to a minimum in 2011. This is due to emergency measures that have boosted short-term capacity and an ongoing investment programme that will deliver long-term increases in generation capacity.

Short-term boosts to popwer sector

A major boost came at the end of June, when the US’ GE announced that six of its advanced technology gas turbines-generators had been activated at Subiya, the country’s largest combined-cycle power plant. This added 1,400MW of capacity to help meet summer electricity demand. The six turbines will add 10 per cent more power to the Kuwaiti grid, while a second phase at Subiya will expand generation capacity by 700MW. 

A long-term strategy for increasing capacity would give Kuwaitis more confidence in their government

However, the turbines are only a temporary solution. GE notes that Kuwait’s power demand is growing by 7-10 per cent a year, which will take it to a peak load demand of 25,000MW by 2025, compared with 10,000MW in mid-2011.

A coherent long-term strategy for increasing electricity and water capacity would give Kuwaitis more confidence in their government’s proposals, which until now have been dictated by crisis management.

A tender for mobile generators issued this summer, and the June 2010 request for 1,000MW from the GCC grid as backup, typify the government’s response to Kuwait’s tight supply/demand balance. These are quick-fix measures that may prevent blackouts, but do little to ensure that future generations will have access to reliable supplies of electricity.

Kuwait electricity sales revenues
  KDm
2000 35
2001 27
2002 37
2003 29
2004 36
2005 33
2006 34
2007 44
2008 47
Source: Kuwait Statistical Yearbook 2009

Among the GCC countries, Kuwait alone has failed to advance reform of its power sector over the past decade. It has neglected to follow the lead of other GCC states in unbundling their power sectors into separate generation, transmission and distribution segments. Little has been done so far to facilitate private investment in the three segments.

The annual summer outages are a painful side-effect of a wider failure in Kuwait’s planning. With political dysfunction partly to blame for its historically lethargic attitude to ramping up power generation capacity, the country’s politicians have come under pressure to activate an investment drive focused on the power and water sectors.

“The situation in Kuwait has been a case of not really planning ahead,” says Samuel Ciszuk, a Middle East energy analyst at the US’ IHS Global Insight. “They ran annual shortages for up to 10 years before you started seeing any proper planning, and that has to do with political deadlock.”

Consumption of fuel by Kuwait power plants
  (%)
Heavy oil 77
Crude oil 13
Gas oil 10
Source: Kuwait Statistical Yearbook 2009

The gravity of the crisis is evident in the government’s increased use of liquefied natural gas (LNG) imports. Since 2009, Kuwait has imported LNG during summer months to provide adequate feedstock to fuel its power facilities and free up more crude oil for export. 

“LNG imports were initially just for the summer, but have now been extended to more than half the year, starting this year,” says Ciszuk.

The Arab uprisings may not have affected Kuwait like some of its neighbours, but local politicians are aware that general discontent with ineffective public services can lead to calls for political change.

This has provided the authorities with an incentive for taking action. Kuwaiti officials are now promising investment of more than $20bn to double installed capacity, now estimated at a maximum of 12,600MW. 

Private partnerships for Kuwait’s power sector

The Electricity and Water Ministry, supported by the country’s public-private partnership (PPP) unit, the Partnerships Technical Bureau, is looking to the private sector to steer the power expansion. Independent water and power projects (IWPPs) will be used in preference to traditional engineering, procurement and construction (EPC) structured schemes. Under Kuwaiti law, all future power plants over 500MW must be tendered as either IWPPs or independent power projects.

The issuing of a request for proposals in March to build the country’s first IWPP at Al-Zour North is a tangible sign of progress. The plant will have a capacity of 1,500MW and 102-107 million gallons a day (g/d) of desalinated water. Bids are to be submitted by 27 September, with a preferred bidder to be appointed in November. Financial close is scheduled for May 2012.

Al-Zour has been designed as a fast-track scheme to relieve the stretched national grid. The Electricity and Water Ministry is planning a further four facilities at Al-Zour North, with a second phase to replicate phase one’s capacity and a third phase to add 800MW. Phase four will add 1,000MW. The first two phases will use natural gas feedstock. Al-Zour will serve as a test of wider appetite for Kuwaiti private power projects. If the market responds favourably, it will serve as a template for further schemes. The Electricity and Water Ministry has already undertaken studies for a 1,000MW gas-fired IWPP at Julaia, in Kuwait City.

Plans have also been unveiled for a major 2,500-3,000MW power project at Al-Khiran, situated on the coast near the Saudi border. Unlike Al-Zour, the ministry is looking to tender this under EPC contracts, and it will use fuel oil as feedstock rather than natural gas.

Meanwhile, the addition of the six GE turbines this summer adds significant extra capacity to Kuwait’s electricity sector. When the plant enters combined-cycle operation in 2012, total output will exceed 2,000MW. 

Temporary relief to power demand

There are other positive indications of action. In March, France’s Alstom was awarded a E170m ($239m) contract by the local Al-Ghanim International to build a steam-tail add-on power plant for the Al-Zour gas-fired power plant. It will add 400MW to the existing 800MW capacity by 2014.

Kuwait has also brought in mobile gas-fired turbines to provide temporary relief to its grid. 

More resources are also being diverted into overhauling the electricity distribution networks to end the chronic problems that have afflicted them, within 10 years. The ministry says it will replace all electrical transformers that have been running for more than 25 years at the rate a 1,000 a year.

Investment in new plants and transmission and distribution networks is an important part of the equation if Kuwait is to catch up with spiralling demand. Equally critical is making sure that the new plants have access to sufficient feedstock supplies. LNG imports have been a vital contributor to Kuwait’s power sector. Kuwait Petroleum Corporation signed an agreement for UK/Dutch Shell Group to supply the country with LNG cargoes from 2010 to 2013, amid rapidly increasing demand for gas. Kuwait’s gas consumption rose nearly 19 per cent in 2010, to 14.4 billion cubic metres (bcm).

LNG imports recommenced in March this year, with a shipment of 130,000 tonnes delivered to Kuwait National Petroleum Corporation, and will continue until mid-November. Imports at the Mina al-Ahmad terminal will total 500 million cubic feet between March to September 2011.

Kuwait has expressed a clear interest in LNG. A study is underway into building permanent LNG facilities and expanding the current import programme. The country has also moved further up the LNG supply chain. Kuwait Foreign Petroleum Exploration Company is due to take a final investment decision this summer over whether to participate in a $25bn LNG project off northwestern Australia. The Wheatstone LNG project will have a capacity of 25 million tonnes a year and is due to start its first gas production by 2012.

In order to firm up more gas feedstock for its power stations, the country is also exploring the possibility of importing piped gas from neighbouring Iraq. This, however, will hinge on Shell getting the green light for an ambitious plan to capture and process flared gas in southern Iraq.

The project will be carried out through its joint venture with state-owned South Gas Company and Japan’s Mitsubishi. If Shell can pull off a deal – far from a foregone conclusion due to widespread Iraqi opposition to the agreement – Kuwait could attract imports from north of its border. But the oil giant may yet opt to sell any export gas as LNG for the global market.

Kuwait’s gas reserves

Kuwait also plans to exploit a largely untapped domestic gas reserve estimated at 63 trillion cubic feet. Production from domestic resources, which totalled 11.6 billion cubic metre in 2010, has stagnated over recent years.

Kuwait Oil Company has plans to nearly quadruple gas production to four billion cubic feet a day by 2030. This will provide a large domestic feedstock resource to help fuel power stations that within almost a decade will have todouble the generating capacity they have today.

The jury is out on whether Kuwait will be able to ensure that the annual electricity shortages are consigned to history. As Ciszuk says: “Through crisis management, they look set to catch up with demand, but there’s still no real clarity about how they will proceed over the long-term. Policy has been reactive rather than proactive.”