Kuwait itself contains an estimated 101.5 billion barrels of proven oil reserves, roughly 8 percent of the world total, and around 1,600 producing oil wells. The Saudi-Kuwaiti Neutral Zone (also known as the "Divided Zone") area, which Kuwait shares with Saudi Arabia, holds an additional 5 billion barrels of reserves, half of which belong to Kuwait, bringing Kuwait's total oil reserves to 104 billion barrels. Most of Kuwait's oil reserves are located in the 70-billion barrel Greater Burgan area, which comprises the Burgan, Magwa and Ahmadi structures and has a production capacity of around 1.6 million bbl/d. Greater Burgan is widely considered the world's second largest oil field, surpassed only by Saudi Arabia's Ghawar field, and has been producing oil since 1938. Kuwait's Raudhatain, Sabriya, and Minagish fields have large proven reserves as well, with 5.1 billion, 4.3 billion, and 3.3 billion barrels of oil, respectively. All of these fields have been producing since the 1950's. They generally contain medium to light crude oil with gravities in the 30°-36° API range. The South Magwa field, discovered in 1984 to the west of Burgan, is estimated to hold at least 25 billion barrels of light crude oil with a 35°-40° API gravity.

In September 2003, Kuwait announced as much as 1 billion barrels of very light oil had been found in western Kuwait at the Kara al-Marou field. And in October 2003, Kuwait announced a new discovery of light crude oil (42.6° API) at Sabriya. In March 2006, Kuwait announced it made a large discovery of between 10 billion and 13 billion barrels of light oil in the Sabriya and Umm Niqa areas in the north of the country. In April 2006 , KOC announced it had made an oil discovery in Arifjan, southeast of the Burgan oil field. Kuwait's oil minister stated that the new oil discovery bolstered Kuwait's official reserves by ten percent.

With most of Kuwait’s major producing fields over sixty years old, field maturity is becoming a problem. In 2005, Kuwait Oil Company (KOC), citing field exhaustion, lowered its production plateau estimates for the Greater Burgan area from 2 million bbl/d to 1.7 million bbl/d over a 20-30 year period. This issue will place added significance on the development of other Kuwaiti reserves going forward.

In early 2006, Kuwaiti energy planners came under pressure from the nation's parliament and the public to verify the size of the emirate’s crude oil reserves, after doubt was cast by a leaked KOC memo which stated that reserves actually stood at approximately half of the declared 97 billion barrels. Kuwait has signaled its intent to defend its 100-billion-barrel estimate of proven reserves and has said that the report is inaccurate and incomplete, since it covered only a portion of Kuwait's fields. If the lower figure is confirmed by the Kuwaiti authorities, the reserves life falls from 105 years at 2005 production levels to only 50 years. Additionally, at the lower reserves figure, if Kuwait were able to raise production to its 4mn bbl/d target (see below), the lifespan of its reserves would fall to roughly 30 years

According to Platt’s, a special committee of oil experts had completed the new reservoir appraisal in August 2006 and submitted it to KOC management. It is expected that the report will then be handed on to the new Energy Minister, Sheikh Ali Jafrah al-Sabah for submission to parliament, when it reconvenes in October 2006.

Currently, Kuwait produces about 2.6 million bbl/d of crude oil, with output divided about equally between shallow wells and high-pressure wells. These wells, producing up to 10,000 bbl/d each, come from the deep "Marrat" structure which runs north-south through the country and contains an estimated 20 billion barrels of oil in place. Aside from the 1.6 million bbl/d Greater Burgan field, Kuwait's other main producing fields include the northern fields of Raudhatain (380,000 bbl/d of production capacity) and Sabriya (95,000 bbl/d of production capacity); the southwestern fields of Minagish and Umm Qudayr (190,000 bbl/d); Abdali (33,000), and Ratqa (45,000 bbl/d) in the north; and Kuwait's share of the Saudi-Kuwaiti Neutral Zone (270,000 bbl/d). Overall, around two-thirds of Kuwaiti oil production comes from the southeast of the country, with about one-fifth from northern Kuwait and about one-tenth from the west.

On January 31, 2002, an explosion and fire at an oil-gathering center near Kuwait's northern Raudhatain oil field killed four workers and injured seventeen, while cutting the field's oil and gas output sharply. The explosion, which reportedly was caused by a leak at a major oil pipeline, knocked out three critical gathering centers (the 280,000-bbl/d GC-15, 120,000-bbl/d GC-23, and 200,000-bbl/d GC-25), an electrical substation, and a natural gas booster station (BS-130). Production at Raudhatain was quickly restored to around 300,000 bbl/d by the end of February 2002, but further repairs were required on GC-15 to restore the rest. The facility reopened in January 2005, with repairs costing around $250 million. SK Corporation of South Korea was awarded a contract in May 2005 for construction of ten additional gathering centers, as well as other associated infrastructure. The $1.2 billion project is scheduled for completion in mid-2007.

Production Quotas

Kuwait's current OPEC production quota of 2.247 million bbl/d became effective July 1, 2005, with the next OPEC meeting scheduled for December 14, 2006. (Please see EIA Short-Term Energy Outlook “ Table 3a. OPEC Oil Production ”)

Kuwait continues to plan significant expansion of its production capacity. Kuwait hopes to reach capacity of 4 million bbl/d by 2010 and 5 million bbl/d by 2020. As part of this plan, known as "Project Kuwait," the country is considering permitting foreign oil companies to invest in upstream production, although only on "incentivised buy-back contract" (IBBC) arrangements, which do not involve production sharing, concessions, or the "booking" of reserves by foreign companies. Kuwait's constitution -- and longtime policy -- bars foreign investment in the country's natural resources, except as provided for by law. Unlike PSA's, the structure of the IBBC agreements allows the Kuwaiti government to retain full ownership of oil reserves, control over oil production levels, and strategic management of the ventures. Foreign firms are to be paid a "per barrel" fee, along with allowances for capital recovery and incentive fees for increasing reserves, in their role as service provider/contractor.

"Project Kuwait," to be developed over 25 years, was first formulated in 1997 by the SPC, to increase the country's oil production by 500,000 (and to help compensate for declines at the mature Burgan field), with the help of international oil companies (IOCs). In particular, Kuwait aims to increase output at five northern oil fields -- Abdali, Bahra, Ratqa, Raudhatain, and Sabriya (Kuwait's third largest field) -- from their current rate of around 650,000 bbl/d to 900,000 bbl/d within three years. Project Kuwait has been repeatedly delayed however, due to political opposition and resistance in parliament to the idea of allowing foreign companies into the country's oil sector. Its current estimated $8.5 billion cost is up from an earlier $7 billion. Legislation facilitating Project Kuwait was introduced again in the Kuwaiti parliament in early 2005 and approved by the Finance and Economic Committee in June 2005, but with amendments limiting its scope to four of the five fields, excluding Bahra. Final action on the bill by the full parliament is still pending, but is expected by the end of 2006.

However, the controversy over Kuwait’s reserve figure could have a significant impact on the country's capacity expansion plans. Opposition MPs have called for production to be kept within 1 percent of reserves in order to ensure that oil is available for future generations, though the proposal has not yet been passed into law. Even taking the 100-billion-barrel figure, the 1 percent limit would restrict Kuwait's production to under 3 million bbl/d, increasing difficulty of efforts to pass the Project Kuwait legislation.

In February 2003, KPC completed a draft contract and proposed financial terms for Project Kuwait. There are three major consortia competing for the project, led by: 1) ChevronTexaco (along with Total, PetroCanada, Sibneft and Sinopec); 2) ExxonMobil (along with Shell, ConocoPhillips, and Maersk); and 3) BP (along with Occidental, ONGC/Indian Oil Corp.). Reportedly, KPC prefers to have three groups working under three separate IBBCs: one for Raudhatain and Sabriya (the largest IBBC); one for Ratqa, Bahra and Abdali; and one for Minagish and Umm Gudair. Currently, foreign companies like BP, Shell, and ChevronTexaco operate in Kuwait strictly under service contracts (SCs).

The fields which the Kuwaiti government intends to open to foreign investment are all currently operating fields in northern or western Kuwait, including Raudhatain, Sabriya, Ratqa, Bahra, Minagish, and Umm Gudair. Kuwait's largest field, Burgan, is to remain off-limits to foreign investment under the new plan. Kuwait also reportedly is planning to invest $6 billion in three areas near the Iraqi border -- Abdali, Ratqa, and Raudhatain -- while utilizing enhanced oil recovery (EOR) techniques in order to increase production capacity at Minagish from 150,000 bbl/d to 250,000 bbl/d. Agreements to assist in developing EOR techniques have already been reached with Chevron, ExxonMobil and the Japan National Oil Corporation (JNOC), in association with the Kuwaiti Institute for Scientific Research. One challenge that often comes along with EOR techniques like water injection is an increasing "water cut." KPC has estimated that increasing Kuwait output to 4 million bbl/d will produce 10 million bbl/d of water, which will need to be processed and disposed of.

To meet it expanded production goals, KOC has stated in June 2006 that is planning to mount an aggressive drilling program involving both deep and shallow exploration, but mainly focused on developing heavy oil from the northern fields. KOC has estimated it will need to spend around $27.6 billion for domestic upstream oil development to meet the 2020 goal. The main development area will be in the Rutga field at the Lower Fars formation at 500 to 1,000 feet.

Pilot testing of the heavy oil should begin by early 2008. KOC also plans to begin drilling in South East Kuwait and West Kuwait . In South East Kuwait, which holds the vast Burgan field, production is to increase by 200,000 b/d to a total of 1.7 million bbl/d, while KOC aims to maintain capacity in West Kuwait at 500,000 b/d. Kuwait hopes the largest increases will come from the north, where KOC anticipates producing some 700,000 b/d of heavy oil from the shallow wells. Together with current capacity in the north of 650,000 bbl/d to 700,000 bbl/d, along with production from newer, deeper wells, Kuwait aims total production in the north by 2020 of an estimated 1.5 million b/d.

In September 2006, KOC announced plans for three new projects to boost crude oil output. According to officials, the projects include a gas booster station, a gathering centre and a water injection plant. Costs for Gathering Center 24 are estimated at $550 million and the water injection plant is expected to cost $450 million. The gathering centre at Sabriya in the north will have an estimated capacity of 465,000 bbl/d and 240 Mmcf/d of natural gas. The water injection plant, also in the north, is expected to handle 155,000 barrels of effluent water a day. Booster Station 160 in the southeast will complement two other stations in the area that are at maximum capacity. KOC plans to go ahead with the project upon approval from KPC.

As part of its current budget, KOC also has implemented a two phase project to make all its oil production facilities in South East Kuwait be able to handle sour crude laden with hydrogen sulfide. This process, know as going from “non-NACE” to “NACE,” involves meeting international standards for corrosion prevention set by the National Association of Corrosion Engineers. The contracts, which were awarded last year to Petrofac of the United Kingdom and South Korea's SK Engineering, are expected to be completed within two years. To transition from non-NACE to NACE, Kuwait will be required to replace about 80 percent of all South East Kuwait facilities, including several new gathering centers, new pipelines and condensate recovery units and entail rotating shut-in periods for some facilities.

In 2005, Kuwait exported the majority of its oil (over 60 percent, 1.38 million bbl/d) to Asia-Pacific countries such as Japan, India, Singapore, South Korea, Taiwan, and Thailand. Other oil exports were split between Western Europe (112,000 bbl/d) and to the United States (123,000 bbl/d). Kuwait's single export blend ("Kuwait Export") has a specific gravity of 31.4oAPI (a typical medium Mideast crude), and is considered sour with 2.52 percent sulfur content. Around 90 percent of Kuwaiti crude oil is sold on term contracts, with the price of Kuwaiti crude oil tied to Saudi Arabian Medium (for western customers) and a monthly average of Dubai and Oman crudes (for Asian buyers). In June 2006, Kuwait also announced plans to increase crude sales to India by more than 10 percent. Kuwait provided about $4.5 billion worth of crude oil and oil products to India in 2005.

Kuwait has completed major renovations of Mina al-Ahmadi, the country's main port for the export of crude oil, which was virtually destroyed during the Gulf War. Kuwait also is planning a $900 million expansion at the port in order to add storage capacity and increase export capacity in conjunction with plans for expanded oil production in coming years. Besides Mina al-Ahmadi, Kuwait has operational oil export terminals at Mina Abdullah, Shuaiba and at Mina Saud. A new terminal is planned for Bubiyan Island, which will handle increased production from northern and western Kuwait under Project Kuwait.

The Neutral Zone (or "Divided Zone") encompasses a 6,200 square-mile area partitioned equally between Kuwait and Saudi Arabia under a 1992 agreement. The Neutral Zone contains an estimated 5 billion barrels of oil and 1 trillion cubic feet (Tcf) of natural gas. Oil production in the Neutral Zone, which currently is running around 600,000 bbl/d (around half offshore and half onshore), is divided equally between Saudi Arabia and Kuwait. Major Neutral Zone onshore fields include Humma, South Fawaris, South Umm Gudair, and Wafra. Offshore fields include Hout and Khafji, which produce 33o API and 28o API gravity oils, respectively.

At present, Kuwait's three domestic refineries have a combined capacity of roughly 936,000 bbl/d. The country's largest refinery is Mina al-Ahmadi, with capacity of 466,000 bbl/d. Other large refineries include Mina Abdullah (270,500 bbl/d) and al-Shuaiba-1 (200,000 bbl/d). In 2005, some 614,000 bbl/d of refined product, roughly 65 percent of Kuwait’s total production, were exported, mostly to Asia-Pacific countries (440,500 bbl/d) and Western Europe (119,900 bbl/d). High demand over the last two years has kept Kuwait's refining sector running at close to full capacity.

Kuwait reportedly is planning to spend over $8 billion through 2010 on upgrading its refining sector. One purpose of this upgrading would be to increase capacity to produce ultra-low-sulphur transportation fuels. Another would be to process an increasingly heavy and sour crude oil production slate as new oilfield developments come online. A contract for an upgrade to the Mina al-Ahmadi refinery was signed with Hyundai in May 2005, which will allow it to reconfigure lower-sulfur diesel and gasoline, and reduce the proportion of fuel oil in its product mix. The upgrade project is expected to be completed in 2007 at a cost of $400 million.

Kuwait also is considering construction of a new refinery at Al-Zour, with possible capacity of 615,000 bbl/d (and at a cost of $6 billion), which would begin operation around 2010. It would replace the Shuaiba refinery, which is the country's oldest and least technologically advanced. U.S.-based Fluor-Daniel was awarded a contract for the initial design and engineering work in November 2004, and bids for the construction contract are due by the end of October 2006. According to KPC officials, Kuwait will be able to export up to 74,000 bbl/d of low-sulfur fuel oil (LSFO) when refinery comes online.

Kuwait holds equity interests in oil production in 14 countries through the Kuwait Foreign Petroleum Exploration Company (KUFPEC), established in 1981. KUFPEC is active in Australia, Indonesia, and Tunisia, among others. Most of the interests are either small fields or minority stakes, though, and prior to recent oil price increases, KUFPEC's revenues have traditionally been under $200 million a year, making it a relatively minor part of Kuwait's state oil establishment. But, net profit rose to $136 million in the first half of 2006, up 16 percent from the same period in 2005. According to KUFPEC's website , the company is aiming to increase its production capacity to 100,000 bbl/d oil equivalent by 2010, up from around 35,000 bbl/d oil equivalent currently.

Kuwait Petroleum International (KPI) manages KPC's refining and marketing operations. KPI also owns refineries in Rotterdam and Italy, enabling it to supply a large share of its European retail outlets directly. KPC owns service stations in Belgium, Spain, Sweden, Luxembourg Thailand and Italy, with a refining joint venture with AGIP at Milazzo, Italy. Today, KPI markets approximately 300,000 bbl/d in Western Europe and Thailand through 5,000 retail stations.

With the growth of downstream markets in Asia, Kuwait has been keenly interested in acquiring downstream assets in large emerging markets such as China and India. To this end, KPC has entered into preliminary strategic alliances with both Shell and BP during 2005, which it hopes will help it secure a foothold in these high-growth markets. In July 2006, after months of deliberation, China signaled it will choose Nansha as the site for an integrated refining and petrochemical complex proposed by KPC in Guangdong province, according to International Oil Daily. China’s large state refining firm Sinopec will likely be KPC's partner. KPC subsidiary KPI wants to build a refinery based on Kuwaiti crude supply, with a capacity of 200,000-400,000 barrels per day, with integrated petrochemicals facilities. KPC would like to secure approvals for its refinery by the end of 2006, allowing start-up in 2010. KPC is expected to secure investment for the project from BP and Royal Dutch Shell and chemical firm Dow, who is already a strategic partner with KPC affiliate Petrochemical Industries Co. (PIC) in a petrochemical venture in Kuwait . BP and Shell have signed cooperation agreements with KPI and KPC, respectively.

In June 2006, Pakistan and Kuwait agreed to expand and strengthen the existing cooperation between the two countries in the oil and gas sector. Pakistan welcomed Kuwaiti investment for setting up a $1.2 billion 100,000 bbl/d oil refinery at Port Qasim and Kuwaiti participation in the privatization of state owned oil & gas units.

Kuwaiti officials have expressed interest in accelerating development of the country's relatively small petrochemical sector. This would accomplish several goals: boosting the value of Kuwait's crude oil reserves; helping to protect Kuwait's revenues during periods of low crude prices; and boosting Kuwaiti revenues while adhering to OPEC crude oil quota limitations. Historically, Kuwait's Petrochemical Industries Company (KPIC) has mainly manufactured low-value products such as urea, ammonia, and fertilizer for export. PIC is now beginning to move upmarket to production of higher-value products.

The Equate joint venture, involving PIC and Union Carbide (part of Dow Chemical), is the country's largest petrochemical project. The $2 billion industrial complex at Shuaiba, which came online in 1997, includes a 650,000 metric-ton-per-year ethylene cracker, two polyethylene units with a capacity of 450,000 metric tons per year (t/y), and a 350,000-t/y ethylene glycol plant, all of which are currently operating. The complex primarily serves the Asian and European markets. PIC and Union Carbide each have a 45 percent share in the project, with the remainder owned by Boubyan Petrochemical Company.

In April 2001, KPIC approved a $1.5 billion plan to construct "Equate II," which would produce olefin (ethylene, polyethylene, ethylene glycol). In May 2003, PIC and Dow Chemical announced that Equate II would be built at Shuaiba and integrated fully with Equate I when it comes online in 2007. Equate II is to have ethylene capacity of 850,000 t/y, ethylene glycol/ethyleneoxide capacity of 600,000 t/y, and polyethylene capacity of 450,000 t/y.