Bypassing Regional Challenges, Kuwait Receives first LNG cargo

Source: Eghtesad and Energy , Nov. 09 Issue

Jan. 07, 10 (Hamsayeh.Net) - The very last day of August this year marked an important milestone for Kuwait and for the gas industry in general. On that day, the very first cargo of Liquefied Natural Gas (LNG) purchased by Kuwait was discharged at its Min Al Ahmadi LNG (Re-gasification) terminal.

 

Interestingly enough, the LNG cargo was shipped by Shell from its Sakhalin-2 LNG plant in Russia. That means, one of the very first LNG cargoes from the very first export terminal of a major gas exporter of the world from Russia’s easternmost part has arrived at an oil rich country surrounded by major gas exporters.

 

That LNG delivery to Kuwait is by itself marks a major change in global gas business, which will sooner or later lead to alterations in regional relations amongst the Persian Gulf gas producers and their neighboring countries. Perhaps this would pave the way for circumventing regional challenges.

 

Kuwait is an oil-rich affluent state in the Persian Gulf and has now joined LNG importers’ club. Kuwait has the world’s largest per capita consumption of electricity, but does not produce sufficient natural gas for the production of electrical power it needs. The peak of consumption occurs in summer when all air conditioners are running in full. That is why the Kuwaiti government is attempting to meet the demand by importing gas, and to that end has explored all possible ways.

 

Kuwait houses almost 1.8 trillion cubic meters of natural gas, most of which are in the form of associated gas produced along with the recovery of crude oil. Since a few years ago, authorities have tried to raise the gas share of the feed of Kuwait’s power and petrochemical plants so as to curb the country’s oil consumption by 100,000 bpd. This helps Kuwait retain its rank as the 4th crude oil exporter within OPEC, and bring about other economic advantages too.

 

Production of 12.6 Bln cubic meters/year of gas domestically falls short of meeting the full requirement of Kuwait, especially in summer. The authorities not only stepped up efforts to avert flaring associated gas and exploring fresh gas discoveries, but started negotiating with major regional gas producers including Qatar, Iran and Iraq for importing natural gas.

 

In the year 2000, Kuwait signed a Memorandum of Understanding (MoU) with Qatar for the import of gas produced from the latter’s North Dome gas field (which shares its reservoir with Iran’s South Pars gas field in the Persian Gulf). In 2003, another MoU was signed between the two for the construction of a pipeline to carry that gas export to Kuwait. Later however, when Saudi Arabia refused to allow part of the pipeline to pass through its territory, the project was virtually called off.

 

Import of natural gas from Iran was then put on Kuwait’s agenda, to which end a preliminary agreement was signed with Iran in 2005. However, problems in the demarcation of marine border line between Iran and Kuwait in the Persian Gulf, particularly regarding the part that includes ‘Arash’ oil/gas field, which is shared by the two, have delayed the gas deal.

 

Prior to its invasion and occupation by Iraq under Saddam Hussein (August 1990), Kuwait used to receive nearly 9 Mln cubic meters/day (mcm/d) of gas from Iraq’s Rumailah oilfield. The gas was carried by a 100 mile long 40" pipeline. This came to an end when Iraq invaded Kuwait.

 

In 2004, Kuwait and Iraq agreed to revive the deal. Accordingly, some 1 mcm/d of Iraqi gas would be sent to Kuwait through the same pipeline in the first phase and then up to 5 mcm/d in the second phase. For the purpose, some $ 800 Mln would have to be invested for the reconstruction of the pressure- boosting stations of the pipeline.

 

Financial constraints and the prevailing insecurity in Iraq have so far prevented the gas deal from being implemented. Kuwait’s gas shortage is surely not so acute as to require the three gas deals with Qatar, Iran and Iraq to be executed concurrently. However, each of the three is shrouded in ambiguities that have until now delayed it.

 

Kuwaiti authorities know quite well that such quasi deals should not be relied on to meet the growing domestic demand for gas. By building an LNG receiving terminal of 15 Mln cubic meter capacity, Kuwait has chosen the shortest and safest mode of meeting that demand in the easiest possible way.

 

At present, many LNG cargoes are available in the global market at much reduced prices. By building the said LNG terminal, Kuwait has practically circumvented all potential or actual troubles for securing its gas needs and has entered a market where LNG spot cargoes, rather than the usual long term shipments, are increasingly available with easier terms.

 

Kuwait intends to buy 1.4 Mln tons/year of LNG from Qatar, negotiations for which are underway, and both countries will be benefiting from the deal. While the peak of consumption in most buyers of Qatar’s LNG happens in winter, that of Kuwait occurs in summer. Qatar can easily divert some of the summer excess LNG cargoes destined for East Asia to Kuwait.

 

Kuwaiti authorities have demonstrated their knowledge of the global gas market and its developments and have chosen the best possible way of securing their domestic gas needs. They have made the right and firm decision at the right time to build Kuwait’s LNG receiving terminal and have thus avoided all challenges in importing gas from the neighboring countries.