Kuwait's state-owned oil company KPC is embarking on a huge investment programme to ensure it can meet demand for oil for decades to come. Chief executive Sheikh Nawaf Saud al-Sabah gave a wide-ranging interview to Argus' Middle East editor Nader Itayim in Kuwait City about the challenges facing the oil industry from the Red Sea crisis, how KPC intends to expand upstream and downstream to meet future customer demand, and the technologies it is looking at to help it and the country meet its net zero goals. The interview has been edited for length and clarity.
Given the current situation in the region — the tensions, the security concerns, the targeting of vessels in the Red Sea — do you see any warning signs for energy markets, specifically for the flow of supplies in and out of the region?
From Kuwait's perspective, and at KPC, nothing matches what we went through in 1990 and before that in the 1980s when shipping through the Gulf, and specifically Kuwaiti shipping, was targeted. But still supplies of oil continued throughout that process. So, we understand that the region remains volatile, and there are many actors in play, but we are confident that because of the importance of the region's trade and exports with the rest of the world, that the world will always react positively and take steps to ensure the free flow of trade.
As of now, has KPC been impacted?
No – as of yet. We monitor the situation quite closely and are in constant contact with our shipping colleagues. We believe in the free flow of trade through all international waters. But things evolve very quickly.
The impact on oil prices has been quite limited so far. How long can things continue to escalate before we see an impact — what has to happen?
Well, supplies have been flowing. And, due to responsible management from Opec+, there is now some spare capacity that we can bring online, whether in Kuwait or other Gulf countries or elsewhere in the world, in case of supply disruptions.
You have a plan to reach 4mn b/d capacity by 2035 and maintain that through 2040. How are things moving towards that goal?
Our strategy to 2040 and beyond is predicated on there being a greater demand on our crude, and it also means that we will have to invest to reach that capacity. Our interim goal will be to reach 3.2mn b/d next year and we are well on target to reach that. Our current capacity is about 2.9mn b/d [including Kuwait's share of the Neutral Zone] although our Opec+ allocation is lower than that. That is why I say we do have some spare capacity to bring online if the markets demand it.
Already in the last year and a half, since I came to this position, we were able to unlock quite a bit of capacity increase. We were about 2.6mn b/d when I came in and we have quickly reached 2.9mn b/d. And a lot of that has been just from unlocking capacity that we had that was held up in the supply chain. Remnants of Covid-era delays, and suppliers supplying equipment, and also in unlocking some of the bureaucratic hurdles that we go through here in Kuwait.
Where will the capacity additions come from?
We identified several new fields in Kuwait that we have never touched before. Those I would call additional unlocked potential. We are increasing our production of heavy oil from Ratga. We are also going offshore now — 85 years of production in Kuwait has been onshore and we have never gone to produce offshore. So we now have our first new exploration well offshore and we just spudded a second one. The virtue of Kuwait's geology is that our reservoirs are stacked, so we have only targeted a certain number of layers. New production will come from additional layers from pretty much the same geographical location, so that is a third option. And a fourth one, we do have new discoveries that we had left behind, did not want to touch now, and leave for the future. And those are going to be part of what will take us to 4mn b/d.
So, we have a very rich resource base. The burden on us now going forward is to bring forward that resource base through the facilities we are going to have to build. That is why we say we have an aggressive campaign to move our production capacity up. And while it is costly — it is going to cost about $300bn through 2035. Over the next five years, we anticipate around $8bn-10bn/yr of investments on the upstream to get us to our capacity numbers.
We have this position of a resource base that is quite rich, and we're really champing at the bit, like a racehorse that's ready to go, but you need to unleash it. And unleashing it comes through the infrastructure that we're going to build. Now, we're looking at various models on how to build that infrastructure faster, and cheaper.
Looking again at strategy 2040, we see a downstream target of 1.6mn b/d by 2025, up from just over 1.45mn b/d. How is Kuwait planning to deliver that?
Our target is up to 1.6mn b/d. The 1.4mn b/d is nameplate capacity. Any refinery in the world can usually produce quite a bit above nameplate capacity. In Vietnam for example, our refinery is up to about 15-20pc above nameplate capacity.
There is going to be some debottlenecking, and we are also going to test our ability to produce above nameplate capacity in some refineries, which should get us to the neighbourhood of 1.6mn b/d. So it is not going to be a new unit or major new investment. It is just going to be by optimising the investments we have already made and that will free up somewhere between 150,000-200,000 b/d.
In Strategy 2040, you have a target of 425,000 b/d of overseas refining capacity. Where are you now?
We are there, because it is capacity and ability to take Kuwaiti crude. Already the Vietnam refinery is 100pc Kuwaiti crude, and that is 200,000 b/d. You have the Oman refinery, Duqm, which is commissioning and is about to be inaugurated. That is 230,000 b/d of capacity that can take 100pc Kuwaiti crude, but right now our agreement is for 65pc of the crude slate to be Kuwaiti. And then we have a 50:50 joint venture with Eni in Italy, the Milazzo refinery. And that, again, is designed to take 100pc Kuwaiti crude. We can flex the crude slate in that refinery to take what is most commercially successful. But we always have the option to take Kuwaiti crude. We are already there.
Crude and product flows have changed a lot over the last two years. Have you seen much change in allocations to your customers or your customer base? Do you expect further change?
I am not expecting any changes at this point. Everybody recognises that we are committed to being a very good partner to our customers. They also understand that because of that, there is a long line of suitors, of potential customers, standing at the door. They recognise that if they want to be opportunistic on a certain transaction and drop a commitment with us and move to another supplier, they might end up at the back of the line and someone else will fill their position.
Our customers understand there is also value to having a stable, long-term relationship, especially because refineries are essentially designed for certain crude slates. Many of our customers have designed their refineries for Kuwait Export Crude (KEC), and that quality has not changed in eight decades, and will not change. We have supplied new grades to the market, whether it is heavy crude, which is not actually that heavy compared to others, and a super light crude, and those crudes are establishing their own markets now with customers, but certainly KEC remains the staple.
Is there any chance we could see KPC engage in an IPO of sorts? Or something similar to what we've seen in Saudi Arabia or the UAE – selling off stakes in subsidiaries or infrastructure?
For what reason would we want an IPO? Constitutionally, there is a prohibition against ownership of the resource, except by the state. But even beyond that, when you look at it, other places have had IPOs to fund sovereign wealth funds. Our sovereign wealth fund is the oldest in the world and has been making quite good returns. And by all means seems to be well funded to cater for the future.
Other reasons for monetisations are to fund capex growth. Spending over the next decade or so will obviously require different methods of funding. We can fund through our balance sheet, we can fund through our indebtedness. We may well do some monetisation, but we will not do IPOs, certainly not of KPC. We have done some monetisation of some assets internationally. But those have been mostly to redeploy in other investments. We've looked at what other people in the region have done on infrastructure monetisation, and we'll study those. But at this point we haven't had the urgent need to move on this.
When it comes to the energy transition, Kuwait has a net zero target. Where does KPC fit into those plans?
We're essential. We are leading those plans. But our buzzwords are more carbon mitigation and maintaining the low carbon nature of the Kuwaiti barrel, and essentially moving it to net zero by 2050.
One of the principle elements of our strategy is CCUS, and we've got a pilot project here in Kuwait that proves that the technology works. Our problems with it are so far just cost, associated with both the capturing of the carbon and transportation of it, but also the effects of the CO2 on the metallurgy of the facilities. And that's going to cost quite a bit to retrofit and upgrade those facilities to handle that much carbon. The vision [is] essentially to capture carbon from our refining stacks, and inject it into existing fields as enhanced oil recovery, and replace the gas we would otherwise inject into the fields. So we're freeing up gas for potential power generation, for petrochemicals usage, and taking carbon that would have otherwise dissipated into the atmosphere to inject into a system. We want to roll it out as much as we can in as many fields as we can. But no [targets yet]. Because of the cost. Once we get that established, we'll have better numbers.
