Saudi Arabia, Kuwait mull future Neutral Zone projects

Saudi Arabia and Kuwait look to be pressing ahead with plans to continue developing and raising oil output from the two key fields they share in the Neutral Zone.

A joint committee bringing together Saudi and Kuwaiti officials met yesterday to "explore future oil projects and plans" in the Neutral Zone, according to Kuwait's state-run Kuna news agency. The meeting also "examined any potential obstacles that could hinder the completion of strategic projects in the jointly-run oil fields," it said.

The Neutral Zone is a specially demarcated area between the two countries where production from the 300,000 b/d offshore Khafji field and 250,000 b/d onshore Wafra field has been gradually ramping up since they were brought back online in early 2020 following a more-than-four-year hiatus over long-standing operational disputes.

Prior to the shut-in, both fields were producing below capacity — Khafji around 280,000 b/d of medium sour crude, and Wafra around 175,000 b/d of heavy sour crude, for a combined 450,000-460,000 b/d of Neutral Zone output.

Khafji is operated by Al-Khafji Joint Operations (KJO), a joint venture between state-owned entities Kuwait Gulf Oil (KGOC) and Aramco Gulf Operations; and Wafra by a joint venture between KGOC and Saudi Arabia Chevron.

Officials from both Kuwait and Saudi Arabia said in the weeks following the agreement to restart production that output from the Neutral Zone would return to pre-shutdown levels at least by the end of 2020.

But today, Neutral Zone production from the two fields remains some way below even those pre-shutdown levels, with sources putting combined production at around 300,000-320,000 b/d currently.

The slower-than-communicated ramp up is at least in part due to technical complications encountered as a result of the multi-year outage, one source said. But Covid-19 and the massive 9.7mn b/d production cut implemented by Opec and its non-Opec partners just months later in response to the pandemic have also played their parts.

Saudi Arabia agreed at the time to cut its production to around 2.5mn b/d below an 11mn b/d baseline in May-June 2020, and Kuwait by close to 650,000 b/d below a 2.81mn b/d baseline.

But with the Opec+ group now set to unwind what remains of that original cut by the end of this year, the two Mideast Gulf neighbours have set their sights on those additional Neutral Zone volumes.

A joint statement issued by the two countries during a tour of the Middle East by Saudi Arabia's Crown Prince Mohammed bin Salman in December said coordination was "currently underway" between the companies operating the fields in the Neutral Zone to raise output from the fields.

One source said overall production from the Neutral Zone could "comfortably" rise by another 200,000-300,000 b/d within months, if required, which would potentially take output to beyond not just pre-shutdown levels, but also the zone's historic 550,000 b/d capacity.

And this looks set to rise even further over the medium term as the countries work to boost capacity at the two fields to 700,000 b/d by 2025 – a target that was announced by KOC, the upstream arm of Kuwait's state-owned KPC, back in October.

By Nader Itayim