Saudis, Kuwaitis to develop disputed Neutral Zone field

Kuwait and Saudi Arabia have finalised an agreement to develop the offshore Dorra gas field in the Neutral Zone that is shared between the two Mideast Gulf countries. But poor demarcation of the countries' maritime borders with Iran, which claims a 5pc share of the field, could complicate matters if they fail to co-ordinate with Tehran.

The agreement, which was signed by Kuwait's oil minister Muhammad al-Fares and his Saudi counterpart Prince Abdulaziz bin Salman in Kuwait late yesterday, envisages production from the 35 trillion ft³ (991bn m³) shared field to reach 1bn ft³/d of natural gas and up to 84,000 b/d of condensate.

The Dorra field would become the third producing asset in the Neutral Zone, after the 300,000 b/d capacity offshore Khafji field, and the near-250,000 b/d capacity onshore Wafra field.

Development will be carried out by Al-Khafji Joint Operations (KJO), a joint venture between the state-owned entities Kuwait Gulf Oil (KGOC) and Aramco Gulf Operations, which also operates the Khafji field. KJO will now be responsible to find a consultant to conduct the engineering studies needed to prepare the development plan.

The gas and condensate produced at the field will be split 50:50 between the two countries, as is normal practice with all production from the Neutral Zone. Saudi Arabia's share of the production will be sent to Aramco Gulf Operations' facilities in Khafji, and Kuwait's share to KGOC's facilities in al-Zour.

The agreement builds on a non-binding accord agreed in December 2019, as part of a wider agreement between the two countries to restart crude production from the Neutral Zone fields following a hiatus of more than four years over long-standing operational disputes.

Production from Khafji and Wafra has been gradually ramping up since early 2020. And although officials from both Kuwait and Saudi Arabia said in the weeks following the December 2019 agreement that production from the fields would return to pre-shutdown levels of around 450,000-460,000 b/d by the end of 2020, today sources put combined production at around 310,000-320,000 b/d.

One source said last month that the slower than communicated ramp up is at least in part because of technical complications encountered as a result of the multi-year outage. 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-induced drop in global oil demand will have also played their parts.

Iranian claims

Neither Saudi Arabia nor Kuwait made any mention about how soon they plan to bring production from the field onstream, saying only that the gas and condensate should help meet energy demand in the two countries at a time when consumption is "soaring".

But the lack of a timeframe could have something to do with Iran, which has long claimed a 5pc share of the field that it calls Arash and would probably demand involvement in any plans to develop the asset.

Kuwait lodged a letter of protest in 2012 over Iranian plans to develop the field, only to then launch a development project with Saudi Arabia that same year which ultimately fell by the wayside over a disagreement on the delivery point of the gas production.

The Kuwaitis once again hit out against renewed plans by Tehran to put the field on offer to foreign investors following the signing of the Iran nuclear deal in mid-2015, insisting at the time that there would be no change to the status quo at the field.

Talk around the project has largely quietened down in Tehran, in no small part probably because of the sanctions that then US president Donald Trump reimposed on it following the US withdrawal from the nuclear deal in 2018.

But with all parties to the deal now very close to an agreement to restore it, and in turn lift sanctions on Tehran, this could potentially open the door for some kind of involvement from the Iranians, particularly given the ongoing efforts between Iran and many countries of the Gulf Co-operation Council, particularly Saudi Arabia and the UAE, to improve ties.

By Nader Itayim