Report Summary

The latest Kuwait Oil & Gas Report from BMI forecasts that the country will account for 2.67% of Middle East (ME) regional oil demand by 2012, while providing 10.37% of supply. ME regional oil use of 8.24mn b/d in 2001 rose to an estimated 10.61mn b/d in 2007. It should average 10.86mn b/d in 2008 and then rise to around 11.84mn b/d by 2012. Regional oil production was 22.87mn b/d in 2001, and in 2007 averaged an estimated 25.56mn b/d. It is set to rise to 28.94mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 371bcm, with demand of 542bcm targeted for 2012, representing 46% growth. Production of an estimated 368bcm in 2007 should reach 576bcm in 2012 (+56%), which implies net exports rising to 34bcm by the end of the period. Kuwait in 2007 consumed an estimated 3.77% of the region’s gas, with its market share forecast at 5.35% by 2012. It contributed an estimated 3.53% to 2007 regional gas production and, by 2012, will account for 3.54% of supply. In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel – up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole are revised upwards from BMI’s last quarterly report. We are now assuming an OPEC basket price average of US$81 per barrel for 2008, compared with the US$74 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$84.71, WTI averaging US$85.63/bbl, and Urals at US$81.88/bbl. Kuwaiti real GDP growth is estimated by BMI at 6.8% for 2008, following an estimated 5.6% in 2007. We are assuming 5.8% growth in 2009 and 4.9% in 2010, followed by 3.6% in 2011 and 2012. We expect oil demand to rise from an estimated 281,000b/d in 2007 to 316,000b/d in 2012, lagging the underlying rate of economic expansion. State oil company Kuwait Petroleum Corporation (KPC) is responsible for all domestic oil and gas operations. In spite of the absence of near-term international oil company (IOC) investment, crude production is forecast to increase from an estimated 2.71mn b/d in 2007 to 3.00mn b/d in 2012, subject to OPEC quotas. Gas production should reach 20bcm by 2012, up from an estimated 15bcm in 2007. Consumption is expected to rise from 14bcm to 289bcm by the end of the forecast period, requiring imports of 9bcm. Between 2007 and 2018, we are forecasting an increase in Kuwaiti oil production of 36.5%, with crude volumes rising steadily to 3.70mn b/d by the end of the 10-year forecast period. Oil consumption between 2007 and 2018 is set to increase by 42%, with growth slowing to an assumed 4.0% per annum towards the end of the period and the country using 400,000b/d by 2018. Gas production is expected to climb to almost 28bcm by the end of the period. With 2007-2018 demand growth of 267%, this provides an import requirement rising to almost 24bcm by 2018. Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and country-specific projections. Kuwait occupies eighth place in BMI’s updated Upstream Business Environment rating, which is a surprising outcome given its vast oil and gas wealth. It is just two points ahead of Bahrain, but it should be safe from any challenge thanks to its superior hydrocarbons position. The country’s score suffers from strict government control of the upstream industry, undermining the healthy resource position. The country is in the lower half of the league table in BMI’s newly-revised Downstream Business Environment rating, with a few high scores and near-term progress up the rankings a possibility. It is ranked seventh ahead of Qatar, thanks largely to excellent country risk factors that outweigh a highly regulated and largely state-controlled industry. Saudi Arabia is immediately above it in the regional rankings, and represents a realistic target, while Qatar below represents a long-term threat.