Kufpec eyes fast recovery to 100 mil b/d oil market, exploration expansion: CEO

London — Kuwait Foreign Petroleum Exploration Company (Kufpec) is positioning itself for oil demand to recover to around 100 million b/d, in particular through greater spending on international exploration as others withdraw from the segment, acting CEO Shaikh Nawaf Al-Sabah said Sept. 2.

Al-Sabah, who also heads downstream company Kuwait Petroleum International, told Norway's ONS online conference he was hopeful of a relatively fast economic recovery from the coronavirus pandemic and the resumption of travel and mobility. He added that electric vehicles were unlikely to completely displace the internal combustion engine. He said Kufpec had fared relatively well financially during the crisis and was already expanding its exploration activity, with recent discoveries in Egypt and Malaysia.

Asia would remain a driver of demand for Kuwaiti crude, he said, arguing the region was recovering faster from the economic effects of the pandemic than other parts of the world. He highlighted KPI's 200,000 b/d refining joint venture in Vietnam, which runs entirely on Kuwaiti crude and meets 40% of the Southeast Asian country's refined product needs.

"We see the future really being there [in Asia], as we expand our relationship with -- whether it's Southeast Asia or other places through the continent. It's a place where we're positioning ourselves...being in projects in a number of the Asian countries. We think it's the place to be for the future."

Kufpec has in the last year-and-a-half announced a discovery in Egypt's Geisum concession estimated at 260 million barrels of oil in place, and a "multi-Tcf" gas discovery offshore Sarawak, Malaysia. Al-Sabah noted a number of oil companies such as BP plan to scale back or defer exploration, citing lower prices and a potential peak in oil demand.

Consultancy Wood Mackenzie has forecast worldwide exploration spending will fall by a third this year to $15 billion-$20 billion, compared with a peak of $100 billion in 2014, and said companies are "reassessing whether it will be central to the business model in future."

But Al-Sabah told the conference: "We do want to concentrate quite a bit more on exploration, and we're seeing the effects of that showing. Other companies are retrenching quite a bit from exploration and sanctioning new projects. That will create a supply crunch... as the world economy pulls out of COVID-19 [and] demand picks up."

"If supply is not there, there will be a greater volatility in the oil price as it increases. We want to be positioned through our exploration activities to have those new barrels available, and supply a market that we think will be tighter in a few years' time."

Transportation transition

On travel and transportation, he said: "People may change their habits, but we don't think it will be fundamentally altered. Once a vaccine or cure is found the world economy will come back relatively quickly. There's no substitute for face-to-face interactions with people. That's going to push up the transportation sector."

"Yes, there will be greater electric vehicle penetration, but it will not completely displace the internal combustion engine. The internal combustion engine will be more efficient and we need it to be more efficient because of population growth and economic growth. We still think oil demand will continue to hover around the 100 million b/d mark for quite some time. We have to continue to drill. We have to continue to explore for oil to replace the natural declines that happen over time," al-Sabah said.

Al-Sabah went on to stress the importance of Kuwait investing internationally. He praised Norway's tax and regulatory regime, and noted that while offshore conditions in Kuwait are different, his country's shallow-water development projects could benefit from experience gained at Norway's Gina Krog field in bringing electric power from shore to offshore facilities, and thus reducing emissions. Kufpec holds a 30% stake in Gina Krog, alongside stakes in smaller Norwegian oil facilities, and stakes in two UK oil fields, Alma and Galia, that are headed for decommissioning.

Elsewhere, al-Sabah said Kufpec's Canadian shale investments, alongside Chevron, were likely to prove beneficial as his country looks to develop shale resources of its own, and its investment in Australia's Wheatstone LNG project, also with Chevron, would help as Kuwait looks to import more LNG.

Kuwait aims to beat the competition both in the economic cost of its production, and the environmental cost, for example by capturing and reinjecting CO2 emissions resulting from the oil production process, he added.

"The barrel of the future will not only be the lowest cost barrel, it will be also the barrel with the lowest environmental cost, and this is what differentiates now Kuwait and certainly the Gulf countries from other places around the world that are producing," al-Sabah said.