Dubai — Kuwait's compliance with OPEC+ oil production cuts will cap economic growth this year but the restart of production from a region shared with Saudi Arabia will prop up future GDP, S&P Global Ratings said in a report.
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Kuwait, OPEC's fourth largest oil producer, will post GDP of 0.5% growth in 2020, the same as 2019, as it is projected to produce an average of 2.65 million b/d this year compared with 2.8 million b/d average last year, the rating agency said in a report dated January 17.
"The December 2019 OPEC+ decision to further cut oil production constrains short-term growth while the recent escalation of U.S.-Iran tensions poses risks," S&P Global Ratings said. "The oil sector directly comprises close to 50% of the country's GDP, although if other related activities are taken into account, that proportion is even higher."
In December, OPEC and 10 non-OPEC partners agreed to deepen their production cut agreement to 1.7 million b/d from January through March 2020.
Kuwait's new quota under the deal is 2.657 million b/d.
Kuwait pumped 2.71 million b/d in December, in line with its old OPEC+ quota, according to the latest S&P Global Platts OPEC survey.
Kuwait's economic growth rates after 2020 are expected to pick up and reach an average of 2.5% between 2021-2023 thanks to a resumption of production from the neutral zone, where output is shared equally with Saudi Arabia.
Kuwait and Saudi Arabia agreed in December to restart production from the offshore and onshore fields in the neutral zone that have been shut for more than four years.
"Oil production from the PNZ (the partitioned neutral zone) could amount to 0.5 mbpd once operational, although actual output will remain lower in the short term, partly because Kuwait will continue to comply with the new OPEC+ agreed cuts," S&P Global Ratings said.
The offshore Khafji field, owned by Saudi Arabia's Aramco Gulf Operations Co. and Kuwait Gulf Oil Co., was shut in October 2014 by Aramco, which cited new government emissions standards for gas flaring.
Saudi energy minister Prince Abdulaziz bin Salman said in December production from Khafji is expected to reach 325,000 b/d by the end of 2020.
The onshore Wafra field is operated by KGOC and Saudi Arabian Chevron. It was shuttered in May 2015, with Chevron saying it encountered difficulties in securing work and equipment permits. Chevron said in December full production at Wafra will reach pre-shutdown capacity within 12 months.