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Saudi-Kuwaiti Neutral Zone facing technical issues, maximum output still far off

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Saudi-Kuwaiti Neutral Zone facing technical issues, maximum output still far off


Source says current output less than 200,000 b/d

KPC CEO looking for 700,000 b/d by 2023

Wells, facilities need work from years of shutdown

The Neutral Zone shared by Saudi Arabia and Kuwait would probably need at least five years to achieve maximum crude oil output of 500,000 b/d, with technical challenges from its lengthy shutdown still hindering a full ramp-up, a source with knowledge of the operations told S&P Global Platts.

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Current production on the Saudi side is "just under" 100,000 b/d, said the source, who asked not to be identified to speak about confidential operations. The figure implies total Neutral Zone output of less than 200,000 b/d, with production shared evenly by both countries.

The source said total production would likely be capped at about 400,000 b/d to 450,000 b/d in five years due to technical challenges following its 2020 restart, and 500,000 b/d would be a "great achievement" if attained.

The assessment is far less rosy than that presented by Kuwait Petroleum Corp. CEO Hashem Hashem, who said Oct. 22 that the Neutral Zone would reach pre-shutdown levels of about 500,000 b/d in 2022, increasing to 700,000 b/d in 2023.

Hashem's comments came in response to criticism over the revelation by KPC subsidiary Kuwait Oil Co. that the country's sustainable maximum production capacity had shrunk by about 18% over three years to about 2.58 million b/d. The CEO said Kuwait was targeting a domestic capacity of 3.2 million b/d in 2025, in addition to a projected 350,000 b/d from Kuwait's share of the Neutral Zone, implying a totally Neutral Zone production rate of 700,000 b/d.

Analysts have cast doubt on the Kuwaiti production targets, and the source told Platts that the Neutral Zone figure was unlikely.

Uneven production, exports

Production in the zone has actually declined over the past few months.

Saudi energy minister Prince Abdulaziz bin Salman told reporters April 1 that the kingdom's share of Neutral Zone production was 135,000 b/d, which would make for total output of 270,000 b/d.

At the time, sources involved in work there had said lingering sovereignty and fiscal sharing issues still needed to be resolved to allow an expansion of development.

The fields contained in the Neutral Zone lie in onshore and offshore territory shared by the two nations at their border. The offshore Al-Khajfi is operated by Saudi Arabia's Aramco Gulf Operations Co. and Kuwait Gulf Oil Co., a unit of KPC, while the onshore Wafra is operated by KGOC and Saudi Arabian Chevron.

"Saudi Arabian Chevron and its partner Kuwait Gulf Oil Co. remain focused on safely ramping up production at the Wafra Joint Operations," Chevron said in a statement, declining to comment on production levels and targets.

Aramco did not respond to a request for comment.

The countries agreed in 1970 to co-manage and share crude production from the zone equally. However, they were offline for more than four years until 2020, due to a political dispute that was resolved with the signing of an agreement in December 2019.

Since then, the zone has seen on-again, off-again production and sources said the companies have had to rehabilitate fields and infrastructure from years of inactivity.

Major production cuts instituted by OPEC and its allies during the pandemic have lessened the urgency to ramp-up operations in the zone. But with the OPEC+ alliance intending to fully phase out its cuts by late 2022 and global oil demand rising in the pandemic recovery, the Neutral Zone may be counted on for incremental supply.

Crude exports from the Neutral Zone in 2021 have ranged from a low of 158,000 b/d in August to a high of 231,000 b/d in September, according to Kpler shipping data.

The exports have gone regularly to India, China, South Korea and the US, the Kpler data showed.