Kuwait has been an oil producer since the 1950s. Invaded and occupied by Iraq in 1990, liberated in Operation Desert Storm in 1991, Kuwait was financially devastated by the Souk Al Manakh crash, banking scandals and insider fraud in the London office of its sovereign wealth fund, Kuwait's energy sector has survived major political, financial and even environmental (Saddam ordered the Iraqi army to burn Kuwaiti oilfields as they retreated back to Basra) crises. However, Kuwait is now the world's fourth largest oil producer, its sovereign wealth fund Kuwait Investment Authority (KIA) has accumulated $300 billion in foreign assets and Platts puts current oil output at 2.8MBD. The Kuwaiti government plans to invest $100 billion to expand the emirates production capacity to four million barrels a day (MBD) by 2020. Kuwaiti heavy sour crude has historically been transported via oil tankers to refineries in Taiwan , South Korea , Japan and China . However, Kuwait replaced Iran as China's leading government oil supplier after Iranian exports were restricted by US sanctions. The Kuwait Petroleum Company even opened an office in Beijing to coordinate relationships with China's major state owned oil refining, exploration and production companies. However, despite its long experience as an oil exporter and sovereign wealth fund innovator, (the KIA was the Arab world's first SWF) Kuwait's energy sector has suffered from the political gridlock between successive Kuwaiti Cabinets and its National Assembly . The $7 billion Project Kuwait designed to increase production in the emirates vast but mature northern oilfields has been beset by political and bureaucratic delays. However, Kuwait has now approved several innovative energy projects, including a South Korean built oil and gas gathering centre at the Sabriya oil and gas complex. Kuwait is also one of the Gulf's leading gas producers and targets to produce one billion cubic feet of natural gas per day by 2015. Kuwaiti power generation/desalination plants and petrochemical industries require cheap gas feedstocks and consume more than the emirate currently produces, leading to a dependence on imported LNG from Shell and oil trading firm Vitol . Kuwait's complex Jurassic Era oil and gas fields have necessitated reliance on oil majors like Shell and BP to explore new reservoirs in the desert and in the Partition Zone with Saudi Arabia. Kuwait's Burgan is one of the greatest, biggest oilfields ever discovered in the Middle East , second only to Saudi Arabia's Ghawar oilfield. Burgan is a classic "elephant gusher", to use the language of Texan oil drilling wildcatters. However, Burgan is now in decline and depletion ratios are accelerating. This makes investment in upstream, storage tanks and refineries essential. Kuwait plans to invest $100 billion in energy projects in next five years, including the construction of a floating LNG storage and regasification terminals off its Mina Al Ahmedi oil port and source of the largest upstream heavy oil projects in the Gulf. This means Kuwait will have to partner with international oil majors, a strategy that could mean political gridlock with the National Assembly . Hopefully, since members of the Al Sabah family are on the Supreme Petroleum Council and the new oil minister is an elected member of the parliament, thus international partnerships should be implemented with less difficulty than "Project Kuwait" or the refiner/clean fuel project. After all, the Kuwaiti Cabinet has resigned and parliament disolved six times since 2006. Kuwait holds six per cent of global oil reserves and has traditionally been an ally of Saudi Arabia and the UAE in Opec. This means Kuwait's planned output hike would be derailed by the surge in Iraqi oil (and post sanction) Iranian exports. Another one million barrels of extra Kuwaiti oil exports could well mean an oil glut. The Kuwait Petroleum Company (KPC) is one of the world's largest, integrated onshore and offshore state owned oil companies. Its subsidiaries Kuwait Foreign Petroleum Exploration Company and Kuwait Oil Tanker Company are some of the most prominent players in the global oil trading, exploration and shipping markets. Kuwait Petroleum International has stakes in foreign refineries everywhere from the North Sea to Vietnam , Pakistan to China . It is a pity that half a century after oil was first discovered in Burgan , the Kuwaiti government budget is almost entirely dependent on oil and gas export revenues. The IMF has warned Kuwait to reduce its gas subsidies, estimated to cost $16 billion per annum. The IMF has also called Kuwait to reduce its public sector payroll, which employs more than 95 per cent of Kuwaiti citizens and boost the private sector to diversify its economy. The political instability in Iraq is a potential threat to Kuwait's oil and gas infrastructure, as the tragic events of the 1990-91 Gulf War demonstrated. The writer is a Dubai -based research analyst in energy and GCC economics.
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