Shell gas supply deal with Kuwait

Deal raises many questions concerning free gas discovered in 2005

Kamel Al-Harami

Independent Oil Analyst Last week, Shell announced that it has reached a long-term agreement with Kuwait Petroleum Corporation (KPC) for the supply of Liquefied Natural Gas (LNG) for 15 years starting from 2018. As per the agreement , Shell will provide about two million to three million cubic feet of gas annually at price of 11 percent of Brent crude oil.

The gas will be used to meet the increasing demand for electricity and water during the hot summer months. This 15-year deal could be worth much more than $50 billion. However, there are many questions that can be raised concerning the free gas that was discovered in early 2005 and is yet to be produced. Did it just disappear or evaporate? If Shell is the sole operator for producing our free gas from the well up to the service, what will be status of it? Why didn’t KPC deal directly with gas producing countries that are near to us? Or why didn’t it import gas from Russia or shale gas from the states, as the contract is for 15 years and more? Why didn’t KPC exchange gas for petroleum products, bearing in mind that all of Kuwait’s refineries, during the period of import, will be modernized and on stream including the new Al-Zour Refinery as well as the new Doqum Oman joint-venture refinery? So KPC will be full of various refining products without any secured outlets.

It would be great opportunity to exchange gas with Kuwaiti hydrocarbon. Furthermore, KPC should have invested in gas fields, knowing well that it will be short of gas for a long time to meet the ever-growing demand for electricity, and secured its gas from well known producers locally or from overseas producers rather than buying from traders. Shell and KPC are yet to answer our main concerns as what happened to Kuwait’s free gas which was discovered in 2005 and if Shell will remain the sole operator of the gas field? When do we see the gas fl owing to our local industry? The other challenging question is — why didn’t KPC opt to exchange gas for petroleum products, knowing that Shell has one of the biggest trading system globally. In this way, KPC could keep its cash for investing in gas fields to secure its needs on a long term basis.

By Kamel Al-Harami
e-mail: naftikuwaiti@yahoo.com

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