No grounds for complacency anymore
IT is indeed time to cut expenses and curtail investments in almost every area of our oil industry. There is no more time and place for complacency anymore. An oil price of $25-$30 per barrel is of no use to Kuwait’s budget. A price level of $30 per barrel will give us total revenues of about KD 7 billion at the end of the year but our current budget calls for KD 20 billion.
This means the budget deficit will be KD 13 billion, which would require for severe cuts in expenses in every sector. The annual capital expenditure of Kuwait Petroleum Corporation (KPC) runs between KD 1.3 billion to KD 1.5 billion to meet Kuwait’s oil objectives and strategies for exploration and search of new oil and gas as well as for developing and acquiring overseas projects. One of its areas of heavy investments is the upstream in order to reach a crude oil production target of more than four million barrels per day by the year 2030.
However, Kuwait has so far not reached even three million barrels on sustainable basis, despite assurances from our former oil ministers for the past 15 years. Millions were spent but there is still nothing tangible and our production continues to stay below three million barrels. Another challenge is determining the market to sell to in the coming years. We, like the rest of our OPEC colleagues, are currently unable to sell additional barrels, thereby forcing us to opt for further cuts.
The future situation of oil market will be neither better nor brighter than today. Other oil countries are suffering from overcapacity or under- utilization. Therefore, the first step for KPC to do is revise its crude oil production plan and target, and stick to maximum production ranging between 3.25 million and 3.5 million barrels in the coming ten years. This of course calls for revision of KPC strategy.
The demand for oil will remain weak in the coming two years, so why waste our human and financial resources, and reduce or cut the production while maintaining ongoing projects like heavy oils, provided they can reduce production costs? KPC calls for soft approaches such as reducing travel expenses or conducting training courses locally instead of overseas, which do not add much to the total KPC expenses.
KPC should consider in figures and percentage the cost of savings and extent of achievements. KPC management’s initiative comes as a positive step, as all eyes are on this institution that has been generating our sole source of state revenues. Even though it is short by billions of Kuwaiti dinars, it is still a good start, knowing that it cannot touch the human resources numbers.
KPC cannot embark on the other areas for the time being. It needs strong governmental support to privatize some of our domestic oil sectors. However, we must think seriously of divesting our overseas upstream activity soon. KPC’s initiative represents a serious step that is needed now more than ever before. It is time to look beyond oil.
By Kamel Al-Harami, Independent Oil Analyst