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Kuwait Secures LNG Deal as Gulf Energy Exporters Hunt for Gas

December 28, 2017

Kuwait struck a 15-year deal with Royal Dutch Shell Plc for liquefied natural gas, locking in supplies as neighbors in the oil rich Gulf consider their own import strategies.

The United Arab Emirates and Kuwait are the only importers of LNG in the region, with Bahrain joining the club in 2019. Saudi Arabia is looking at natural gas assets from Russia to East Africa and the U.S. The three oil producers pump about half of OPEC’s output, but use growing quantities of that crude in power generation, losing out on export revenue.

Now these countries are looking to import more natural gas for power needs and to feed into petrochemical plants.

“The big issue for Kuwait is they burn a lot of oil, most of their power generated is from oil, and so importing LNG for them is cheaper and frees up oil for export,” Robin Mills, chief executive officer of Dubai-based Qamar Energy, said by phone.

Kuwait Petroleum Corp.’s sales purchasing agreement with Shell International Trading Middle East Ltd. will start in 2020, the companies said Sunday in an emailed statement. Shell has supplied Kuwait with LNG since 2010 and declined to disclose the volumes in the new contract. While KPC is working to boost domestic gas production, and the country is negotiating a pipeline deal with Iraq, there is a “pressing requirement” to secure supplies in the meantime, they said.

Kuwait imported 3.49 million metric tons of LNG in 2016, according to the International Group of Liquefied Natural Gas Importers.

Saudi Arabia, the biggest crude producer in the Organization of Petroleum Exporting Countries, diverts tens of millions of barrels of crude every year into its electricity generation plants, particularly during the peak air-conditioning season in the summer. It doesn’t produce enough gas to supply its power stations. Most the gas it does pump goes to its fast-growing petrochemicals industry.

Kuwait is planning petrochemical projects in the U.S., Canada and Bahrain, and will start offshore drilling for oil and gas in March, KPC Chief Executive Officer Nizar al-Adsani said in October.

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