Kuwaiti oil plan stirs nationalist fervor
Declining reserves are forcing the country that nationalized oil 34 years ago to weigh foreign help.
KUWAIT CITY — Like many Arab Gulf nations, Kuwait relies heavily on imported labor and expertise. From street cleaners to construction workers, Kuwait regularly imports knowledge, skills, and workers from abroad. Kuwait's energy sector, however, has always been sacrosanct.
The country's natural heritage has been solely in the hands of Kuwaiti companies since the government nationalized the oil industry in the 1970s. Foreign energy companies continued to play a role but served only as hired hands.
Now with some of the country's most precious oil fields quickly becoming exhausted, Kuwait is considering throwing open the doors and handing over power - albeit limited - to foreign oil companies that have the technical know-how to help stretch what remains and develop what's yet to be discovered.
Project Kuwait, a controversial $8.5 billion plan before the country's parliament, would allow - for the first time in 34 years - international oil companies (IOCs) power over Kuwait's oil production levels, which are currently about 2.4 million barrels per day. It would also give the oil giants much greater influence over global oil supplies and pricing once they regained a foothold in this country, believed to have about 10 percent of the world's oil reserves.
But while global energy executives may be eager to begin drilling under the Kuwaiti desert, many here don't want to relinquish any national control of the lucrative oil fields even if it means potentially losing billions of dollars.
If Kuwait allows foreign majors back in, it will be laying the groundwork for long-term dependence on outside help, says Peter Zeihan, senior analyst with Strategic Forecasting, a geopolitical intelligence agency in Austin, Texas. Kuwait will be "making itself hostage to international oil companies," he says.
Mr. Zeihan argues that the Kuwait Oil Company (KOC), the state-owned agency responsible for exploration and production, may be getting more oil but it is also "getting itself into a position where it will have to continue farming out the management of its oil fields in order to keep its production where it is. This is a long-term concern."
The death of former Emir Sheikh Jaber al-Ahmed al-Sabah on Jan.15 shelved parliamentary discussions of the plan. But the parliament's Jan. 24 election of the reform-minded, pro-foreign investment Prime Minister Sheikh Sabah al-Ahmad al-Sabah as emir increased the likelihood that the sweeping oil reform project will pass over the objections of Islamist lawmakers who want to keep Kuwaiti oil production in the hands of Kuwaitis.
Foes of the plan worry that giving foreigners access to development of its northern oil fields near the Iraqi border is like giving away the family patrimony in exchange for quick cash. As Zeihan points out, the plan to bring in foreigners stokes nationalist sentiments.
"People hate to see foreigners come in and take the crown jewels, even if it's just to polish them and put them back," he wryly notes.
During a public debate about the project several people hotly rejected the idea. "The foreigners will come in and we will sit in little offices and watch them work and learn nothing," said a man who identified himself as an ex-KOC employee.
Proponents argue that sovereignty over Kuwait's oil - and the country's ability to influence international prices through output - will not be infringed. Oil accounts for about half the country's gross domestic product and 80 percent of government income. Hisham el-Rifaai, the executive assistant managing director for Project Kuwait, contends that IOCs will only help the country produce more.
Opponents also charge that the project is a political tool to win Western support for protecting Kuwait's northern border with Iraq. The four fields the project plans to develop - Abdali, Rawdhatain, Ratqa, and Sabriyah - lie precariously close to the Kuwait-Iraq border.
Abdali was at the center of Iraqi accusations back in 1990 that Kuwait was "horizontal drilling" and sucking out Iraqi reserves.
Any development at the border remains a divisive issue. In August, Iraqi protesters fired shots across the border after Kuwait began construction on a metal barrier along a trench marking the border. Following days of violent scuffles, Kuwait backed down and dropped plans for the barrier's construction.
Kuwait's energy sector has survived the past 30 odd years on fields explored and developed in the 1970s and 1980s. With most of these fields aging and declining, the government is eager to open new fields.
To do this, however, it needs the advanced and complex technology that only international oil companies can bring in.
Petroleum Intelligence Weekly said in January that Kuwait's proven and estimated oil reserves were closer to 48 billion barrels instead of 99 billion. The KOC administration has denied the report.
However, another stunning revelation went undenied: Reserves in Kuwait's Burgan oil field, the world's second largest, are almost exhausted. Having produced about 28 billion barrels in the 60 years since it started production, Burgan is now seeing a crucial decline.
Whatever the truth, one thing is becoming clear: Foreigners will probably hold the key to Kuwait's future oil production. As Imad al-Atiqi, a member of Kuwait's Supreme Petroleum Council and chair of its influential strategy committee said, "We are importers, not founders, of technology."