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Abu Dhabi, UAEMonday 23 April 2018

Kuwait, Shell sign 15-year contract for LNG import

The gas-poor Opec producer will receive supplies from 2020 

Russia launched the first terminal for liquefied natural gas project, Yamal LNG, in the Arctic in December. Gulf producers like Saudi Arabia could possibly begin importing gas from this facility.  KIRILL KUDRYAVTSEV/AFP
Russia launched the first terminal for liquefied natural gas project, Yamal LNG, in the Arctic in December. Gulf producers like Saudi Arabia could possibly begin importing gas from this facility. KIRILL KUDRYAVTSEV/AFP

State-owned Kuwait Petroleum Corporation (KPC) has signed a 15-year agreement to import liquefied natural gas (LNG) from Royal Dutch Shell, the world’s largest trading company, to meet growing demands for energy in the Arabian Gulf state.

The Anglo-Dutch major, which has an existing four-year LNG import contract, will supply the fuel once the pact expires in 2020.

The deal would “provide fuel to power stations in Kuwait,” KPC said in a statement but did not disclose the value of the deal or the volumes that will be supplied.

Shell did not respond immediately to emailed questions for comment.

Kuwait’s oil company has previously secured LNG cargoes from Shell through agreements signed in 2010 for a four-year contract, and another signed in 2014 worth US$12 billion to see supplies through to 2018.

Kuwait, which has the second largest proven reserves for oil in the Arabian Peninsula according to the BP Statistical Review of World Energy, is deficient in gas. The country's production of natural gas was at 1.65 billion cubic feet a day (cf/d) in 2016, while consumption was at 2.12 billion cubic feet a day, according to BP.

The country has targeted reaching production of 4 billion cf/d of gas by 2030, however developing gas domestically has proven challenging due to frequent changes in parliament, whose consent is required for energy projects to be sanctioned.

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Last month, KPC cancelled plans to tender an estimated $3.6bn field development work on the massive Jurassic field in the north, which contains significant tight gas reserves.

Prior to cancellation, KPC had targeted building a central processing facility associated with the field that would have been able to process 590 million cf/d of gas.

The oil producer is currently banking on import of LNG to meet power requirement needs that surge during searing summer months, where temperatures in Kuwait often reach above 50 degrees celsius.

KPC’s downstream subsidiary Kuwait National Petrochemical Company is current building a LNG facility, associated with its upcoming 615,000 barrel per day refinery at Al Zour, to meet gas demand.

In 2016, a consortium of South Korea’s Hyundai Engineering and Construction Company and state-owned Korea Gas Company were awarded a $2.39bn contract to build the terminal, which is set to complete in 2020.

LNG imports have become a popular and cost-effective option with GCC oil producers to meet their peak demand for the fuel and to keep their power stations, which increasingly rely on the fuel, running.

Earlier in the month, visiting US secretary of energy Rick Perry confirmed plans to supply more LNG to the UAE, which started importing from traders such as Cheniere Energy last year.

Saudi Arabia is also set to import more LNG from the US, even as it looks to buy natural gas assets in places with significant reserves of the fuel, such as Russia, the US as well as East Africa.

Earlier in December, Saudi oil minister Khaled Al Falih attended the opening of Russia’s first Arctic LNG project at Yamal, where president Vladimir Putin suggested supplying gas to Saudi Arabia.

"That's why I'm here," Mr Al Falih replied.