Climate risk leads Kuwait to consider reducing production targets

By Fiona MacDonald on 10/24/2019

KUWAIT (Bloomberg) - Kuwait, OPEC’s fourth-biggest member, is considering cuts to its oil production capacity targets, in large part because mounting concern about climate change will constrict demand for fossil fuels.

Kuwait Petroleum Corp. may reduce its long-standing goal of reaching 4 MMbbl of daily capacity by 2020 to 3.125 MMbbl, according to a person with direct knowledge of the discussions. The state-owned producer’s current capacity is about 3 million.

Delays in Kuwaiti oil projects are also a factor in the target revision, the person said, asking not to be identified because the discussions are private. KPC has already pumped much of the country’s easily accessible oil, and it lacks the expertise to exploit hard-to-reach deposits, the person said.

Such a change would be a rare acknowledgment by a member of the Organization of Petroleum Exporting Countries that environmental issues are influencing producers’ strategies. While most analysts expect the world to keep consuming oil for decades to come, the debate among them now is when, rather than if, demand will stop growing at all.

KPC may also cut its 2040 capacity target to 4 MMbpd, from 4.75 MMbpd, the person said. All the proposed changes, which are also being driven partly by delays in projects, require government approval.

Media officials at KPC didn’t immediately respond to a request for comment.

The company is reviewing its capital expenditure program valued at about $500 billion, though it still expects to make significant outlays, the person with knowledge said. Kuwait has had to postpone projects, including some using water injection to produce oil, and this adds to the challenge of meeting its existing capacity targets, the person said.

Kuwait is already limiting its actual production as part of a 2016 pact between OPEC and allied suppliers to drain a global glut. The nation’s output peaked at 2.96 MMbpd that year and was most recently at 2.69 MMbpd, data compiled by Bloomberg show.

The country’s capacity targets include a share of fields in the so-called Neutral Zone shared with Saudi Arabia. Production there has been halted for at least four years, partly due to disputes between the neighbors, but these fields can produce as much as 500,000 bpd.

The International Energy Agency lowered projections for oil-demand growth earlier this month, noting that fears of an economic slowdown overshadowed a loss of supply from the Sept. 14 attack on Saudi Arabian oil facilities. The IEA, which advises major economies, could trim its forecasts again as the economic backdrop continues to weaken, Neil Atkinson, head of the agency’s oil industry and markets division, said on Oct. 16 in a Bloomberg television interview.

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