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16 February 2020
BUSINESS

Kuwait, Saudi to resume oil output from neutral zone this month

The neutral zone’s oil fields can pump about 500,000 barrels a day—more than the production of each of the three smallest members of the OPEC last month

The two fields could reach their full capacity by the end of 2020/Bloomberg

by Bloomberg

Kuwait and Saudi Arabia will resume oil production from their shared fields this month, more than five years after a dispute halted supply.

Hashem Hashem, Chief Executive Officer of Kuwait Petroleum Corporation, said that the Khafji field will start output by the end of February 2020, while operations will resume at Wafra this week with exports likely flowing within three months.

The restart comes at a critical time as the projects will bring additional production capacity to an oil market that is already dealing with excess supply as the deadly coronavirus hits demand.

The onshore Wafra and offshore Khafji are also important because the US sanctions on Iran and Venezuela have tightened the supply of heavy, high-sulphur crude, precisely the kind of oil that the fields produce.

US diplomats had been pressing both sides to reach an agreement. But Saudi Arabia and Kuwait, both important Organisation of Petroleum Exporting Countries (OPEC) members, have said they are unlikely to add significant amounts of crude within the duration of the group’s current deal to curb output, which runs until the end of March 2020.

Saudi Arabia and Kuwait reached an agreement in December 2019 to resume output from the neutral zone—a relic of the time when European powers drew implausible ruler-straight borders across the Middle East.

Khafji was shut down in 2014 after a spat between the countries. The disagreement escalated over to the Wafra field, when Saudi Arabia extended the project’s original 60-year concession, giving a unit of US-based Chevron rights there until 2039.

Sally Jones, Saudi Arabian Chevron Spokeswoman, said that Chevron has now embarked on a series of pre-start up activity, which includes efforts to ensure its workforce is ready to safely restart operations and then production.

The neutral zone—spanning more than 5,700 km—was created by a 1922 treaty between Kuwait and the Saudi Arabia. In the 1970s, the two Gulf Arab monarchies agreed to divide the area and incorporate each half into their respective territory while still sharing and jointly managing the zone’s petroleum wealth.

 


RELATED STORIES: Saudi Arabian Chevron Saudi Arabia Kuwait Chevron OPEC


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