Kuwait Project Landscape - Is Kuwait About to Reach the Heights It Has Always Been Promising?

Kuwait Project Landscape

Is Kuwait about to reach the heights it has always been promising?

Global oil demand rose more strongly than expected last year, with the world consuming an extra 2.8m barrels a day, 3.3 per cent more than in 2009. According to the International Energy Agency, world oil consumption is set to grow by about 1.4 mbpd in both 2011 and 2012 to 89.6 mbpd. With oil demand on the rise, coupled with the challenges on the Libyan crude exports and the buoyant demand from Asia, countries in the Middle East are well placed to take advantage of the current oil demand situation. Among the GCC countries, Kuwait, Saudi Arabia, and the UAE has the spare capacity to meet this growing demand, and Kuwait has responded by pumping 2.8 mbpd throughout August, its highest since 2008, and has the capacity to utilize production capabilities to generate up to 3.07 mbpd with the existing oil infrastructure. Furthermore, Kuwait plans to achieve 3.5 mbpd capacity by 2015, and has several projects in pipeline which are expected to take the country to the levels it has been targeting. The real question is how will Kuwait deliver on these plans with the current challenges it is facing?

In 2010, Kuwait launched an ambitious 4 year development plan (KDP), committing to US$125bn (KD37bn) of spending, centered on shifting the focus from an oil dependent economy towards more diversified sectors. The plan which aims to turn Kuwait into a regional trade and financial hub looks at involving the private sector in such projects mainly through BOT (build-operate-transfer) schemes. The government plan includes more than 1100 projects, which covers construction, infrastructure and services, as well as oil sector investments to raise oil and gas production capabilities and modernize current facilities. The plan contains several mega projects to be implemented in the next five years including railway and metro systems, a container harbor and causeway, a business hub which is estimated at c.US$77bn (KD21mn), and US$90mn (c.KD25bn) oil sector investments.

Under the Kuwait development plan, c.US$54bn (KD15bn) was expected to be spent during the fiscal year 2010-2011. Analysis of the Kuwait project landscape reveals significantly increased project Capex in 2011 and 2012 compared to the levels seen during the previous years, which seems to be in line with the growth strategy (Figure 1).

Planned project Capex for 2011-2012 is almost double the awarded projects during the 2007-2010 period, and if projects were to proceed as planned it would represent an almost 100% increase in project activity compared to 2010 levels. Taking a realistic view, through utilization of Contax Partners' tiering methodology, it is estimated that c.US$4bn worth of projects still planned for 2011 and c.US$32bn in 2012 will have a higher than 70% likelihood of proceeding as planned. This, combined with the already awarded US$8.2bn projects so far in 2011, makes for a healthy project landscape in Kuwait in the coming 1-2 years, and suggests that momentum in project activity in Kuwait is building. Furthermore, as per the