Marzouq: More output cuts may be discussed at OPEC meeting

Kuwait supports extending deal for nine months

KUWAIT: The increasing output cut is one option that could be discussed in OPEC ministerial meeting tomorrow, Minister of Oil and Minister of Electricity and Water Essam AlMarzouq said yesterday.

“There is a consensus on the need to take all necessary measures to restore balance on the oil market,” Marzouq said in an exclusive interview. “All options are on the table and could be discussed. However, any agreement should be satisfactory for all parties. And if necessity arises, we could increase the output cut. But it is premature to talk about that now.” He expected that four other countries would join the output cut agreement in the coming meeting.

Egypt, Norway, Turkmenistan and Indonesia could sign the deal in the coming meeting, Marzouq said. Though they are not major producers, but their move could have psychological impact on the global oil market, he suggested, adding that “An agreement signed by 24 countries is absolutely better than one signed by 11 countries only.” On December 10, 2016, OPEC and 11 non-OPEC countries signed an agreement on joint reduction of oil output, agreeing to cut their combined output in the first half of 2017 by 1.8 million barrels a day.

Azerbaijan, Bahrein, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, the Republic of Sudan and South Sudan are the non-OPEC countries agreeing to cut their oil output to boost prices. He pointed out that the OPEC’s oil ministers would hold their 172nd regular meeting on May 25 and would be joined later on the day by the non-OPEC states, which are participating in the output cut deal.

Reduction agreement

On the extension of the production reduction agreement, the minister said Kuwait fully supports the extension of deal for nine months and all efforts to rebalance the world oil market. “All indications so far, show that most countries, if not all, back the extension of this agreement,” he said

He stated that the main contributor to the output cut are major producers Saudi Arabia, Kuwait and the United Arab Emirates, from the OPEC and Russia from outside OPEC. On the impact of the agreement on world markets since its implementation on January 1, Marzouq stressed that the agreement is successful by all standards as the commitment rate by the participating countries amounted to almost 100 percent. This is a historical commitment ratio and the participation of nonOPEC countries in this deal is historical in itself, he said.

He noted that oil prices rose immediately after the announcement of the deal in November and December 2016 by almost 20 percent. “Despite the relatively low prices in the past few weeks, prices are still better today than they were before the agreement,” he said. “If this agreement was not signed, there had been be a larger increase in the supplies on the market and sharper drop in prices compared to current levels.” He said that the agreement came into force in January 2017 after the fourth quarter of last year witnessed a significant surge in the production of OPEC and non-OPEC countries.

“This was clear in the reports of the major countries and global oil inventories during the first two months of this year. This is also coincided with the refineries’ maintenance globally, which is a season when the demand usually slides,” he said. “But I can say that we began to as of April and May signs of decline in commercial oil inventories in addition to the floating stock on ships,” he said. He predicted that inventories would continue to decline as the output cut signatories continue to be highly committed to deal, “which will definitely restore the balance between supply and demand,” he said, noting that the third quarter of the year usually sees the highest demand.

Shale oil

On the effect of the cut deal on the US shale oil production, which has increased by 10 percent since the implementation of the resolution, Marzouq said, “it is normal that US shale oil output soars in response to the rise in prices.”“We still expect oil production to continue to grow during the current year, but we do not expect the current boom to be similar to that of 2012,” he said. “However, shale oil is part of world oil production and the market is expected to absorb this increase in its production. The world’s demand for oil increases annually by 1.3 million barrels per day.”

On choosing Kuwait to preside over the committee in charge of monitoring producers; commitment by their cut obligations, Marzouq said he is proud that Kuwait was chosen for this task. “This is a clear indicative of the Kuwait’s neutrality which prompted 23 countries to choose it for this task.”

On the deal impact on the market shares of producing countries, Marzouq stressed that the aim of the agreement is to withdraw the surplus of the oil reserves in order to rebalance the market. “Therefore I do not think there are negative impacts on market shares of certain countries due to the production cut,” he said.

He clarified that Kuwait is working as a part of a group whose members share the same goal of strike a balance between supply and demand. “I do not see any harm to Kuwait from the output cut agreement on the contrary, there is an aspired benefit from this collective action,” he told KUNA, adding that the ensuing gradual improvement of oil prices would boost the State revenues.

On his projection to oil prices in the coming period, he said: “I do not expect a remarkable leap in prices by the end of the year.”“As you know, I cannot predict certain price level, but I do agree with the majority of the projections which forecast that the prices would continue at a fixed level and may record a slight rise by the end of the year.”

The minister expected the prices would take an upward journey in 2018. He suggested that the fair price is the one that is accepted both by producers and consumers and ensures sustainability of the oil influx from producers to consumers. He estimated Kuwait’s current production of crude oil at 2.7 million barrels a day.

On Kuwait’s plans to balance between its strategic goal to surge its production to 4 million barrels a day with its commitment to cut production as per the agreement, Marzouq explained that Kuwait sets its strategy for future needs of the market and to prepare itself to meet in shortage in production. Kuwait still aims to increase its production up to 4 million barrels a day but its actual production is determined by the OPEC’s quota system, he said.

Meg projects

On the progress in the mega oil sector projects, Marzouq said that 84 percent of the multi-billion clean fuel project has completed by the end of April,2017. He expected that the project would start operation as of October 2018. As for Zour refinery project, the minister stated that only 30 percent of the project has been completed and the project would start operation by December 2019. He also noted that the ministry has signed an agreement for establishing a permanent utility for the importation of the liquefied natural gas and execution has started.

On the overseas projects of Kuwait International Petroleum Exploration Company (KUFPEC) and Kuwait Petroleum International, known as Q8, the minister stated that KUFPEC has a portfolio of 57 projects in 14 countries across the globe. He cited as the most important projects of KUFPEC, the liquefied natural project in Australia in which the Kuwaiti company has 13.4 percent stake and the Kaybob Duvernay gas shale Project in Canada in which the company has 30 percent share. He pointed out the liquefied natural gas project would start production in the second half of 2017 with a capacity of 66 million cubic feet per day to jump to 190 million cubic feet a day in 2019 and would continue for a period of twenty years. He added that KUFPEC’s share of the Kaybob Duvernay project is estimated at 523 million of equivalent oil barrels.

On Q8, he said that the company is making strides in implementing its strategy to expand in the European market despite the challenges posed by the economic crisis. He added that Q8 has also entered the Asian market through the establishment of a new refinery in Vietnam.

Q8, moreover, has recently signed an agreement to set up a new refinery in the Sultanate of Oman with a capacity of 230,000 barrels a day, he said, adding that the refinery would rely on Kuwaiti crude by 65 percent.

On Kuwait purchase of natural gas from Iraq, Marzouq said that the technical committee that was formed three months ago to study the matter has not finished it work yet. Kuwait has initially demanded the purchase of 50 million cubic feet a day, an amount that could increase to 200 million cubic feet a day later, he said. He went on to say that “if an agreement is reached with Iraq, the project would start two years after the signing date.” He added that the agreement could also be extended for 10 years or more.

On the latest developments about the suspension of production in wells in the divided zone with the Kingdom of Saudi Arabia, the minister said that talks are still going on to find satisfactory solutions for both sides.

“We hope the production would be resumed soon,” he said. On the view about the future of relying on petrochemical and transformational industries as important sources of income to Kuwait in the future, he said that the Kuwait Petroleum Corporation deeply believes in the role of the transformational industries in boosting national income and based on this belief it calls for expansion of petrochemical industries inside and outside Kuwait.

Privatization

On privatization plans, the minister pointed out that, the State development plan envisage partnership between the private and the public sectors and this could be achieved through creating real opportunities for partnership between the two sectors to make the private sector an effective partner in the development. In this regard, the KPC has implemented an ambitious and integrated program to maximize local content, he said, adding that this program aims to create opportunities for the private sector to carry out contracting and engineering works and provide supplies services for the oil sector as well as to encourage the private sector to use oil sector products to launch their enterprises.

He said that the KPC considers that the privatization represents one of several options for partnership with the private sector. “The ministry would coordinate with the privatization apparatus to determine which activities and services would be privatized,” he said.