Kuwait, one of the most oil-dependent of the Gulf Cooperation Council (GCC) member countries, is moving forward with an energy diversification strategy, a process that has been held up for years by internal political gridlock.
It isn’t clear yet if the dissolution of parliament by Emir Sheikh Mishal al-Ahmad al-Sabah on May 11 will allow economic reforms to proceed more swiftly.
Kuwait has had 25 governments since 2000. In the last 18 months, the country has held three parliamentary elections. In the last four years, there have been eight governments headed by three prime ministers as well as leadership changes following the death of two Emirs – Sheikh Sabah al-Ahmed in September 2020 and Sheikh Nawaf Ahmed al-Sabah in 2023.
On April 15, Sheikh Mishal appointed Sheikh Ahmad Abdullah Al Ahmad Al Sabah as Prime Minister, after the incumbent Sheikh Mohammed Sabah Al Salem Al Sabah declined to be reappointed.
A new cabinet was finally announced on May 12 in an Emiri decree, retaining some ministers from the previous government, including the key oil and finance portfolios, and introducing some new faces.
Kuwait, which holds around 6 percent of global oil reserves, relies on oil exports for around 90 percent of government revenues and is therefore exposed to oil price volatility. While other Gulf Arab oil producing states have advanced diversification policies to ease reliance on petroleum revenues along with stepped up renewable energy investments, Kuwait has lagged.
Renewable energy strategy
Before the Emir’s move to dissolve parliament, Kuwait had drawn up a new strategy, to incorporate renewables into its energy mix. Former Minister of Electricity, Water and Renewable Energy Salem al Hajraf unveiled the 2030-2050 renewable energy strategy on March 7, detailing plans to install 22 gigawatts (GW) of renewable energy by the end of the decade. In addition to large-scale projects, the strategy will allow Kuwaiti citizens to install rooftop solar panels and sell excess energy to the state, the minister explained. Al Hajraf has been replaced in the new cabinet by Mahmoud Bushehri, who had held the position in the past.
The addition of renewables will eventually alleviate pressure on the national electricity grid, which is struggling to meet soaring demand, particularly during the peak summer season, forcing Kuwait to import Liquefied Natural Gas (LNG) and electricity.
Al Hajraf told specialist publication MEES on the sidelines of the World Economic Forum Special Meeting in Riyadh on April 28 that the first large-scale contract for 1.1GW of a solar photovoltaic (PV) project would be awarded before the end of the year. It will be installed at Kuwait’s Shagaya Renewable Energy complex which has pilot facilities with a combined capacity of 70MW for solar PV, Concentrated Solar Power (CSP) and wind.
Having scrapped plans for 1.5GW of solar capacity in 2020 amid the Covid-19 pandemic, Kuwait has seen most of its fellow GCC states surge ahead with their renewables strategies. The UAE now has installed renewable capacity of 5.9GW, Saudi Arabia has 2.8GW, Qatar 800MW, and Oman 500MW. All four also have sizeable new projects under development, with Saudi Arabia and the UAE in particular establishing strong project pipelines.
Projects revival
Dissolving parliament and devolving some of its powers to the emir and to the cabinet could unblock legislation and revive projects that have been held up, sometimes for years.
The energy sector has suffered from project delays due to political torpor. One of Kuwait’s weaknesses has been its recent reliance on imports of LNG for power generation even though it has significant natural gas resources that have not been developed adequately in time to meet rising domestic demand.
IMF warned in its May 2024 Article IV consultation that “progress with fiscal and structural reforms has been held back by political gridlock between the government and Parliament,” adding that “Continued delays in fiscal and structural reforms due to political gridlock could give rise to procyclical fiscal policy and undermine investor confidence, while hindering progress towards diversifying the economy and enhancing its competitiveness.”
The IMF said previously in an August Article IV consultation that the political situation in Kuwait was “delaying progress towards diversifying the economy, making it more vulnerable to climate transition risks.”
Kuwait has had long-term plans to raise its oil production capacity to 4mn b/d, now targeted for 2035, with 3.65mn b/d coming from its main upstream subsidiary, the Kuwait Oil Company (KOC) and the remaining 350,000 b/d from Kuwait’s 50 percent share of the Partitioned Neutral Zone (PNZ) it shares with Saudi Arabia. Delayed plans to develop the offshore Dorra gas field shared between the two countries are progressing with first gas expected in 2029.
In the meantime, Kuwait has become dependent on LNG imports and is seeking
500MW of electricity imports this summer via the GCCIA interconnector. Continued demand growth means Kuwait’s need for imports may soon outstrip the capacity for GCCIA supplies.
Last summer Kuwait experienced several blackouts amid record power demand, and the situation is likely to be more severe this year. With temperatures already hitting 38°C in late April, Kuwait will need to finalize agreements soon if it is to avoid a repeat of last year, when plans to spend KWD 30 million (USD97 million) on 600MW of emergency supplies via the GCCIA were derailed by bureaucratic red tape.
The power sector is suffering the consequences of years of stifling bureaucracy as the emirate’s politics have prevented efforts to reform lengthy government contracting procedures. There have been no sizeable installed capacity additions since 2020, and the ageing fleet is becoming expensive to maintain.
Having stagnated at 20.25GW in recent years, installed capacity has fallen to 20.18GW this year as some of older generation units are still running and require maintenance.
Kuwait can’t afford to lose capacity given that peak load continues to set new monthly records. Peak load hit 11.22GW on 20 April as temperatures soared and will likely rise further in the scorching summer months.
Most of Kuwait’s gas is associated with crude oil production and tends to fluctuate with changing OPEC+ quotas. Kuwait has an oil production capacity of around 3mn b/d but output is lower because Kuwait was among eight OPEC+ producers to agree voluntary production cuts, which cap its oil production at 2.4mn b/d until at least the end of June.
Oil production capacity has fallen in recent years and stands at around 2.9mn b/d, largely because of declines from the giant Burgan field, so new upstream investment is needed if it is to reach its target. While it may be a modest exporter of crude compared with Saudi Arabia, Kuwait’s importance as a supplier of oil products to the world should not be underestimated, especially after the Russia-Ukraine war changed the dynamics of the global market. Kuwait’s expanded refining capacity came just in time to make up for the loss of Russian product due to sanctions.
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