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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Saudi Arabia Uses Contested Gas Field As A Geopolitical Tool

  • The Dorra gas field is a politically contested gas field that is shared by Saudi Arabia, Kuwait, and Iran.
  • Estimates as to how much gas the Dorra field has in it, vary wildly from around 10 trillion cubic feet of reserves in place to about 60 trillion cubic feet.
  • Saudi Arabia is believed to be reigniting its interest in the Dorra gas field simply to exert further control over Kuwait. 
MiddleEast

Although there have been signs in the past year or so that a softening of relations between historical enemies, Saudi Arabia and Iran, is being engineered by China, the fact remains that when it comes to rights over oil and gas fields, neither of the Middle East’s two great indigenous powers are known for their flexibility or good humour. Throw Kuwait into the mix - a country of great oil resources that it cannot properly exploit due to the bullying of Saudi Arabia and its own legislature - and a potentially major gas field that is shared by all three countries, and the whole thing begins to look like it has the makings of a watchable mid-afternoon soap opera in which Erik Estrada could make an acting comeback. Estimates as to how much gas the Dorra field has in it, vary wildly from around 10 trillion cubic feet of reserves in place to about 60 trillion cubic feet, as do estimates of the production levels it might reach, with the range running from around 800 million cubic feet per day to just over 1 billion cubic feet per day. A median average of the amount of oil in place is around the 300 million barrels mark, with the daily production median average estimate being around 84,000 barrels per day. As for where precisely the field is located geographically speaking, it lies in shallow waters in the northern Arabian Gulf, to the northeast of Saudi Arabia, the east of Kuwait, and the west of Iran. In gas and oil field terms, Dorra lies to the east of Kuwait’s huge onshore Burgan oilfield, and east of its Wafra oilfield - part of the territory in the Partitioned Neutral Zone (PNZ) it shares with Saudi Arabia – northeast of Saudi Arabia’s onshore Fuwaris and Humma fields (also part of the PNZ territories), and almost directly above the Hout and Khafji offshore fields of the PNZ.

Related: House Democrats Accuse Big Oil Of Greenwashing

Aside from its tricky geographical location, there are several other plot twists that make the saga surrounding the Dorra field potentially compelling viewing. The ‘psychotic returning partner’ role to Kuwait’s ‘economically trapped partner’ part is taken on in deep method style by Saudi Arabia, which unilaterally shutdown all production from the PNZ in 2014, in full knowledge that this would financially cripple Kuwait over time. Riyadh did not even lift the shutdown of production in the PNZ after it had further destroyed the finances of Kuwait and all its other fellow OPEC members during the disastrous 2014-2016 Oil Price War that Saudi instigated to destroy the then-nascent U.S. shale oil sector. Saudi only decided that it might lift the shutdown in 2020 when it became clear that the latest Oil Price War (in that year) – instigated by Saudi Arabia again, with the same objective, using the same strategy and the same tactics, and which also resulted in disaster for it and OPEC – meant that it needs to pump every drop of oil it could lay its hands on in order to pay the huge dividend for its equally disastrous IPO of Saudi Aramco

The degree of petty spite, vindictiveness, and outright bullying that prompted the Saudis to close down the PNZ in the first place in 2014 should not be underestimated or forgotten, as it serves as a guide to what could happen next for the PNZ, for Kuwait, and for the Dorra gas field. The official Saudi line at the time for the closure of the Khafji field in the PNZ – which was by far the biggest of the producing assets in the Zone - was that it was not compliant with new environmental air emission standards issued by Saudi Arabia’s so little-known as to not really be a thing Presidency of Meteorology and Environment Authority (no, seriously). Supposedly, the field – producing around 280,000-300,000 bpd of Arabian Heavy grade crude oil and around 125 million standard cubic feet per day of associated gas – had sprung a gas leak in one of its 15 platforms. Ergo, apparently, the entire Zone required shutting down for at least five years, as supposedly the associated plant gathers its gas from all onshore facilities in the PNZ.

The unofficial - and true - version, related to OilPrice.com at the time by senior energy sources in the U.S.’s and the European Union’s relevant energy security departments, was that shutting the field down was Saudi Arabia’s way of ‘jerking Kuwait’s chain to keep it in line’, as the Kingdom perceived that its neighbour had been stepping on its toes in the months leading up to the closure. Specifically in this context, Kuwait had increased its overt competition to Saudi Arabia in the key Asian export markets to the point that it was selling oil to buyers in Asia at the widest discount to the comparable Saudi grade for 10 years. Additionally, Kuwait had also been placing obstacles to the Kingdom’s own operations in the Wafra region of the PNZ by increasing the difficulty for Saudi Arabian Chevron (SAC) in obtaining work permits to operate in the Zone. This was also seen as a threat to SAC’s ability to move ahead with its full-field steam injection project in Wafra that was intended to boost output of heavy oil there by more than 80,000 bpd.

As it happened - after another eye-wateringly ill-conceived attempt in 2020 to derail the U.S.’s shale oil sector that resulted in another financial disaster for Saudi and OPEC – Crown Prince Mohammed bin Salman clearly realised that he needed to get hold of and sell every drop of oil he could lay its hands on to make the budget finances look less alarming to those senior Saudis who do not support his accession to power. This included the oil in the PNZ, and miraculously at exactly the same time the leaky gas pipe was found no longer to be leaky. Unfortunately, though, for the good Prince, Covid-19 broke out across the globe and derailed these plans. With the disease now apparently in retreat in the region, Saudi has decided to push ahead again with full production from the PNZ, announcing last week that it and Kuwait have increased their estimates for their investment in Dorra gas field by nearly US$70 million. This, in turn, will raise the entire investment estimate for the field up to nearly US$2.65 billion. 

Given its appalling behaviour regarding the PNZ, it is difficult not to imagine that Saudi Arabia is reigniting its interest in the Dorra gas field simply to exert further control over Kuwait and also to produce a new flashpoint for its future dealings with Tehran, as the Dorra field is shared with Iran (where it is known as the ‘Arash’ field). Saudi Arabia currently does not really need any of the gas that will come from Dorra, as not only does it have its sizeable oil reserves, but it also has associated and non-associated gas of its own, including those of the big Jafurah field. Iran also has no real need for the Dorra/Arash gas either, as it has the huge South Pars field, and North Pars, and several other non-associated major gas fields as well. Kuwait, though, has very limited gas, associated or non-associated, and it is estimated by industry sources that it will need at least 4 billion cubic feet per day of gas by 2030 just to satisfy its domestic requirements. So, this is another handy tool with which Saudi Arabia can ‘jerk Kuwait’s chain’.

As for Saudi Arabia’s use for Dorra in its dealings with Iran, the possibilities are intriguing. Certainly, as made clear by Iran throughout this year, the Islamic Republic has no intention of letting the matter drop and is already moving to start developing the field, a source who works very closely with Iran’s Petroleum Ministry exclusively told OilPrice.com last week. “The [Dorra] field could be used by Saudi in its ongoing negotiations with Tehran on greater cooperation between the two in energy matters, in line with what China wants from the two of them,” said the source. “On the other hand, the field could be used for proxy aggressions against Iran, perhaps when Iran organises further attacks on Saudi Arabian oil installations via the Houthis,” he concluded.

By Simon Watkins for Oilprice.com

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