Due to operational divergences and geopolitical divisions, Saudi Arabia and Kuwait haven't made any progress in talks about the potential restart of jointly operated oil fields that analysts were hoping could soon add 500,000 bpd of oil production in the Middle East, Reuters reported on Wednesday, quoting sources familiar with the talks.
The so-called Partitioned Neutral Zone (PNZ) was established between Saudi Arabia and Kuwait in 1922 to settle a territorial dispute between the two countries. As of 2015, the oil production capacity in the neutral zone stood at 600,000 bpd, equally divided between Kuwait and Saudi Arabia, according to the EIA. Production from the zone averaged around 500,000 bpd just before the shutdown of the two oil fields, Khafji and Wafra, in 2014-2015.
At the end of last month, Saudi Arabia's Crown Prince Mohammed discussed the restart of crude oil production in the neutral zone during a meeting with Kuwait's Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah. The Saudi Crown Prince's visit to Kuwait, however, was cut short, according to Reuters sources, while big divergences between the two sides remained.
Saudi Arabia wants more control over the oil operations, and Saudi Arabia and Kuwait are also not entirely aligned in the handling of the Saudi-led embargo on Qatar. Kuwait is trying to be the mediator in the dispute in which Saudi Arabia, the UAE, Bahrain, and Egypt severed ties with Qatar last year, accusing it of supporting terrorism.
During the summer, Kuwait was hopeful that it could soon settle the dispute with Saudi Arabia over the oil fields in the neutral zone.
After talks broke down, the prospects for the fields coming back online is "dead as a doornail," a source close to the projects told Platts on Tuesday. The only hope for the fields to restart could be through international arbitration, the source added.
According to Reuters' sources, maintenance on the inactive fields is expensive and the more the restart is postponed, the more difficult it will be to resume production quickly.
By Tsvetana Paraskova for Oilprice.com
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Comments
There are geopolitical and technical repercussions to this development. The geopolitical repercussions are that they cast doubts on Saudi Arabia’s spare production capacity and they also strain relations further between Saudi Arabia and Kuwait over Qatar. The two countries have divergent views on the handling of the Saudi-led embargo on Qatar. Unlike Saudi Arabia, UAE, Bahrain and Egypt, Kuwait did not support a siege of Qatar. Instead, it tried to be a mediator in the dispute.
The technical repercussion is that maintenance of the inactive fields is expensive and the more the restart is postponed, the more difficult it will be to resume production quickly.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London