Khafji ... operations halted
Saudi-Kuwait oilfield halt hits Asia crude supplies
KHOBAR/DUBAI, October 20, 2014
Crude production from the Khafji oilfield, jointly run by Saudi Arabia and Kuwait, has been halted temporarily to comply with environmental rules, according to an industry source familiar with Saudi policy and an internal letter seen by Reuters.
It adds to a long list of disruptions in projects between the two neighbouring Opec members, hampering oil and gas exploration and production from shared fields.
The production halt is expected to curb crude supply to Asian buyers - mainly Japanese and South Korean refiners - likely forcing them to turn to the Middle East spot market, traders said.
Saudi Arabia is expected to offer other grades to term buyers to replace Khafji, but Kuwait Petroleum Company (KPC) does not have excess oil to supply, traders said. KPC could not be immediately reached for comment.
Buyers may turn to the spot market to procure similar crude as replacement which could strengthen spot differentials for grades such as Banoco Arab Medium, they said.
Last week, at least two cargoes of Banoco Arab Medium for December loading traded at 5 cents discount to parity to its official selling price (OSP), traders said.
The Khafji field, whose production is around 280,000 bpd to 300,000 bpd in the Neutral Zone between Saudi and Kuwait, was to be brought offline "immediately", according to a letter signed by Abdullah al-Helal, chairman of Aramco Gulf Operations (AGOC), which operates the Saudi part of the field.
The industry source told Reuters the shutdown had already taken effect and it was not immediately clear how long it would take to bring it back online after complying with the environmental regulations.
Helal could not be reached for comment and senior Kuwaiti oil officials did not respond to a request for comment.
Al Khafji Joint Operations Co (KJO) is a joint venture between AGOC, a subsidiary of state oil firm Saudi Aramco and Kuwait Gulf Oil Co (KGOC).
In the letter, dated October 16 and addressed to Mohammed Al Khatib, executive director of operations of KJO, Helal referred to non-compliance with new environmental air emission standards issued recently by Saudi Arabia's Presidency of Meteorology and Environment authority.
"The Khafji issue is purely environmental," said the industry source familiar with Saudi oil policy. He said Aramco and all other companies operating in the kingdom have to comply with orders issued by Saudi's PME authority.
Other sources told Reuters an onshore gas gathering plant in Khafji needed to be repaired after a gas leak and that the repairs could take around six weeks.
"The Kuwaitis have refused to allow a shutdown for repairs because of their gas shortfall during the summer. This has been an escalating confrontation between Kuwait and Saudi Arabia," one of the sources said.
"The plant gathers the gas from all onshore facilities in the Neutral Zone and therefore the whole area requires a shutdown during the repairs unless the gas is flared during the entire turnaround," the source added. -- Reuters
