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Springing a leak.

AS OPEC PONDERS its future production ceiling and quota share-out, one country that is aiming for the biggest possible allocation is Kuwait. This is perfectly justifiable, say Kuwaiti officials, because it lost so much ground (and oil) during the interruption caused by the Iraqi occupation and it faces a huge reconstruction bill. Unlike most other Opec producers, furthermore, Kuwait is a member of the select group which has large enough reserves to argue for a larger proportionate slice of the market over the long-term.

But does it still have the reserves it claims? Critics say that Kuwait's recoverable reserves have been seriously depleted as a result of the damage wrought by Iraqi sabotage and, more contentiously, by its reckless post-liberation rush to maximise production.

The arguments are technical. Basically they hinge on the unfortunate fact that every barrel Kuwait now pumps out of the ground contains an unexpectedly large proportion of water. The country's oil fields sit on top of salt water aquifers. Under normal production conditions, this water seeps up to replace crude extracted from the reservoirs. If the crude is lifted too fast, it sucks in unwanted water which emerges at the well-head mixed with oil. This is precisely what has been happening in Kuwait.

The problem was noticed first as the retreating Iraqis set fire to the oil wells. The burning well-heads emitted clouds of steam. But instead of postponing production until the reservoirs could be examined, the Kuwaitis insisted on full-scale resumption of pumping.

Kuwait says it has about 95bn barrels of recoverable reserves. Some analysts estimate that as a result of historical production and Iraqi sabotage the real figure may be almost 40bn barrels less. And as Kuwait continues to increase production at a rate of around 100,000 b/d each month, water seepage will reduce usable reserves even further.

At present Kuwait's output is pushing past the 1m b/d mark. By the end of the year it is planned to reach 1.5m b/d, the quota established at the last Opec meeting before Iraq's invasion in August 1990. Most analysts believe that it is the maximum sustainable level of production from existing fields without incurring irreparable damage. Kuwait now aims to boost output to 2m b/d next year.

"I as oil minister am very much concerned with the resources of my country," declared Kuwait's oil minister, Hamoud al Ruqba, in May. "If I feel any extra production would affect reservoirs I am going to stop it." Last February Kuwait's leading economic news agency, Al Shall, reported that as much as a fifth of current production of 450,000 b/d consisted of water, but Al Ruqba ordered output expansion to proceed on schedule.

Disquite voiced within Kuwait's own oil industry has pushed the ministry into authorising foreign oil companies to conduct detailed reservoir analyses. British Petroleum has the contract for Burgan, the country's largest field. Recommendations for caution are unlikely to be welcome.
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Title Annotation:Business and Finance; Kuwait's oil quota allocation
Publication:The Middle East
Date:Jul 1, 1992
Previous Article:No change of course.
Next Article:Now let's get down to business.

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