KUWAIT CONTINUES to set aggressive upstream investment targets as it looks to raise production capacity in key oilfields.

Estimates by the Ministry of Oil and Kuwait Petroleum Corporation (KPC) suggest that the country will need KD12.2 billion ($40 billion) in investments over the next 20 years to develop its oil reserves to meet production targets.

And a significant proportion of this investment is expected to come from foreign companies who are currently in the running for contracts to develop Kuwait's northern fields.

Foreign technological expertise and knowledge transfer is seen as essential for Kuwait to meet its targets of increasing production to an eventual five million barrels per day (bpd).

The initial plan - called 'Project Kuwait' and which involves $7 billion in investments from a host of international oil companies - is still under debate in the country's parliament after conflicts on just what the project would entail and the role of foreign companies in the upstream sector, as Kuwait's constitution bars the foreign ownership of natural resources.

'Project Kuwait' aims to double oil output from five mature fields in the North of the country from 450,000 bpd to 900,000 bpd.

Several international oil companies have already been shortlisted for 'Project Kuwait', including ExxonMobil, ChevronTexaco, Royal Dutch/Shell Group, BP, Conoco Inc. and TotalFinaElf.

If the draft law on the scheme is passed in parliament, then the oil majors will operate in Kuwait's upstream sector for the first time since nationalisation 30 years ago. The finance and economic affairs committee in the parliament is expected to finish discussions on Project Kuwait in the first half of this year and then issue the draft law.

Kuwait's constitution prohibits the signing of production sharing agreements with foreign firms, making some form of technical services contract likely.

Meanwhile, Japan's Arabian Oil Company (AOC)'s role as an oil producer in Kuwait's portion of the Neutral Zone (shared with Saudi Arabia) is coming to an end.

The company's 40-year concession rights on the Kuwaiti part of the Neutral Zone expires on January 4 next year.

However, AOC and Kuwait are now in talks which focus on AOC giving technical support and consultancy, arranging soft loan financing for capital projects at lending rates below international market levels and long term crude sales of more than 100,000 bpd to AOC.

A new state firm, Kuwait Gulf Oil Company, will run the state's interests in the Neutral Zone when the AOC concession expires.

According to official figures, production from the Neutral Zone reached 329,000 bpd in the fiscal year to the end of June 2000, with the figure expected to rise to 430,000 bpd by 2005.

Established by the country's Supreme Petroleum Council, the Kuwait Gulf Oil Company has been created with a capital of around $350 million and will be headed by the former deputy chief of Kuwait Oil Company (KOC), Mohammad Al Jazzaf, and under the authority of KOC head Ahmad Al Arbeed.

Kuwait Gulf Oil Company is a KPC company. The potential consultancy deal is expected to see the new company absorb some AOC employees.

For now, Kuwait's government is keeping a close watch on oil market developments.

Releasing its budget outlines for this year, the government has predicted an average oil price of $15 per barrel, the same conservative level as last year and forecast as a protection against oil market volatility.

Kuwait derives more than 80 per cent of its income from oil revenues. Oil earnings for this year are estimated at KD2.984 billion, 84 per cent of total income, though this is down slightly due to a reduction in output and higher production costs.

Kuwait's oil production quota from Opec was cut by 6.4 per cent to 1.741 million bpd on January 1 this year in accordance with the cartel's moves to stabilise the oil markets. Now it is fast tracking a project to upgrade its crude export facilities, doubling the total capacity.

In a bid to protect itself against oil market fluctuations, Kuwait, in line with many producing states, is now looking at gas as the fuel of the future.

Kuwait has little non-associated gas of its own and so has been involved in procuring supplies from regional states.

The government signed an estimated $2 billion agreement recently to receive gas from Qatar through a submarine pipeline, though a finalised gas sales and purchase agreement is not expected until the middle of this year.

The imported gas will be used to power a 9,000 MW electricity generation network which Kuwait plans to build over the next few years, and will also replace the heavy fuel and gas oil which are currently used to run the plants.

Former Oil Minister Adel Al Subaih had said that, during winter months when power consumption drops, the Qatari gas would be injected into the huge Burgan oilfield to boost pressure and crude production from what is one of the world's largest single reserves.

Supplies are expected to start in the fourth quarter of 2005, with volumes of between 800 million and 1.4 billion cu ft per day.

Kuwait has also been looking across the Gulf at Iran for gas supplies for petrochemicals and other industrial projects in Kuwait, with officials saying that Kuwait still hoped to reach a deal with the Iranian side.

Information Minister Shaikh Ahmed Fahd Al Ahmed Al Sabah is currently interim Oil Minister in the country following the recent resignation of Al Subaih.