Kuwait Petroleum Corporation and Royal Dutch Shell have signed a 15-year deal to import natural gas in order to meet the growing domestic energy needs of the oil-exporting country. The sales purchasing deal was inked with a subsidiary of Royal Dutch Shell, Shell International Trading Middle East Ltd, and will commence in 2020.
Since 2010 Shell has been supplying the gulf country with natural gas. The new contract does not however specify the quantities of natural gas that are meant to be supplied. According to Kuwait Petroleum Corporation there is an ongoing effort to boost local production of natural gas but in the meantime there is an urgent need to meet immediate requirements.
With the liquefied natural gas Kuwait will be able to meet domestic demand for the power required to operate air conditioners during the hot summer months. This power could have been generated from burning crude oil but the crude oil will instead be exported for profit.
“The big issue for Kuwait is they burn a lot of oil, most of their power generated is from oil, and so importing LNG for them is cheaper and frees up oil for export,” said Qamar Energy’s chief executive officer, Robin Mills.
Additionally Kuwait is eyeing energy sources that are cleaner in order to cut down on carbon emissions and thus improve the quality of air. This includes natural gas. According to sources between two million and three million tons of natural gas per year will be covered by the contract. It is understood that the contract prices the supplies at 11% below the Brent benchmark.
The deal between Royal Dutch Shell and Kuwait Petroleum Corporation comes less than a week since the former announced that it would be acquiring UK’s energy supplier First Utility. The energy supplier currently has a customer base of about 825,000 households in the United Kingdom.
Shell and First Utility have had a business relationship since 2013 when the former began selling the latter energy on a wholesale basis. Two years ago First Utility also inked a licensing deal with Shell which allowed it to use the Anglo-Dutch oil giant’s brand name to trade in the household energy sector of Germany.
According to analysts the intended acquisition of First Utility by Shell is a threat to the market share of the big-six energy suppliers. This includes Eon, SSE and British Gas which have been losing customers to smaller and newer players.