The oil and natural gas industry dominates Kuwait's economy, accounting for over 40 percent of its GDP and general energy needs annually. However, the country is seeking to reduce its reliance on fossil fuels to establish a low-carbon future. The strategy to diversify its energy sources has been around since the 2019 Kuwait Energy Outlook release, which emphasized the country's historical import of liquefied natural gas (LNG) due to the lack of development of the power generation sector in previous years.
As the world's top ten oil producers and home to the sixth-largest oil reserves globally, Kuwait faces severe challenges in today's energy industry. The 2020 COVID-19 pandemic saw oil-price volatility as the market experienced a significant shift in supply, demand, and technological uses. The pandemic has pushed the urgency of Kuwait's evaluation of the current energy situation, catalyzing the need to evolve to a more environmentally friendly alternative during the next two decades.
As a result, Kuwait's LNG production expects to grow to 27.3 Bcm in 2035, albeit by then, the supply would still not meet the domestic demand, the country would still import some LNG to fill in the gaps. The decision to gradually shift to natural gas also stems from increasing LNG demand by 2.2 percent year on year or taking a 55 percent share of total energy demand in 2035 as businesses aim to contribute to more sustainable energy resources. Solar generation follows LNG in second place by modest growth of 3 percent last year. In contrast, the government has forecasted declining oil and fossil fuel energy demand to 42 percent of the market share in 2035.
In terms of capacity, Kuwait has increased its power generation by over 13.2 gigawatts (GW), hoping to achieve over 32 GW by 2035, primarily through plants with a combination of oil and gas production. The government has expressed its intention to favor using natural gas in combined plants to gradually increase renewable energy production capacity, specifically in solar and natural gas.
However, Kuwait's relatively slow development on renewable energy technologies stands as the forefront challenges in the country's strategy to become more sustainable; the government has yet to encourage dynamic private sector collaborations to open the energy sector for a more robust growth filled with innovations and knowledge transfers. The Kuwait Authority for Partnership Projects has recently initiated a public-private partnership with Shagaya to establish renewable energy plants that will take one of the first actions towards the country's Environmental Sustainable Goals (ESG).
With the industry still being a public-centered environment, Kuwait's government needs to tackle several challenges and encourage investments by opening its energy industry to the open market. One of the most revolutionary agendas to conduct is to tackle the issues from the demand side through pricing reform and rationalizing consumption. However, the country would still need to resolve issues that arise from the transformation of the energy sector, such as transportation and other industries currently related to the oil industry's success. Kuwait will soon remove fossil fuel subsidies for its citizens to slowly alternate towards renewable energy options, allowing growth for the industry to catch up to the global ESG demand.