Nov. 10 (Bloomberg) — Kuwaiti oil production from the world’s second-largest field is “exhausted” and falling after almost six decades of pumping, forcing the government to increase spending on new deposits, the chairman of the state oil company said.

The plateau in output from the Burgan field will be about 1.7 million barrels a day, rather than as much as the 2 million a day that engineers had forecast could be maintained for the rest of the field’s 30 to 40 years of life, said Farouk al-Zanki, the chairman of state-owned Kuwait Oil Co. Kuwait will spend about $3 billion a year for the next three years to expand output and exports, three times the recent average.

To boost oil supplies, “Burgan by itself won’t be enough because we’ve exhausted that, with its production capability now much lower than what it used to be,” al-Zanki said during an interview in his office in Ahmadi, 20 kilometers south of Kuwait City. “We tried 2 million barrels a day, we tried 1.9 million, but 1.7 million is the optimum rate for the facilities and for economics.”

Persian Gulf oil producers, which supply about a fifth of world demand, are rushing to find new reserves and build more pipelines and export terminals to compensate for declining output from older reservoirs. Any delay in replacing supplies may push oil prices higher and slow economic growth, the International Energy Agency said in a report this week.

To be sure, the plateau in supply if achieved would be higher than a projection from the IEA. This week the Paris-based group said output from the Greater Burgan area will increase from 1.35 million barrels a day in 2004 to 1.64 million a day in 2020, before falling to 1.53 million a day in 2030. The field now pumps between 1.3 million and 1.7 million barrels a day, al-Zanki said.

Sustainable Supply?

The debate over the sustainability of Middle East oil supplies has gained pace this year, after investment banker Matthew Simmons published “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.” In the book, he asserted the practice of injecting water into Saudi fields may lead to rapid production declines. Saudi officials rejected the charge.

Brought into production in 1948, Burgan accounts for more than half of Kuwait’s 96.5 billion barrels of oil reserves, or 55 billion barrels. Only Saudi Arabia’s Ghawar oilfield, about 500 kilometers (313 miles) to the south, is bigger.

Benchmark New York oil futures have tripled in price during the last four years to a record $70.85 on Aug. 30 because countries such as Kuwait and Saudi Arabia haven’t invested enough in expanding production capacity to keep pace with faster-than- expected demand from countries such as China, India and the U.S.

Kuwait last month pumped 2.5 million barrels a day, equivalent to 3 percent of global demand, according to Bloomberg data. That’s down from a peak of almost 3 million barrels a day in 1972, according the Arab Oil & Gas directory.

“Kuwait’s oil industry requires significant investment and needs international oil companies to help kick-start production capacity increases,” Colin Lothian, senior Middle East energy analyst at Wood MacKenzie Ltd., an Edinburgh-based oil industry consultant, said in a telephone interview.

Burgan on its own had enough reserves to support 2 million or 3 million barrels of daily output, but those have already been produced, al-Zanki said in the interview two days ago. The reserves are declining and need to supplemented with other reservoirs, he said.

Revival Targeted

The family-ruled emirate plans to increase production capacity by about 18 percent to 3 million barrels a day by the end of the decade from about 2.55 million now, and to at least 4 million by 2020.

Oil consumers will be more reliant on Middle Eastern supplies in coming years and vulnerable to higher prices and slower economic growth should investments be delayed, the IEA, an adviser to 26 consuming nations, said in an annual outlook released on Nov. 7.

Petrofac Ltd. and rivals SK Engineering & Construction Co. won two contracts worth in more than $1.6 billion this year to upgrade and refurbish 20 plants that separate natural gas from oil ready for export in northwestern Kuwait. That works is in preparation to allow international oil companies to develop four oil fields near the border with Iraq.

“You need to develop more reserves in order to support the future target,” said al-Zanki, who was appointed Kuwait Oil’s chairman last year. Kuwait Oil is the country’s state-owned monopoly oil and gas producer.

In a 10-year-old plan known as Project Kuwait, the emirate may invite companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and BP Plc to invest about $8.5 billion to almost double output at the emirate’s northern fields to 900,000 barrels a day by 2025. The project would be the first time since the 1970s that foreign companies operate Kuwaiti oilfields.

Crude oil for December delivery fell as much as 57 cents, or 0.97 percent, to $58.36 a barrel on the New York Mercantile Exchange today, after an Energy Department report yesterday showed U.S. stockpiles of crude were at their larges since July. Crude traded at $58.61, down 32 cents, at 10:45 a.m. in London.

–Editor: Evers (tjc, ldk)

Story illustration: {ETOP } for top energy news. For more Middle East stories see {NI MIDEAST BN }. For a graph of New York crude-oil prices over the past year, see {CL1 GP D }. To graph Kuwaiti oil production during the past 40 years, see {OPCRKUWA GP Y }

To contact the reporter responsible for this story: James Cordahi in Kuwait City (971) (50) 655 0476 or at [email protected] Andy Critchlow in Dubai on (+971) (4) 352 2116 or at [email protected]

To contact the editor responsible for this story: Tim Coulter in London on (44) (20) 7330 7901 or at [email protected]