QATAR GAS TO KUWAIT

S E C R E T KUWAIT 005296 SIPDIS STATE FOR NEA/ARP AND EB/ESC E.O. 12958: DECL: 09/24/2012 TAGS: PREL PGOV ENRG ECON KU SA SUBJECT: QATAR GAS TO KUWAIT REF: SECSTATE 250977 Classified By: Ambassador Richard H Jones for reasons 1.5 (B) and (D) 1.(S) Post provides the following responses to questions posed in reftel. 2.(S) What are the energy and economic (or political) implications for Kuwait if this deal does not go through? A.) The GOK is facing a significant electicity deficit in the next two to three years without significant additions to its generation capacity. The next project due to come online is a gas turbine power station which the Kuwaitis hope to connect to the grid in 2003, and to power with Qatari gas starting in 2005. The Kuwaitis are also working on two significant petrochemical projects, both of which are dependent on gas as a feedstock. If Qatari gas is not available, all of these projects are at risk. The political implications of a series of power outages could be quite significant. 3.(S) Aside from timing and cost, are there other Kuwaiti concerns regarding the source of its supply, e.g., are ExxonMobil concerns about losing out to Iranian sources credible? A.) The Kuwaitis have engaged with the Iranians at various levels for years for many reasons. We believe that the primary reason for entertaining the Iranians as a potential gas supplier was as a bargaining chip to keep the Qataris from being too rapacious. The Kuwaitis will be reluctant to rely on the Iranians for gas -- they see the same corruption in Iran that we do, and given the confusing array of power centers in Iran, they will question the ability of any Iranian official to follow-through on a committment. However, having said that, many here would find Iran an attractive alternative for many reasons, including cost and political balance. In short -- yes, ExxonMobil's concern is reasonable. 4.(S) Would Kuwait have no choice but to approach Iran for gas? (We note from other reporting that a Kuwaiti delegation was scheduled to travel to Tehran presumably to discuss a gas deal.) A.) Kuwait needs gas, as noted above. After Qatar, Iran is clearly the most viable alternative in the short to medium term; Iran has the supplies and the distribution network that could easily be extended to reach Kuwait. In the longer term, Iraq has the potential to supply Kuwait with gas, but there are too many uncertainties for this to be considered as a viable opportunity anytime soon. 5.(S) Why has Kuwait not taken an equity interest in this project, either upstream or downstream? A.) Kuwait is currently looking for international oil companies to finance the development of its own petroleum sector, so it would be unlikely to invest inthe development of Qatar's energy sector. ExxonMobil has told us it believes the GOK and/or KPC will take some small equity portion in the pipeline operator, once the deal is completed. JONES