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