KOC GAS CHIEF LOOKS FOR HELP IN AVOIDING

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 003270

SIPDIS

LONDON FOR TSOU
STATE FOR NEA/ARPI
STATE PLEASE PASS DEPARTMENT OF ENERGY FOR IE
EB/ESC/IEC FOR GALLOGLY, DOWDY

E.O. 12958: DECL: 07/24/2015
TAGS: EPET ENRG PINR BEXP KU IR IZ OIL SECTOR
SUBJECT: KOC GAS CHIEF LOOKS FOR HELP IN AVOIDING
KUWAIT-IRAN GAS DEAL

REF: A. KUWAIT 1496

B. KUWAIT 943

C. KUWAIT 1884

Classified By: CDA Matthew Tueller for reasons 1.4 (b) and (d)


1. (C) Summary: At a July 23 meeting, Kuwait Oil Company
(KOC) Gas Management Group Manager Mohammad Al-Otaibi told
Econ Officer that Iran was "very eager" to have Kuwait sign
an agreement to import gas from Iran, but that the GOK was
still weighing its options. He asked for any assistance that
the USG could provide in urging the Kingdom of Saudi Arabia
to drop its opposition to the proposed Qatar-Kuwait gas
pipeline, which he described as a much better alternative to
the Iran pipeline, both politically and financially. He said
that resolution of drilling rights in the disputed offshore
Al-Durra gas field would also have to be resolved between
Kuwait, Iran and the KSA, but that he didn't think it would
be resolved "anytime soon." He said that he would be meeting
later that day with representatives of the Iraqi Oil Ministry
to iron out details of the proposed Iraq-Kuwait gas pipeline,
but that the Iraqis did not have a lot of confidence in the
security or functionality of the existing pipeline. He said
that Kuwait was also exploring various options for bringing
gasoline from Kuwait to Iraq via pipeline, instead of the
problematic trucking options currently being used. End
Summary.

Iran "Eager" to Sell Gas, but GOK Looking for Other Options
-------------- --------------


2. (C) At a July 23 meeting, Kuwait Oil Company (KOC) Gas
Management Group Manager Mohammad Al-Otaibi told Econ Officer
that Iran was "very eager" to have Kuwait sign an agreement
to import gas from Iran, but that the GOK was still weighing
its options (Refs A and B). He explained that the planned
25-year, $7 billion deal was not as settled as previous news
accounts had portrayed (Ref C),and that he was actively
trying to recommend against the Iran deal. He said that "it
would be much better to deal with the Qataris" for gas, and
that any deal with the Iranians was fraught with "political
problems." He asked for any help the USG could provide in
convincing the KSA to allow construction of the Qatar -
Kuwait pipeline through the KSA's waters.


3. (C) Al-Otaibi noted that the gas pipeline deal was also
linked, politically, to resolution of the dispute over
drilling rights in the offshore Al-Durra oil and gas field.
He said that Iran was already drilling for oil in the area
and was "flaring off the gas" from the field. He said that
he did not think the offshore border demarcation and drilling
rights issue would be resolved, but that any hope for
resolution lay in positioning it as an environmental issue
instead of a political one. Showing the Iranians that
flaring off the gas rather than capturing it for use was
medically damaging to the children of Iran and Kuwait,
Al-Otaibi said, might bring resolution on the issue, but he
was not hopeful.


4. (C) Al-Otaibi said that he has gone to Iran many times to
discuss oil and gas projects, and went most recently in early
July to discuss the gas pipeline deal. He told of meeting
ordinary Iranians on the street who he described as "hungry
for change" and told of one Sunni taxi driver who asked "when
will Imam Bush come to liberate" Iran.

Qatar Gas Deal Still Held Up By KSA
--------------


5. (C) Al-Otaibi was very eager to see the commencement of
the Qatar - Kuwait pipeline project, and said that Saudi
Arabia's opposition to the deal was the only thing blocking
it. "The problem is policy," he said, "not financial,
logistic or anything else." He said that a contact of his in
Saudi Arabia told him that the Saudi Minister of Defense was
one of those holding up the project, and he again asked for
USG support in convincing the Saudis to drop their
opposition. Al-Otaibi said that a pipeline from Qatar to
Kuwait would be in everyone's benefit, including Saudi
Arabia's, and that it was only the beginning of a much larger
gas pipeline project. He said that the pipeline could then
be extended from Kuwait to Iraq, then on to Turkey and
Europe, as part of a larger fifty-year strategy for gas
delivery. He said that he specifically saw a "tremendous
opportunity" for ExxonMobil in the Qatar-Kuwait pipeline
project, and that the French company Total was ExxonMobil's
chief competitor in this regard.


6. (C) Bechtel has already completed a study on the Qatar -
Kuwait gas pipeline, Al-Otaibi explained, and the 540
kilometer pipeline is expected to take two years to build.
According to Al-Otaibi, in the absence of a timely approval
by Saudi Arabia to build the pipeline through the KSA's
waters, another option was being considered. This would
involve building a pipeline from Qatar to the Iranian port of
Assaluyeh then on to Ganaveh, then to Kuwait. It would still
be Qatari gas, which Al-Otaibi described as being of better
quality than Iranian gas, but Iran would get some financial
remuneration for the pipeline traversing its territory.
While this would avoid Saudi Arabian waters, Al-Otaibi
considered this a long-shot option.

Iraq Gas Deal Almost Complete
--------------


7. (C) Al-Otaibi said he would be meeting later that day
with representatives of the Iraqi Oil Ministry to iron out
details of the proposed Iraq-Kuwait gas pipeline (Ref B).
The deal was ready to be finalized, he said, and within one
to three months he hoped to see the commencement of the first
phase of the project. He said that the Iraqis did not have a
lot of confidence in the security or functionality of the
existing pipeline, and had "been using the local tribes to
guard the pipeline." While noting that the amount of gas to
be imported from Iraq was not much compared with the amounts
discussed in the Qatari and Iranian deals, Al-Otaibi
explained that the Iraqi gas was particularly good for the
petrochemical production process and would be used primarily
towards that end in Kuwait's growing petrochemical sector.


8. (C) Turning his attention to the supply of gasoline from
Kuwait to Iraq, Al-Otaibi said that there were "many
problems" with the system of trucking gasoline to Iraq and
that "better monitoring systems were needed." He said that
the two sides were exploring the use of pipelines to bring
gasoline from Kuwait to Iraq, but that use of the existing
pipelines "was not realistic" and that new pipelines would be
needed.

Bio Data
--------------


9. (C) Mohammed Al-Otaibi is about 45 years old and speaks
good English. He is an up-and-comer in the Kuwaiti oil
industry, and will likely have a leading role in any future
gas subsidiary of the Kuwait Petroleum Corporation. He
travels frequently and has good relations with the top
executives of KPC and the Minister of Energy. He has
traveled frequently to Iran as part of Kuwait's gas
negotiations with Iran and is happy to tell
"people-on-the-street" stories about his travels to Iran and
conversations with regular Iranians. He attends certain
diwaniyas which are frequented by many conservative Islamists
and speaks openly about the need for more dialogue between
liberals and conservatives. He is married with two young
children, and has plans to vacation in the United States in
the summer of 2005, "to take (the) children to DisneyWorld."

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Visit Embassy Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kuwait/
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