SCENESETTER FOR SECRETARY BODMAN'S NOVEMBER 13-14,

S E C R E T SECTION 01 OF 05 KUWAIT 004685

SIPDIS

SIPDIS

LONDON FOR TSOU
DEPARTMENT OF ENERGY FOR SECRETARY BODMAN, MWILLIAMSON AND
PARTY
DEPARTMENT OF ENERGY FOR IE
EB/ESC/IEC FOR GALLOGLY, DOWDY

E.O. 12958: DECL: 11/15/2015
TAGS: ENRG EPET OVIP PREL KU
SUBJECT: SCENESETTER FOR SECRETARY BODMAN'S NOVEMBER 13-14,
2005 VISIT TO KUWAIT

Classified By: Ambassador Richard LeBaron for reason 1.4 (d)


1. (SBU) Secretary Bodman will arrive about one week after
the celebration of the end of the month of Ramadan. He will
meet with Energy Minister Shaykh Ahmad Fahd Al-Ahmad Al-Sabah
and Foreign Minister Shaykh Dr. Mohammed Sabah Al-Salem
Al-Sabah. He will also meet with Prime Minister Shaykh Sabah
Al-Ahmad Al-Jaber Al-Sabah if he returns in time to Kuwait
from vacation. As the Energy Minister closes out his OPEC
Presidency, he is uniquely positioned to offer insights into
OPEC directions and strategies, as well as into Kuwait's own
long-term plans for its own petroleum sector.


2. (S) The visit comes at an opportune moment in the
bilateral relationship. Kuwait has pledged an
extraordinarily generous aid package for the victims of
Hurricane Katrina, and continues to provide assistance to USG
priority areas such as Iraq, Afghanistan and Pakistan. Since
early 2002, the GOK has provided billions of dollars in free
and discounted jet fuel for use by Coalition Forces in
Operation Iraqi Freedom, and continues to do so. Our energy
dialogue has a renewed vigor, with a recent visit to the U.S.
by Ministry of Energy Undersecretary Issa Al-Own laying the
groundwork for future cooperation.


3. (SBU) Kuwait publicly claims to have 105 billion barrels
of crude reserves, or about 8 percent of the world's total.
It currently produces about 2.5 million barrels per day and
hopes to raise that to 4 mbpd by 2020. To do this, Kuwait
must bring in outside technical assistance and foreign
investment. The visit provides an excellent opportunity to
make the case that U.S. companies can offer the best of both.


4. (U) While the technical and managerial expertise of U.S.
companies has always been welcome in Kuwait, the current crop
of business opportunities and direct investment potential has
not been this promising since the nationalization of Kuwait's
petroleum sector in the 1970s. The opportunities include:
potential investment in the development of Kuwait's northern
oilfields, major commercial opportunities in the construction
of a new power plant and a new refinery, and the possibility
of additional foreign direct investment in Kuwait's growing
and lucrative petrochemical sector.


5. (U) On the flip side, the GOK has expressed an interest
in partnering with a U.S. company to invest in additional
refinery capacity in the U.S. This topic has seen a renewed
interest by the GOK in light of new energy legislation in the
U.S. and the pressing need for additional refining capacity
highlighted by the recent hurricane damage in the U.S.

Assistance for Hurricane Katrina
--------------


6. (U) As the effects on the people, communities and
businesses of the U.S. Gulf states became clear in the days
following Hurricane Katrina, the Government of Kuwait (GOK)
quickly demonstrated its friendship and its strong bond with
the United States by becoming the largest donor in the world,
with a pledged gift of $500 million in assistance. The Prime
Minister has already presented $25 million to the
Bush-Clinton Katrina Fund; another $75 million will be
donated for humanitarian projects. The remaining $400
million will be disbursed after National Assembly approval.
Although the President, Secretary Rice, and the Ambassador
have all thanked the GOK and the Kuwaiti people for their
extraordinary generosity, the visit presents another
opportunity to express appreciation for Kuwait's assistance
in our time of need.

Assistance for Iraq
--------------


7. (S) From December 2002 - December 2004, Kuwait provided
nearly USD 2 billion in free fuel for U.S. and Coalition
Force use in Operation Iraqi Freedom (OIF) and as Assistance
in Kind (AIK) for Kuwait-specific activities under the
Defense Cooperation Agreement (DCA). Kuwait continues to
provide jet fuel at a discounted rate, saving the military
and U.S. taxpayers millions of dollars a year. It also
provides in-kind support, estimated at $1-2 billion annually,
for the U.S. military presence in Kuwait. Kuwait's support
facilitates the U.S. military's mission in Iraq and
Afghanistan, both of which are supported by U.S. forces in

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Kuwait.


8. (U) Kuwait is also a generous financial supporter of
countries and organizations where we have a strategic U.S.
interest. It has provided financial assistance in the form
of grants and concessionary loans to Iraq, Afghanistan, and
the Palestinian Authority, and was quick to offer $100
million in assistance to Pakistan after the recent earthquake.

Expanding the Energy Dialogue
--------------


9. (C) The excellent dialogue that we have had with Kuwait
on global and bilateral energy issues continues, with a
recent visit to the U.S. by Ministry of Energy Undersecretary
Issa Al-Own. Al-Own and others in the Kuwait energy sector
frequently attend U.S. conferences and seminars, and we
encourage these visits as often as possible. Al-Own came
away from his recent meetings with Department of Energy
Deputy Secretary Clay Sell and Senior International Policy
Advisor Molly Williamson with a renewed enthusiasm for an
expanded energy dialogue. The GOK has also expressed
interest in having U.S. private sector participation in a
planned "GCC Strategic Studies Center" to be located in
Kuwait and to focus on the intersection of energy and
economic research.

OPEC Leadership
--------------


10. (U) Shaykh Ahmad has made a number of helpful statements
throughout his tenure this past year as the OPEC President.
He has said throughout the year that "OPEC remains committed
to providing the oil market with extra supplies if the market
so requires," and has continuously called for new investments
in upstream and downstream capacity. Kuwait has been in the
moderate price camp of OPEC for a number of years now.
Shaykh Ahmad's Presidency of OPEC comes to an end at the end
of December after the final OPEC meeting of the year, to be
held in Kuwait in mid-December.

--------------
Energy Projects & Business Opportunities
--------------

Kuwait Project - Development of the Northern Oilfields
-------------- --------------


11. (SBU) The GOK wants to bring in outside investment from
international oil companies (IOCs) in order to develop its
northern oilfields and increase production in four specific
fields from 450,000 bpd to 900,000 bpd. Pending National
Assembly approval, KPC will award the development project to
one of three oil company consortia. Chevron and ExxonMobil
lead two of the consortia, while Occidental Petroleum is an
investor in the third. The GOK hopes to pass the enabling law
through the National Assembly by the end of this year. This
USD 8.5 billion undertaking, known as "Kuwait Project," has
been in the works for over ten years and oil companies are
growing increasingly impatient with the numerous delays. The
IOCs are also concerned about conditions set out in the final
tender documents and whether the final package offered will
have a large enough profit margin to merit their
participation. The arrangement will be akin to a very large
technical service agreement; companies will not be able to
book reserves from the fields they will exploit.

Al-Zour Electricity Plant
--------------


12. (SBU) Al-Zour North (AZN) is a proposed USD 2.4 billion,
2500-megawatt electricity plant, currently in the bidding
phase. In 1996, the Amir pledged the AZN contract would go
to an American firm following the cancellation of a previous
project that had been won by an American company. Recently,
the GOK has backed away from the Amir's promise, saying the
contract will go to the best-qualified firm internationally,
however U.S. firms are leading most of the consortia bidding.
These U.S. companies include Fluor Corporation, Black and
Veatch, Shaw Group, Washington Group, Bechtel, and General
Electric. Parsons Brinckerhoff is acting as technical
advisor to the Ministry of Energy and they will serve as the
"client's engineer," supervising the work of the engineering,
procurement, and construction (EPC) contract winner.

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New Refinery
--------------


13. (U) Kuwait's planned fourth refinery, to be located in
the Al-Zour area in the south of the country, will reportedly
be the world's largest and will refine 615,000 barrels of
crude oil each day, according to Kuwait National Petroleum
Company (KNPC) officials. This refinery project is part of a
larger goal of expanding Kuwait's refining capacity from the
current 930,000 bpd to 1.33 million bpd by 2010. The
refinery will take approximately 66 months to complete, and
is expected to begin production in 2010. The new refinery
will replace the existing Shuaiba Refinery, which currently
refines about 200,000 bpd but is scheduled to be
decommissioned. The new refinery will produce naphtha,
kerosene and diesel.


14. (U) Fluor is the Project Management Services Contractor
for the new refinery. KNPC expects to list the qualified EPC
contractors soon. Up from earlier estimates of around $3
billion, the estimated cost for construction of the new
refinery is now being reported as $6.3 billion. The Kuwaiti
private sector will be invited to participate through a 20%
capital investment and through some construction work being
awarded to local contractors. Fluor is also well-positioned
to provide project management services on upgrades for the
three existing refineries.

EQUATE And Other Petrochemical Opportunities
--------------


15. (U) Established in 1963, Kuwait's Petrochemical
Industries Company (PIC) built the first chemical fertilizer
complex in the region. Besides the company's own
petrochemical facilities, it is involved in numerous joint
ventures with international partners. The EQUATE joint
venture brings together PIC and Dow Chemical, with a 10%
share held by a publicly traded Kuwaiti company. The joint
venture was established in 1995, with the first olefins plant
commissioned in 1997. The plant produces ethylene, ethylene
glycol and polyethylene. EQUATE has been very profitable for
the partners in this joint venture and, this success has led
to plans to establish new ventures for a second olefins plant
and an aromatics facility. EQUATE made a $600 million profit
last year and is on track to repeat the performance this
year. Through its work with Dow in EQUATE and through other
projects, PIC has now become Dow Chemical's largest
co-investor worldwide. In Kuwait alone, their joint
investments total $3-4 billion.


16. (U) The Secretary will tour EQUATE, hosted by PIC
Chairman Saad Ali Al-Shuwaib and EQUATE CEO Hamad Al-Terkait.
They will provide a brief overview of the joint venture, a
description of their future plans, and a tour of their
facilities.

Kuwait Investments in the U.S.
--------------


17. (U) The GOK has expressed an interest in partnering
with a U.S. company to invest in additional refinery capacity
in the U.S. This topic has seen a renewed interest by the
GOK in light of new energy legislation in the U.S. and the
pressing need for additional refining capacity highlighted by
the recent hurricane damage in the U.S. While the Kuwaitis
do not appear to have made formal overtures to any specific
U.S. company, we should continue to encourage them to explore
potential investments in U.S. refinery expansion and brief
them on plans to streamline the regulatory system. The State
of Louisiana, through its State Secretary for Economic
Development, has been in contact with KPC's Washington
office, and directly with the GOK, to showcase the economic
and regulatory advantages of investing in new refining
capacity in that state.

Kuwait's Gas Needs
--------------


18. (C) Kuwait is oil-rich and gas-poor, and needs to secure
additional supplies of gas for its power plants and
petrochemical facilities. Its options are limited and
fraught with difficulties. The GOK is in talks with Iraq to
secure a limited amount of gas, but it won't be enough to

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meet Kuwait's needs. A long-stalled plan to import gas from
Qatar via an undersea pipeline through Saudi Arabia's waters
is being blocked by the KSA, due to longstanding irritations
in the Saudi/Qatari relationship. Kuwait has limited options
to drill for its own gas, with exploration in the most
promising option, the offshore Al-Durra field, held up over a
boundary dispute with Iran. We were advised recently that
the Kuwaitis will begin to survey some undisputed areas of
the field. Kuwait has also been in negotiations with Iran to
import gas via pipeline. We have encouraged Kuwait to
explore other options and have informed them of the potential
for ILSA repercussions.

Promoting Study in the U.S.
--------------


19. (U) Since 9/11, Kuwait has seen the largest percentage
drop of all the Middle East countries in the number of
students studying in the U.S. From a pre-9/11 average of
2,800 Kuwaitis studying in the U.S., there were only 1,846
during the 2003-2004 academic year. If this trend continues,
in less than 15 years, there will be far fewer Kuwaiti elite
in academia and business, cultural, and political life who
are intimately familiar with America and sympathetic to our
values. The reasons for the sharp drop in the number of
Kuwaitis pursuing advanced degrees in the U.S. are diverse:
the misperceptions that visas are difficult to obtain and
America does not welcome Muslims or Arabs, a growing
preference to attend "American" universities in the region,
and more students choosing Australia, Canada, and the UK.
Embassy Kuwait has made increasing the number of Kuwaitis
studying in the U.S. a Mission priority and is using
Ambassadorial speeches, media interviews, the internet, and
information fairs to promote the value and benefits of a U.S.
education. The top executives of the Kuwait Petroleum
Corporation subsidiaries are all U.S.-educated, allowing us
to have open and meaningful communication with them on
important energy issues. We (and U.S. energy companies) are
concerned that a drop in the number of Kuwaitis studying in
the U.S. will affect our energy dialogue years in the future.

MIT Connections
--------------


20. (U) On May 12, 2005, the Kuwait Foundation for the
Advancement of Science and the Massachusetts Institute of
Technology announced the creation of a research and education
center devoted to progress on key environmental, hydrologic
and energy resource goals. The foundation will fund the
center at the level of $11 million over 10 years. The
Kuwait-MIT Center for Natural Resources and the Environment
will be based at MIT. This organization, whose core staff is
MIT faculty in the sciences, engineering and policy studies,
will promote interdisciplinary work by those investigators,
by MIT students, and by Kuwaiti researchers and students.
There are other connections between Kuwait and MIT, including
potential development of an entrepreneurship center.

Press Opportunities
--------------


21. (U) Post is eager for the Secretary to engage the
Kuwaiti and locally-resident international media. As Kuwait
has been a consistently reliable bilateral partner, the visit
offers an opportunity to express gratitude to the Kuwaiti
government and public for their ongoing support in all
aspects of the Mission's areas of responsibility in the
region. Most importantly, of course, we would like to
acknowledge their continued support for the War on Terrorism
and the building of democracy in neighboring Iraq.
Additionally, it is important to recognize their remarkable
generosity, whether it has been in support of military
efforts in the region or through humanitarian assistance to
the states affected by Hurricane Katrina in the Gulf of
Mexico.


22. (U) Proposed media plan: We propose a 15-minute
exclusive interview with the editor-in-chief, Walid Al-Nusif,
of Al-Qabas newspaper, a moderate daily Arabic language
newspaper, with the second largest distribution in Kuwait,
(approximately 75,000 copies). In addition to this
one-on-one interview, we recommend a media availability prior
to departure with CNBC, Kuwait TV, and Al-Rai TV, accompanied
by Kuwait News Agency (KUNA). The press conference would

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open with a short statement, followed by a question and
answer period, not to exceed ten-fifteen minutes total.

Overview of Embassy Kuwait
--------------


23. (U) Embassy Kuwait staff consist of 71 State Department
American employees, 126 other agency Americans, and 350
local-hire staff. Other agencies at post include Department
of Homeland Security (Customs),Foreign Commercial Service,
and nine Department of Defense agencies. The State component
of the Embassy has grown almost 70% in the last five years.
Local staff has increased 30% in the same time period. This
growth is a direct result of the increased role for the
bilateral mission due to Kuwait's strategic location and
support of U.S. efforts in Iraq.

Overview of U.S. Military in Kuwait
--------------


24. (SBU) Kuwait provides a secure rear area for operations
Iraqi Freedom and Enduring Freedom. Personnel and materiel
rotating into and out of Iraq transit through Kuwait. Kuwait
hosts U.S. forces at a number of camps throughout Kuwait,
provides access to air and sea ports of
embarkation/debarkation, and provides various types of
support to U.S. forces stationed in country. The
headquarters for Coalition Forces Land Component Command
(CFLCC) is located at Camp Arifjan and is the largest U.S.
military organization in country. The U.S. Air Force and
Navy have units and operations in Kuwait as well. Kuwait is
also a major customer for U.S. military equipment and
services, both through Foreign Military Sales (FMS) and
Direct Commercial Sales. Kuwait has 97 open FMS Cases
(contracts) valued at nearly $7 billion. Major U.S weapons
systems include the M1A2 tank, F/A-18 aircraft, and Patriot
missile system. More recently, Kuwait has purchased Apache
helicopters and is considering the purchase of a significant
number of naval systems as well. The Embassy's Office of
Military Cooperation (OMC-K),one of the largest U.S.
Security Assistance Organizations in the world, is
responsible for FMS in Kuwait, as well as Security
Cooperation with the Kuwait Armed Forces.

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