MINISTRY OF ENERGY UNDERSECRETARY OUTLINES GAS

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 000943

SIPDIS

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

E.O. 12958: DECL: 03/08/2015
TAGS: EPET ENRG PREL PINR KU IZ OIL SECTOR
SUBJECT: MINISTRY OF ENERGY UNDERSECRETARY OUTLINES GAS
OPTIONS FOR KUWAIT

REF: 2004 KUWAIT 4557

Classified By: Economic Counselor Stephen Carrig for reason 1.4 (d)


1. (C) Summary: During a March 6 meeting with Economic
Counselor, Ministry of Energy Undersecretary Issa Al-Own
outlined Kuwait's options for receiving much-needed gas to
fuel electric power plants. He said that Kuwait was now
focusing its efforts on the two most promising options:
drilling in the disputed offshore Al-Durra gas field, and
building up a supply channel from Iraq. Al-Own described the
other two options, getting gas from Qatar or Iran, as both
fraught with complications and not promising for the near
future. Al-Own also outlined various other aspects of energy
cooperation between Iraq and Kuwait, including Iraq's desire
but Kuwait's present reluctance to facilitate the export of
Iraqi crude through Kuwait. End Summary.

Kuwait's Gas Needs: The Major Options
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2. (C) Economic Counselor and Economic Officer met March 6
with Ministry of Energy Undersecretary Issa Al-Own to discuss
Kuwait's various options to increase the supply of gas needed
to fuel its electric power plants, and for other energy
intensive projects, such as those being developed in Kuwait's
petrochemical industry (reftel). (Note: Kuwait has begun the
bidding process for the construction of a fourth refinery,
which should substantially increase the supply of domestic
fuel for power generation. This refinery will likely not
come online for at least three to five years, however.)
Al-Own said that, besides developing its own internal
refining capacity and looking for new gas fields, Kuwait has
four options for increasing its gas supplies. The first
option would be to drill for gas in the Al-Durra gas field,
located in the offshore neutral zone between Kuwait and Saudi
Arabia. The second option would be to finalize a deal to
import gas from Iraq. The third option would be to get gas
from Qatar through an underwater pipeline, and the fourth
option would be to import gas from Iran. Of the four
options, Al-Own said that the GOK and the Ministry were
concentrating their efforts on the first two -- drilling in
the Al-Durra field and building up capacity from Iraq.
Al-Own estimated that one billion cubic feet of gas per day
would meet all of Kuwait's current needs, including during
the peak summer power usage, but added that the Kuwaiti
petrochemical industry's growing appetite for gas could
consume whatever amount was supplied.

Al-Durra: Iran Not Happy but Kuwait to Drill Anyway
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3. (C) Al-Own described the undeveloped Al-Durra gas field,
located in the northern part of the offshore divided zone
between Kuwait and Saudi Arabia, as Kuwait's best prospect
for meeting a good portion of its gas needs. He estimated
that Kuwait could get as much as 400-600 million cubic feet
of gas per day from Al-Durra. Parts of the Al-Durra field
are also claimed by Iran as part of its Arash gas field.
According to Al-Own, Kuwait proposes to drill on the south
side of Al-Durra, away from the disputed area. Al-Own noted
that 70 percent of the Al-Durra field still would be
accessible to Kuwait when drilling in water undisputably
Kuwaiti. While not providing a specific timeline, Al-Own
said that the Ministry would tender a 3D seismic exploration
study for Al-Durra, and that he was just waiting on approval
from the Ministry of Foreign Affairs to move forward.


Iraq - Kuwait Gas Deal: Promising, but Needs Attention
-------------- --------------


4. (C) Al-Own said that Iraq and Kuwait had finalized, at
the committee level, a deal to import gas and that the GOK
had given its approval, but that the deal awaited approval
from the newly elected Iraqi Transitional Government (ITG).
Al-Own said that, at a working level, the cooperation was
good, but that the project was not currently receiving
political priority by the Iraqis. While the deal awaits the
final formation of the ITG, the two sides agreed to have the
technical teams continue meeting to keep the process moving
forward. Al-Own said that the initial plan was to
rehabilitate existing infrastructure to the point where,
within one year, Iraq could export 35 million cubic feet of
gas per day to Kuwait. Within three years, with additional
investment in new infrastructure, Kuwait would hope to import
200 million cubic feet per day. The line capacity, Al-Own
explained, would be able to accommodate up to 400 million
cubic feet in case both sides wish to expand the operation.
The initial rehabilitation would cost KD 8 million, with KD 6
million to be provided by Kuwait and the remaining KD 2
million to be provided by Iraq. For the second phase of
infrastructure investment, the cost would be approximately KD
230 million, with KD 130 million provided by Kuwait and Iraq
paying for the remaining KD 100 million. Al-Own said that
Iraq had asked Kuwait to invest in its gas fields and that
KUFPEC had done some preliminary exploration and found it
economically attractive.


5. (C) Al-Own specifically asked for USG support on helping
the Iraqis move forward to close the gas deal. He said that
his Iraqi counterparts had expressed that they are lacking
"speed of action from the Americans" on rehabilitating the
oil sector in Iraq, and that the "Americans must provide
support" for things to happen. Al-Own could not provide more
specific examples of help that the USG could provide but said
that he would try to get in touch with his Iraqi counterparts
for further information. He said that the person to talk to
would be Mr. Jabar Hussein, General Manager of the Iraq South
Oil Company.


Qatar-to-Kuwait Gas Pipeline: "Nothing Happening"
-------------- --------------


6. (C) On the third option, building an underwater gas
pipeline from Qatar to Kuwait, Al-Own said that the two sides
"talk too much" and that "nothing was happening." He said
that there were no disputes between Kuwait and Qatar over any
aspect of the deal, but that it was in the hands of the
Saudis, who had so far held back approval of the plan to
build the pipeline through the territorial waters. He did
not see any solution and was "personally not hopeful."
(Note: Post has heard from other private industry sources
that there may be some promising signs on this pipeline deal,
but Al-Own clearly did not have anything hopeful to say on
the project.)

Iran: Still Talking, but Just Talking
--------------


7. (C) Al-Own said that a team from Iran had just arrived in
Kuwait to discuss a gas import deal and that Kuwait would
take anything it could get from Iran to meet its needs. He
said that they almost had a deal two years ago but that it
fell through due to difficulties on the Iranian side. He did
not see the Iranians linking a gas import deal to
negotiations with Kuwait on the boundaries of the Al-Durra
field. He did not rule it out as a future possibility,
however, and observed that the Iranians "want to link
politics to everything." He said that the Iranians knew that
Kuwait was short on gas and were using that to draw out the
talks. Although he said that it is often difficult to know
who is in charge and able to make a decision on the Iranian
side, he said that "once they sign, they are committed." He
thought that, despite Saudi foot-dragging, it could be easier
to get gas from Qatar than from Iran, but did not sound
hopeful on either source.

Other Topics: Iraqi Crude Exports, Humanitarian Fuels,
Divided Zone Reorganization
-------------- --------------


8. (C) Al-Own acknowledged that the Iraqis had asked about
exporting crude through Kuwait via pipeline, but he said
without further comment that the GOK was "not very positive
on this." He said that the Iraqis had asked KPC, via the
Ministry of Energy, to open a business office in Basra, but
that the Ministry did not see a specific need right now, nor
did it see the stability required to send its people there.
Al-Own said the humanitarian fuels contracts between Iraq and
Kuwait would end in June 2005 but were expected to be
renewed. He did not see any problems in the quantities
requested by the Iraqis, but did find fault with some of the
logistics and safety operations of the fuel sales. He gave
an example of fuels being transferred from one truck to
another "out in the open and directly underneath high voltage
lines," to illustrate the safety hazards he has heard about.
Finally, Al-Own said that Kuwaiti responsibility for the
onshore production in the divided zone would be transferred
from one Kuwait Petroleum Company (KPC) subsidiary, Kuwait
Oil Company (KOC),to another, the Kuwait Gulf Oil Company
(KGOC),in order to have the entire divided zone operations,
onshore and offshore, handled by the same company.

BIO Note
--------------


9. (C) Al-Own speaks excellent English and is a friendly
and open interlocutor. He has a son who is currently in the
United States studying chemical engineering in Youngstown,
Ohio, and his son plans to come back to Kuwait to work for
Dow Chemical in its joint ventures with the Kuwait
Petrochemical Industries Company.


10. (U) Baghdad minimize considered.

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