Identifier
Created
Classification
Origin
06KUWAIT1417
2006-04-25 08:26:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kuwait
Cable title:  

KUWAIT ENERGY UPDATE: RECORD HIGH CRUDE PRICES,

Tags:  ENRG EPET ECON BEXP KU OIL SECTOR 
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UNCLAS SECTION 01 OF 02 KUWAIT 001417 

SIPDIS

SENSITIVE
SIPDIS

LONDON FOR TSOU
DEPARTMENT OF ENERGY FOR IE
EB/ESC/IEC FOR GALLOGLY, DOWDY

E.O. 12958: N/A
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KUWAIT ENERGY UPDATE: RECORD HIGH CRUDE PRICES,
NEW DISCOVERIES, OVERSEAS REALIGNMENT, MORE KUWAIT PROJECT
DELAYS

REF: KUWAIT 0676

This cable is sensitive but unclassified; please protect
accordingly. Not for Internet distribution.

UNCLAS SECTION 01 OF 02 KUWAIT 001417

SIPDIS

SENSITIVE
SIPDIS

LONDON FOR TSOU
DEPARTMENT OF ENERGY FOR IE
EB/ESC/IEC FOR GALLOGLY, DOWDY

E.O. 12958: N/A
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KUWAIT ENERGY UPDATE: RECORD HIGH CRUDE PRICES,
NEW DISCOVERIES, OVERSEAS REALIGNMENT, MORE KUWAIT PROJECT
DELAYS

REF: KUWAIT 0676

This cable is sensitive but unclassified; please protect
accordingly. Not for Internet distribution.


1. (U) Summary: Kuwait Export Crude continued to set record
high prices, selling for almost $65/barrel, the highest in
its history. Energy Minister Shaykh Ahmed announced that
production of the recent gas discoveries will begin in "early
2007," while KOC announced an additional crude discovery in
southeast Kuwait that a private industry source called
"promising." The new refinery project in Kuwait picked up
steam, and KPC is reportedly interested in downsizing its
refinery operations in Europe while expanding it in Asia.
While Kuwait's own plans for increased production through the
"Kuwait Project" remain stalled in Parliament, Shaykh Ahmed
joined the chorus of OPEC members calling for reactivation of
the 2 million bpd of standby oil output to be made available
to world markets to ease the record high oil prices. End
Summary.

KEC Continues Record Climb
--------------


2. (U) Kuwait Export Crude (KEC) continued its record climb
to new heights, reaching almost $65/barrel on April 22. Spot
prices for KEC have, for the most part, remained above
$50/barrel since reaching that point in June 2005. By
January 2005 KEC was averaging $55/barrel and in mid-April
hit $60/barrel for the first time ever. In 2004, KEC was
averaging between $28 and $36/barrel. Even if KEC drops back
down to $50/barrel, the GOK will see a budget surplus of at
least $22.5 billion for the 2005/2005 fiscal year. For the
first ten months of fiscal year 05/06, Kuwait earned $36.1
billion in oil revenues, compared with $22.6 billion in the
first ten months of the fiscal year 04/05.

Gas Production Expected in 2007
--------------


3. (U) Minister of Energy Shaykh Ahmed Al-Fahd Al-Ahmed
Al-Sabah announced on April 18 that production of natural gas
from the new discoveries in northern Kuwait (reftel) would
begin "in early 2007." The Minister made these remarks to

the press in Egypt after meeting with Egypt's Oil Minister.
According to news reports, initial tests show non-associated
gas flowing from the newly discovered wells at the Umm Niqa
and Sabriya fields at a rate of 16,000 - 27,000 Mcf/d. The
total tested production rate, between these fields and three
others, is 112,000 Mcf/d, according to KOC engineers.

And Another Crude Discovery, in the South
--------------


4. (SBU) Kuwait Oil Company (KOC) Chairman Farouk Al-Zanki
announced to the press on April 20 that KOC has made a new
discovery in the southeastern part of Kuwait, in the Arifjan
area. Al-Zanki told the press that the well had been drilled
down to the Jurassic Marrat formation, and that initial
production tests showed an oil rate of a little over 5,300
bpd. An executive with an international oilfield services
companies with intimate knowledge of the new discovery told
Econ Officer on April 22 that "the quality is promising" in
the new discovery, but the quantity is not yet fully known.
He said that this was more of the "difficult oil" that Kuwait
was beginning to find at deeper depths in the formations.


5. (SBU) Another IOC contact in Kuwait provided Econ Officer
with rough coordinates of the new discovery, believed to be
just to the southeast of the Burgan field area. The
coordinates provided are roughly: MGRS: 39RTM1735197920, DD:
28.877967 Lat., 48.102122 Lon.

3 U.S. Firms Pre-Qualified For New Refinery Project
-------------- --------------


6. (U) Local news sources reported in mid-April that Kuwait
has pre-qualified eleven companies for the construction
portion of the new oil refinery. Projected to cost $6.3
billion, the refinery is expected to have a capacity of just
over 600,000 bpd, and is planned for the Al-Zour area. There
will be two separate tenders for the actual refinery
production units, a third tender for utilities and services,
and a fourth tender for storage tanks and a pier. Foster
Wheeler has been pre-qualified for the estimated $2-2.4
billion contract for the installation of three 205,000 b/d
crude distillation units, and it is competing against four
non-U.S. companies. Washington Group and Shaw Group have
been pre-qualified for the second production unit
installation tender, estimated at $1 billion, and are
competing against five non-U.S. companies. Foster Wheeler,
along with the Shaw Group, are also competing for the
estimated $900 million utilities and services package,
against four non-U.S. companies. No U.S. companies were
pre-qualified for the storage tank and pier construction
contract.

More Refining In Asia, Less In Europe
--------------


7. (U) KPC continues to realign its overseas marketing
strategy towards Asia, with an April 22 announcement that a
planned joint venture oil refinery with PetroChina could be
located in Guangdong Province, in the Pearl River Delta area.
The announcement comes on the heels of the December 2005
visit of Energy Minister Shaykh Ahmed to the province to meet
with PetroChina officials. The refinery is planned with a
capacity of 400,000 bpd.


8. (U) At the same time that Kuwait appears to be expanding
its refinery operations and downstream marketing capacity in
Asia, it appears to be cutting back on the same in Europe.
April 23 online news sources reported that KPC has hired JP
Morgan to look for potential buyers for the company's
Europoort refinery in Rotterdam. KPC previously sold off
other small European refinery assets because they were
uneconomical, and is probably doing the same with this 40,000
bpd operation. The refinery is estimated to be worth $320
million. The sale of this asset would leave KPC's 50% stake
in a 300,000 bpd refinery located in Milazzo, Italy as its
only remaining European refining asset.

Kuwait Project: Guess What? Still Delayed
--------------


9. (U) The National Assembly's Economic and Financial
Affairs Committee approved the legal aspects of the enabling
law for Kuwait Project in early April, but has yet to approve
the financial and technical aspects. The IOCs remain hopeful
to see some movement on the law in the current parliamentary
session, but it appears that the Committee wants to take its
time reviewing the law, and that the full Assembly is busy
debating other political matters and may not have time to
focus on the project this Spring. Many industry contacts
have suggested to us that, if the project is delayed until
the Fall of 2006, when many MPs will be gearing up for
Parliamentary elections, it might be "dead in the water."

Shaykh Ahmed Calls for Increased OPEC Production
-------------- ---


10. (U) Echoing recent calls by other OPEC members, Shaykh
Ahmed told reporters on his arrival at the International
Energy Forum in Doha on 23 April that Kuwait supports
reactivating the extra two million bpd in standby oil output
that was made available in September 2005 after Hurricane
Katrina.

********************************************* *
For more reporting from Embassy Kuwait, visit:
http://www.state.sgov.gov/p/nea/kuwait/?cable s

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

********************************************* *
LEBARON