KUWAIT'S OPEC GOV ASKS FOR CLARIFICATION ON

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000524

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 02/15/2015
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KUWAIT'S OPEC GOV ASKS FOR CLARIFICATION ON
ADVANCED ENERGY INITIATIVE; OFFERS REVIEW OF KUWAIT'S OPEC
PRESIDENCY

REF: KUWAIT 000462

Classified By: DCM MATTHEW TUELLER FOR REASON 1.4 (B)


1. (C) Summary and Comment: During a February 13 meeting
with Econ Officer, Kuwait's OPEC Governor Ms. Seham Razzouqi
said that Kuwait "did not appreciate" the comments in the
recent SOTU address about U.S. "addiction to oil" and a need
to reduce dependency on oil imports from the Middle East. She
asked for further clarification on these points, as well as
additional information on any U.S. efforts to increase
domestic reliance on nuclear energy and also how our energy
strategies were being affected by global discussions on
climate change. She described Kuwait's 2005 Presidency of
OPEC as a "successful year", noting that Kuwait had
especially worked to increase dialogue between producers and
consumers. Comment: Razzouqi's remarks echo sentiments
shared with us recently by other oil sector participants
(reftel) and highlight the need to provide further
information on the Advanced Energy Initiative to the major
producers in this region. End Summary and Comment.

Fixated on "Addiction to Oil" Remarks
--------------


2. (C) Econ Officer met February 13 with Kuwait OPEC
Governor Ms. Seham Razzouqi to review Kuwait's 2005 OPEC
Presidency and to discuss general directions in Kuwait's oil
industry. Razzouqi was clearly preoccupied with the remarks
from the President's recent SOTU address, specifically the
reference to America's "addiction to oil" and the plan to
replace 75% of U.S. oil imports from the Middle East by 2025.
Kuwait "did not appreciate" the remarks, according to
Razzouqi, and she asked for any further clarification
available. She added that other accusations in the past year
of "OPEC as price-fixing cartel" have also been damaging and
asked what could be done about such statements. She
suggested that people could be better informed within
consuming countries about what she described as "the many
reasons" for high prices, including market speculation and
bottlenecks in downstream refining capacity


3. (C) Razzouqi added that OPEC had been trying, especially
under Kuwait's leadership in 2005, to improve dialogue
between producers and consumers and she hoped to see better
dialogue within consuming countries about oil supplies and
prices. She asked that further clarification be provided on
the newly proposed Advanced Energy Initiative (AEI),and
specifically asked about any plans to increase reliance on
nuclear energy at the expense of hydrocarbon resources. She
also asked how the latest U.S. energy strategies were being
shaped by the global discussion on climate change and the
Kyoto Protocol, specifically noting the U.S. participation in
the January 2006 AP6 conference in Sydney.


4. (C) Razzouqi mentioned the upcoming 10th International
Energy Forum (IEF),to be held April 22-24 in Doha, as a good
venue to continue the dialogue between producers and
consumers. She also said that this would be a good event at
which to clarify the specifics of the AEI and to offer
additional clarification on USG future energy plans. She
asked that we inform her about the makeup of the U.S.
delegation to this conference.

Kuwait's Presidency of OPEC "A Successful Year"
-------------- --


5. (C) Reflecting on Kuwait's 2005 Presidency of OPEC,
Razzouqi called it "a successful year," in which OPEC managed
to supply the markets fully, despite the many challenges
throughout the year. She said that the Kuwait Presidency
focused on strengthening the dialogue between producers and
consumers. She noted that a dialogue had previously been
established between OPEC and the EU and that, in the past
year, OPEC sought to increase the dialogue with Asia and
Russia. She said that Kuwait also tried to focus on
increasing transparency in the market and on raising the
issue of taxes on hydrocarbons in the consuming countries.
She added that OPEC was now publishing more information on
the capacity-expanding investment plans of its members. She
said that Kuwait is "committed to OPEC" and has always been
an active member, calling for "moderation with a balanced
view."


6. (C) Razzouqi said that during his OPEC Presidency, Energy
Minister Shaykh Ahmad Fahad Al-Ahmad Al-Sabah had "tried to
reinforce the obligations of the consumer nations" and to
provide "clear signals to the market" on actual supply and
demand. An important element of gauging future prices, she
explained, would include new OPEC initiatives to work with
the EU to better understand the impact of financial markets
on oil prices, and to understand how growing consumers such
as China were building their reserves.


7. (C) The OPEC Governor noted that price stability is of
the utmost importance to OPEC, but that it doesn't mean a
constant price. "It's a depletable resource," she said, "so
prices will naturally rise." She said that prices also need
to reflect the increased costs of production, including
increases in steel prices, and the difficulties in finding
engineering and construction firms with spare capacity for
new contracts.

Continuity At KPC, A Push For Kuwait Project, and Skills and
Talent Challenges
-------------- --------------


8. (C) Razzouqi said that she expected continuity in the top
management positions at KPC, given that the Energy Minister
has retained his position in the new Cabinet. She said she
understood that the foreign companies interested in the
Kuwait Project "won't wait forever" for Kuwait to decide to
move forward, but that Shaykh Ahmad "has the energy and
convincing power" to move things forward. She described the
biggest current challenge to KPC being the search for people
with the proper skills and talents, noting that many young
Kuwaitis are opting for computer engineering rather than
petroleum engineering as their chosen field.

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

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