Identifier
Created
Classification
Origin
06KUWAIT908
2006-03-16 08:04:00
CONFIDENTIAL
Embassy Kuwait
Cable title:  

KPC CEO ON GAS PROJECTS, FOREIGN PARTICIPATION IN

Tags:  ENRG EPET ECON BEXP KU OIL SECTOR 
pdf how-to read a cable
VZCZCXRO0613
PP RUEHDE
DE RUEHKU #0908/01 0750804
ZNY CCCCC ZZH
P 160804Z MAR 06
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 3503
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHLO/AMEMBASSY LONDON PRIORITY 1199
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 000908 

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 03/15/2016
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KPC CEO ON GAS PROJECTS, FOREIGN PARTICIPATION IN
OIL SECTOR, AND U.S. REFINERY PROJECT

REF: A. KUWAIT 0676

B. 05KUWAIT 5266

C. 05KUWAIT 5252

D. 05KUWAIT 4648

Classified By: Ambassador LeBaron for reasons 1.4 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 000908

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 03/15/2016
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KPC CEO ON GAS PROJECTS, FOREIGN PARTICIPATION IN
OIL SECTOR, AND U.S. REFINERY PROJECT

REF: A. KUWAIT 0676

B. 05KUWAIT 5266

C. 05KUWAIT 5252

D. 05KUWAIT 4648

Classified By: Ambassador LeBaron for reasons 1.4 (b) and (d)


1. (C) Summary: KPC CEO Hani Hussain told Ambassador on
March 12 that Kuwait's recently announced discoveries
included "very respectable amounts of gas," and expected
usable production of the new gas resources within "three to
four years." Hussain said that this gas discovery would not
eliminate the need for gas deals with other countries, and
that Kuwait was now exploring options to import LNG by ship,
purchased on the international market. Hussain listed the
development of Kuwait's northern oilfields and expansion of
refinery capacity as KPC's biggest current priorities. He
added that Kuwait is eager to develop more international
cooperation and to welcome more foreign participation in its
oil sector, and that "new types of arrangements" needed to be
examined. KPC has been in discussions with "several
parties," not majors but well-known companies, concerning
Kuwait's participation in the development of a new refinery
in the U.S., according to Hussain, and he also noted Kuwait's
interest in having a U.S. company take an equity position in
a new refinery being constructed in Kuwait. The CEO said
that the location of the new Kuwaiti refinery, an issue that
Chevron subsidiary Saudi Arabian Texaco has raised with KPC,
"won't be changed." Finally, Hussain said that while KPC
does have some minor difficulties with the Iraqi
Government-owned SOMO's fluctuating demand for different fuel
products and the strain it puts on KPC's supply chain, KPC is
getting paid and it is the locally-owned Kuwaiti transport
companies that are at times not having their invoices paid by
SOMO. End Summary.

"A Respectable Amount Of Gas"
--------------


2. (C) During a March 12 meeting with Kuwait Petroleum

Corporation (KPC) CEO and Deputy Chairman Hani Hussain, the
Ambassador congratulated him on Kuwait's recently announced
new discoveries of oil and gas (Ref A). Hussain said that
KPC "knew for some time" that there was something to this new
discovery, but needed to test for quantity and pressure, "in
order to make sure." He said that the find included "very
respectable amounts of gas." The challenge now, Hussain
noted, is "to implement projects in proper time (in order to)
utilize the resources." He said that he expected to have
usable production from the new gas find "within three to four
years", and estimated production at 500 million to 1 billion
square cubic feet of gas per day. He added that 70% of this
production would be used locally with the remaining
high-value products destined for export.

But Still Not Enough
--------------


3. (C) The CEO said that this new gas discovery would not
eliminate Kuwait's need to import gas from elsewhere and that
KPC was actively working on a strategy to this end. He said
that he had assigned a new group to work on a strategy to
import LNG by ship "as soon as possible." Kuwait "might only
import gas for part of the year" he explained, adding that
while Europe and other places needed more gas in the winter,
Kuwait's highest demand was in the summer, when gas was
needed to fuel the power plants in order to generate
electricity for air conditioning. Kuwait could get this gas
from the international market, according to Hussain,
purchased either through long-term contracts or spot pricing.
The deal to import gas from Qatar via pipeline (Ref D) was
not progressing at all, Hussain said, and the gas promised to
Kuwait was no longer available. He added that Qatar has "too
many projects" going on at the same time and that the gas for
Kuwait would not have been available until 2011 anyway.

Kuwait Project Update
--------------


4. (C) The enabling law allowing for foreign participation
in development of Kuwait's northern oilfields (Kuwait
Project) "will be given priority" by Parliament's Financial
and Economic Affairs Committee, according to Hussain, and
then will move to the full Assembly. "We have the votes" to
pass the law, he insisted, and added that "it would have been

KUWAIT 00000908 002 OF 003


settled if not for the passing of the Amir." Commenting on a
late-2005 State Audit Bureau review of the enabling law (Ref
B),Hussain said that the Bureau's comments concerning the
constitutionality of the project "were out of their
jurisdiction." He said that he hoped to see passage of the
law before May. He added that, in light of the January 25
resignation of Kuwait Project Managing Director Ahmed
Al-Arbeed, Acting MD Hashem Al-Rifaei is "very capable," and
that a new deputy, Khalid Al-Khanees, has just been appointed
the new deputy.


Refinery Expansion and International Cooperation
-------------- ---


5. (C) Besides the Kuwait Project, Hussain also listed
expansion of the refinery sector as one of KPC's biggest
priorities. He said that some equipment ("reactors") has
already been purchased for the new refinery and that the
existing refineries would also be upgraded and modernized.
"We have to keep up with the demand for advanced products,"
he explained, adding that KNPC would be awarding over KD 1.25
billion ($4.26 billion) in refinery upgrade contracts over
the next few years. Other facilities, particularly export
infrastructure, would also be expanded, he said.


6. (C) The CEO said that one of KPC's objectives was to have
part of the new refinery under private ownership, and that
KPC was specifically interested in a U.S. company taking an
equity stake in the project. He added that KPC has always
found it "very efficient" to have a U.S. partner, and
inquired about ConocoPhillips' interest in the Yanbu refinery
project in Saudi Arabia.


7. (C) Hussain reflected on Kuwait's need for further
international cooperation to develop its oil sector.
Acknowledging the difficulties with getting approval for the
Kuwait Project, he said that "new types of arrangements" have
to be created. He said that he did not think that Kuwait
could use existing models for such arrangements but would
have to create new ones. "The IOCs want to be rewarded for
their work," he admitted, adding that it did not necessarily
have to be in bookable reserves, but had to go beyond simple
technical services agreements.

"Several Parties" Interested in Refinery Project in U.S.
-------------- --------------


8. (C) Concerning Kuwaiti interest in participating in a
refinery project in the U.S., Hussain said that KPC has been
"talking to several parties" in the U.S. He added that KPC
"has sent and is sending several delegation to the U.S. to
discuss" a refinery project. He said that one of the options
KPC is exploring is a "processing agreement" where KPC would
provide a guaranteed amount of crude to the refinery operator
and then have a share of the profits from the refined
products. Hussain explained that "all discussions (with
parties in the U.S.) are aimed at meeting the objectives of
providing more refined products to the U.S. market." He said
that KPC was not talking to the major U.S. companies, but to
well-known companies in the next rungs of the oil business.
He re-emphasized the GOK's interest in partnering with an
established American company. While not explicitly saying
that it concerned the U.S. refinery project, Hussain said
that he would soon be attending a "confidential meeting" in
Europe with a U.S. company, because the unidentified company
did not want to meet in Kuwait or the U.S.

New Refinery Location "Won't Be Changed"
--------------


9. (C) The Ambassador raised the issue of the location of
the new Kuwaiti refinery and its potential impact on the
operations of Chevron subsidiary Saudi Arabian Texaco (SAT).
Hussain said "the refinery is extremely important" and that
"the location won't be changed." He said that he was aware
that the SAT concession was due to expire in 2009, echoing
comments that we have heard from other interlocutors (Ref C).
Finally, he added that "the Energy Minister already knows
all of the details" of the refinery location and SAT's
concerns, signaling that it would be of little use to pursue
the matter further.

KPC Getting Paid By SOMO, Transporters Not
--------------

KUWAIT 00000908 003 OF 003




10. (SBU) Asked about KPC's relationship with Iraq's SOMO,
Hussain said that KPC was still selling gasoline and diesel
to SOMO for use by the Iraqi people and that KPC was being
paid on time, for the most part. He said that SOMO has a
letter of credit that guarantees payment to KPC, but that the
private locally-owned Kuwaiti transport companies do not have
the same guarantee and are at times not having their invoices
paid by SOMO. He said that the companies had raised the
issue with Kuwait's Energy Minister, and added that the
problem appeared to stem from SOMO's desire to introduce a
third transporter into the equation. He said that, overall,
the operation on the Kuwaiti side is smooth but that "the
supply details change often" with the Iraqis asking for
different amounts of gasoline and diesel on a regular basis
with no set formula.

********************************************* *
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