ARAMCO VP THINKS KARAN GAS DISCOVERY WILL PROVE "A

C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 003147

SIPDIS

SIPDIS

DHAHRAN SENDS
PARIS FOR ZEYA, LONDON FOR TSOU
ENERGY DEPARTMENT FOR GEORGE PERSON AND JAMES HART

E.O. 12958: DECL: 04/26/2016
TAGS: EPET ENRG EINV PREL SA
SUBJECT: ARAMCO VP THINKS KARAN GAS DISCOVERY WILL PROVE "A
GOOD HIT"

REF: RIYADH 1177 (NOTAL)

Classified by Consul General John Kincannon for reasons 1.4
(b) and (d).


1. (C) Summary: Yousef Rafie, Saudi Aramco's Senior VP for
Gas Operations, expanded on press reports of Aramco's recent
discovery of gas in the Karan field, saying that the
exploratory well was drilled into the first layer of the deep
Khuff formation and was producing dry gas. He estimated
reserves of 10 to 15 trillion cubic feet but cautioned that a
definitive statement of reserve size would have to wait for
further exploration. Rafie expressed satisfaction with
Sinopec's performance in the Aramco-Sinopec gas joint venture
(JV),noting that results from its first two wells will be
known in the next two weeks. He touched briefly on several
large upcoming JV projects and expressed a "personal opinion"
that Aramco would not expand its maximum sustainable oil
production capacity after 2009, when it is scheduled to reach
12 or 12.5 million barrels per day. End summary.


2. (C) CG and EconOff visited Rafie on April 24 to discuss
Aramco's recently announced discovery of a gas at the
offshore Karan field and other issues. Rafie said that the
Karan find was part of Aramco's efforts to locate
unassociated gas reserves to meet the Kingdom's growing
energy and petrochemical needs. Sensing from seismic data
that there might be a gas field in the "Khuff" formations
that lie below the oil-bearing "Arab" formations of the Karan
field, Aramco drilled an exploratory well into the Khuff A
layer. This well, according to press reports, produced gas
at a rate of 40 million cubic feet per day (Mmcf/d) and could
eventually produce a rate of 80 Mmcf/d. Rafie noted that
further exploratory drilling would be needed to determine the
overall size of the unassociated gas reservoir in Karan's
Khuff formations, but he expressed optimism based on the
single well and detailed seismic data. "I think it will be a
good hit," he said. "I think we may have a reservoir of 10
to 15 trillion cubic feet (Tcf) of gas, with single wells
capable of producing up to 100 Mmcf/day." Rafie described
the gas flowing from the well as dry (C1) gas, useable for
energy production but not as a petrochemical feedstock.


3. (C) Rafie said the four joint ventures (JVs) between
Aramco and international oil companies (IOCs) to explore for
unassociated gas in the Rub Al-Khali were "going very well,"
although the JV with Lukoil seemed to be progressing a "bit
more slowly" than the other three. He said that the Sinopec
JV had almost completed its first two exploratory wells.
"They were rushing to try to get something to announce during
the Chinese President's visit, but they didn't quite make it.
We expect to have results from these wells in the next two
weeks." Rafie said that Sinopec was expanding its presence
in the Kingdom: "They brought in their own rigs for drilling
the gas wells. They saw an opening, and now they're starting
to supply us (i.e., Aramco itself, not the JV) with rigs and
construction services." Rafie noted that several of the JVs,
including Sinopec's, had expressed an interest to Aramco in
expanding the terms of their concession to exploit natural
gas fields, should they be discovered. Asked by the CG
whether President Jintao's visit to Aramco on April 23 had
resulted in any concrete agreements, Rafie responded, "I
think we are going in the right direction," noting that "some
progress" was made in discussing terms for two long-delayed
refinery joint ventures in China at Fujian and Qingdao.


4. (C) Giving the CG and EconOff a quick survey of major
upcoming JV projects in Saudi Arabia, Rafie said that Aramco
was nearing a final decision on partners for two new export
refineries and noted that "ConocoPhillips will be one of
them." He said that The Dow Chemical Company was a potential
partner for an integrated petrochemical refinery planned for
Ras Tanura and expected to be on a similar scale as Aramco's
JV with Sumitomo in Rabigh. He gave figures of 7 billion
cubic feet per day (Bcf/d) and 800 Mmcf/d for Aramco's
production of C1 and C2 gas respectively, saying that Aramco
expected C2 production to increase to 1 Bcf/day. The CG
noted that Aramco seemed to be moving forward with its plan
to increase maximum sustainable oil production capacity (MSC)
to 12 or 12.5 million barrels per day (depending on whether
Neutral Zone production is included) and asked if Aramco had
begun to make plans for increasing MSC further after 2009.

RIYADH 00003147 002 OF 002


Rafie said that Aramco had teams studying this question
intensively and continued that, in his "personal opinion,"
Aramco would probably not raise MSC after reaching its 2009
goal. "We are capable of increasing it, but at some point
the world has to learn that we cannot keep increasing supply.
There have to be alternatives."


5. (C) The CG then asked Rafie whether the failed terrorist
attack at Abqaiq was changing Aramco's approach to security.
Giving essentially the same account as provided in reftel
though with fewer details, Rafie noted that the main lesson
Aramco executives drew from the incident is that "we can't
rely on others for security." (Note: By others, Rafie meant
Saudi security forces on the perimeter of key Aramco
installations. End note.) He said that Aramco had quickly
moved concrete blocks behind the gate the terrorists had
rammed and planned to be "spending a lot of money" for more
extensive security upgrades. Rafie then changed the subject
to education, clearly his passion. "What I worry about is
that we aren't doing enough to stop creating terrorists, to
cut that kind of thinking off at its roots." He explained
that he had recently shared his diagnosis of the critical
flaws in the Saudi educational system with the Minister of
Education, but that he feared "no one has the courage to
admit we have big problems."


6. (C) Bio note and comment: Rafie is a petroleum engineer
by training and has attended several executive education
programs in the U.S. He served on the Kingdom's negotiating
team for the National Gas Initiative in 2000, became Senior
VP for Gas Operations in June 2000, moved to Senior VP for
Industrial Relations in November 2001, and then returned to
the gas portfolio in September 2005. He is nearing
retirement, and we have no evidence that the "personal
opinion" he expressed on MSC after 2009 is shared by the SAG
or other Aramco officials. A decision on MSC after 2009 is
undoubtedly a decision that would be made at the level of the
Saudi king himself, although it is worth noting that at least
one senior Aramco insider does not believe it is in Saudi
Arabia's interest to continue expanding its capacity
post-2009, a development that would have a profound impact on
global energy supplies and prices. End bio note and comment.

(APPROVED: KINCANNON)
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