Identifier
Created
Classification
Origin
07KUWAIT1058
2007-07-03 14:58:00
CONFIDENTIAL//NOFORN
Embassy Kuwait
Cable title:  

KUWAITIS TRY TO ADDRESS CHEVRON'S CONCERNS ABOUT

Tags:  EPET PGOV ECON KU SA 
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VZCZCXRO2485
PP RUEHDE RUEHDIR
DE RUEHKU #1058/01 1841458
ZNY CCCCC ZZH
P 031458Z JUL 07
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 9536
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 001058 

SIPDIS

NOFORN
SIPDIS

DEPT FOR EB/ESC/IEC, NEA/ARP; ENERGY FOR MWILLIAMSON

E.O. 12958: DECL: 07/02/2017
TAGS: EPET PGOV ECON KU SA
SUBJECT: KUWAITIS TRY TO ADDRESS CHEVRON'S CONCERNS ABOUT
NEW REFINERY IN DIVIDED ZONE

REF: A. KUWAIT 943

B. KUWAIT 606

C. KUWAIT 383 AND PREVIOUS

Classified By: Ambassador Richard 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 001058

SIPDIS

NOFORN
SIPDIS

DEPT FOR EB/ESC/IEC, NEA/ARP; ENERGY FOR MWILLIAMSON

E.O. 12958: DECL: 07/02/2017
TAGS: EPET PGOV ECON KU SA
SUBJECT: KUWAITIS TRY TO ADDRESS CHEVRON'S CONCERNS ABOUT
NEW REFINERY IN DIVIDED ZONE

REF: A. KUWAIT 943

B. KUWAIT 606

C. KUWAIT 383 AND PREVIOUS

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


1. (C/NF) Summary: On 25 June, Ahmad Al-Jemaz, Manager for
the New Refinery Project at Kuwait National Petroleum Company
(KNPC),met with Dudley McDaniel, Senior Vice President for
Operations at Saudi Arabian Chevron (SAC),to discuss
Kuwait's plans to build a mega-refinery adjacent to SAC's
compound in the Kuwait-administered portion of the
Partitioned Neutral Zone (PNZ) shared by Kuwait and Saudi
Arabia. Al-Jemaz insisted that the new refinery would not
impinge on SAC operations and outlined the measures that KNPC
had undertaken in order to respond to SAC's concerns.
McDaniel described the meeting as positive, but explained
that since the Government of Saudi Arabia sees the refinery
location as a sovereignty issue, it would be inappropriate
for SAC to enter into any negotiations with KNPC at this
time. McDaniel said that he and SAC President Ahmed Al-Omer
would be meeting in Europe with a representative of the Saudi
government within the next week. Al-Jemaz later told Econoff
that he expects KNPC to issue tenders in August and award
contracts by the end of the year. In a separate meeting on
30 June, Khaled Al-Fulaij, Petroleum Advisor to the Amir,
told the Ambassador that Chevron management seemed to be in
favor of an agreement and suggested that SAC President
Al-Omer seemed to be the one blocking a compromise. He said
the GOK was optimistic about proceeding with the refinery and
had assigned a point of contact to liaise with the Saudi
government. End Summary.

--------------
KNPC Reaches Out to Chevron to Allay Concerns
--------------


2. (C/NF) On 25 June, Ahmad Al-Jemaz, Manager for the New
Refinery Project at Kuwait National Petroleum Company (KNPC),
met with Dudley McDaniel, Senior Vice President for
Operations at Saudi Arabian Chevron (SAC),to discuss

Kuwait's plans to build a 615,000 barrels-per-day refinery
adjacent to SAC's compound in the Kuwait-administered portion
of the Partitioned Neutral Zone (PNZ) shared by Kuwait and
Saudi Arabia. Al-Jemaz told McDaniel he had requested the
meeting to listen to Chevron's concerns and accommodate them
as much as possible. In a 27 June phone conversation with
Econoff, McDaniel characterized the encounter as "very
positive." McDaniel said Al-Jemaz conveyed that KNPC was
trying to mitigate any negative impact on Chevron's
operations or living environment. He went so far as to offer
to build Chevron a grass golf course. Al-Jemaz also tried to
build a business case for Chevron, saying that KNPC might
agree to purchase all of SAC's crude and process it in the
new refinery.


3. (C/NF) McDaniel reiterated Chevron's concerns that the
proximity of the refinery would prevent SAC from being able
to expand its facilities if it decides to launch its
steamflood program, now a pilot project, on a much larger
scale. (Note: The steamflood program could have the
potential to significantly enhance the recovery of heavy
crude from the joint Kuwait-Saudi operations in the PNZ to
the benefit of both countries, but at this early stage, SAC
has not decided whether a large scale steamflood operation
would be a worthwhile investment. End note.) McDaniel said
an expansion of the steamflood program would require the
construction of an additional 100 housing units, new offices,
a desalination plant, and additional infrastructure
associated with steam generation and delivery. He noted that
the timing of Kuwait's refinery project is unfortunate since
it interferes with SAC's ongoing discussions with the
Government of Saudi Arabia regarding the possible extension
of the SAC concession, which is due to expire in February

2009. McDaniel stressed that SAC is also very concerned
about the health, safety, and environmental impact of having
such a large refinery built and operated in close proximity
to SAC's administrative offices and family housing.


4. (C/NF) Al-Jemaz invited McDaniel to a follow-on meeting
at KNPC headquarters, but McDaniel declined. He said because
SAC works for the Saudi Arabian government and the Saudis see
the refinery location as a sovereignty issue, it would be
inappropriate for SAC to enter into any negotiations with
KNPC at this time. McDaniel told Econoff that he and SAC
President Ahmed Al-Omer, a Saudi national, would be meeting
in Europe with a representative of the Saudi government
within the next week.

KUWAIT 00001058 002 OF 003



-------------- --------------
KNPC: No conflict; Need Refinery; Accommodating Chevron
-------------- --------------


5. (C/NF) In a separate meeting with Econoff on 2 July,
Al-Jemaz explained that, in his analysis, the new refinery
project and SAC's operations "do not conflict with each
other." He added that the new refinery project presented
excellent opportunities for American construction companies,
energy companies, and construction material suppliers.
(Note: U.S.-based Fluor is KNPC's lead consultant for the
new refinery project and several U.S. companies have
expressed interest in bidding for contracts, including
Bechtel and Foster-Wheeler. KNPC has already contracted GE
to provide the chemical reactors. End note.) Al-Jemaz said
the refinery was needed to supply "clean" (low-sulfur) fuel
for Kuwait's existing power plants which, according to
Al-Jemaz currently emit airborne pollutants at four times the
permitted level due to the burning of high-sulfur fuel. He
noted that although Kuwait's future power plants would be
gas-powered, the existing plants would need to continue to
use only fuel oil, not gas, since Kuwait has failed in all
its efforts to obtain gas imports from Iran, Iraq, and Qatar.
When asked about Kuwait's plans to significantly increase
its gas production following last year's announcement of a 35
trillion cubic foot (est.) non-associated gas discovery,
Al-Jemaz said any surplus gas production, in excess of the
gas required to support new power plants, would be used more
profitably as feedstock for petrochemical plants. Regarding
the controversial location, Al-Jemaz explained that more than
USD 200,000 had been spent on feasibility studies of
alternate sites, but when environmental impact, planned
housing developments, construction and operating costs, and
proximity to power stations were taken into account, the
proposed site next to SAC at Ras Al-Zour was the only
feasible location.


6. (C/NF) Al-Jemaz said that construction plans had already
been altered to accommodate SAC. First, rather than building
a product loading pier, KNPC decided to build a new sea
island for offshore loading. There will only be a small pier
built for loading the pelletized sulfur produced as a
byproduct of the refining process. Second, KNPC reconfigured
the layout of the facilities so that an administrative
buildings complex is now located as a buffer between the
refinery's processing units and SAT's compound. Al-Jemaz
pointed out on blueprints and on Google Earth that
approximately 2.2 km and several KNPC administrative
buildings will separate the refinery processing units and the
SAC compound. Third, rather than take away from some of
SAC's access to the sea, KNPC is taking away a strip of
waterside property from the adjacent Al-Zour South Power
Plant, which, Jimaz noted, was also built within SAC's
reserved area without objection from Chevron or the Saudi
goverment. Fourth, Al-Jemaz said that KNPC would offer SAC
employees access to the bank, cafeteria, grocery store, and
other infrastructure that would be part of the administrative
buildings complex. Al-Jemaz also pointed out that the
prevailing winds carry any effluent from the refinery
offshore and away from the SAC compound. He added that the
refinery would incorporate state-of-the-art safety and
security features, and that a London-based environmental
consulting firm had played a key role in the design process.

--------------
GOK Optimistic;
Tendering in August, Signing in December
--------------


7. (SBU) Al-Jemaz said he expects KNPC to issue tenders in
August and award contracts by the end of the year.
Applications for companies that wish to pre-qualify are due
by 3 July.


8. (C/NF) In a separate meeting on 30 June, Khaled
Al-Fulaij, Petroleum Advisor to the Amir, noted that KNPC and
Chevron are engaging on the refinery, but SAC is emphasizing
its "Saudi identity." He said Chevron corporate management
seemed to be in favor of an agreement and suggested that SAC
President Ahmed Al-Omer seemed to be the one blocking a
compromise. He said that the Amir is aware of the situation
and things seem to be on a positive trajectory. He added
that the GOK had assigned a point of contact to talk to the
Saudi government.

********************************************* *
For more reporting from Embassy Kuwait, visit:

KUWAIT 00001058 003 OF 003


http://www.state.sgov.gov/p/nea/kuwait/?cable s

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

LeBaron