MINISTER OF OIL, ELECTRICITY AND WATER DISCUSSES

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000823

SIPDIS

DEPT FOR NEA/ARP

E.O. 12958: DECL: 07/20/2018
TAGS: ENRG PREL PARM MARR KNNP KU IR
SUBJECT: MINISTER OF OIL, ELECTRICITY AND WATER DISCUSSES
4TH REFINERY, INCREASED OIL PRODUCTION; WELCOMES U.S. POWER
SECTOR INVESTMENT

REF: KUWAIT 814

Classified By: THE AMBASSADOR FOR REASONS 1.5 (b) and (d)


1. (SBU) Summary: During their July 16 introductory
meeting, Kuwait's Minister of Oil, Electricity and Water,
Mohamad Abdullah Al-Olaim told Ambassador he was optimistic
that Kuwait's USD 14 billion in long delayed contracts would
be signed soon for the 4th Oil Refinery, which will be the
Middle East's largest. The Minister expressed confidence
that publicly stated goals for increasing Kuwait's oil
production to 4 million (m)/barrels per day (bpd) by 2020 are
realistic, and indicated concern for the security of the oil
market, given the focus on alternative energy sources. The
U.S.-educated Al-Olaim, previously official spokesman of
Kuwaiti Islam Constitutional Movement, was relaxed and
cordial, and welcomed U.S. quality company involvement in
developing both oil refining and power sectors. End Summary.

Increasing Production and Refining Capacity
--------------


2. (C) Al-Olaim estimated that Kuwait would be investing
some USD 55 billion over the next five years to expand the
country's oil production capacity from current levels of
2.6m/bpd to 3m/bpd by the end of 2009, 3.5m/bpd by 2015 and
4m/bpd by 2020. Al-Olaim acknowledged Kuwait's concerns over
long-term demand and said the GOK is exploring solar energy
alternatives with a Japanese company (NFI) and nuclear energy
with some nonspecified non-U.S. companies. Here, al-Olaim
mentioned the earlier visit this year of U.S. Special Envoy
Jackie Wolcott and the Nuclear Energy Delegation and
regretted that he'd been unable to attend her meetings with
his staff.


3. (SBU) The minister expressed satisfaction with the
selection of U.S. engineering firm Fluor as both Project
Management Contract (PMC) for the USD 14 billion project and
for the Engineering Procurement Contract (EPC) management for
the third of five packages. The third package is for
Utilities and Offsite (U&O) management and the selection of
Fluor has generated some controversy locally since some view
the dual role for overall management and U&O management as a
conflict of interest. (Comment: The refinery has been
delayed for a long time, which has generated frequent
negative coverage in the Kuwait press. Fluor has, for 45
years, been involved in Kuwait's oil patch and consequently
is a company locals "love to hate." Commercial staff observe
that most Kuwait companies would rather represent non-US
companies, in order to garner larger commissions. End
Comment.) "We are transparent in our process, and Fluor is
one of the best", Al-Olaim said. The Minister pointed to the
bottleneck in refining capability, and said that the 4th
Refinery will be the largest in the Middle East.

Subsidized Fuel to US Military Will Continue
--------------


4. (C) Al-Olaim referred to an existing arrangement whereby
the GOK makes available to U.S. military forces here 860K
gallons per day of jet fuel at highly subsidized cost, less
than half of market value. The Ambassador expressed
appreciation for this arrangement and alluded to the fact
that a communications glitch between KPC and DESC had
resulted in some confusion over pricing for the period
January - April this year, but that hopefully things had been
worked out to everyone's satisfaction. Al-Olaim assured the
Ambassador that the arrangement would continue indefinitely,
"as long as it was necessary."

Seeking U.S. Participation in Energy Sector
--------------


5. (SBU) Asked about the electricity sector, the Minister
expressed interest in having more American firms involved in
developing Kuwait's capacity to produce electricity; GE has
provided generators and turbines, but few other U.S. firms
have been involved to date. The Ambassador noted she'd
visited GE Energy in Houston prior to coming to post and said
the Embassy would attempt to attract more U.S. companies to
engage in the power sector, citing opportunities such as the
annual BCIU-sponsored tour to get the word out. (Comment:
Commercial Section will further use its domestic network to
see if they can interest other firms. Kuwait, however, faces
stiff competition from other GCC countries, where projects
move faster than in the state. Upon his appointment as
Minister of Electricity and Water in 2007, Al-Olaim
immediately faced an impending electricity crisis for summer,
when air conditioners run non-stop to combat 120-degree

KUWAIT 00000823 002 OF 002


temperatures. By all accounts he jumped in with both feet,
and successfully carried Kuwait through the summer without
major power outages. Post estimates that Kuwait lags 4-10
years behind in building planned power stations. End
Comment.)

Iran and Energy Flows
--------------


6. (C) The Minister expressed support for Under Secretary
Burns' announced participation in P5 1 meetings with Iranian
officials in Geneva, and sought reassurances the U.S. would
act swiftly to prevent Iran from cutting off oil flows
through the Gulf and Strait of Hormuz. (Note: Following
their meeting, Ambassador heard from a confidential source
that the Kuwaitis believe they have discovered a significant
new gas deposit in their Dorra field. According to this
source, the GOK is reluctant to announce or exploit this
field in the current volatile environment. End Note.)


7. Bio Note: The extremely cordial Al-Olaim (alternate:
Al-Elaim) received his BS degree in industrial engineering
from North Carolina Agricultural and Technical State
University in 1982, and is pursuing an advanced degree in the
UK. He became Minister of Electricity and Water in 2006 and
in March 2007 became Acting Oil Minster, which is
traditionally a separate job. He was a Member of Parliament
for three years and held several positions with Kuwait's oil
companies from 1986-1989. Prior to his ministerial
appointments he was also official Spokesman of the Islamic
Constitutional Movement, the political branch for the Kuwaiti
Muslim Brotherhood. He is 48 years of age and has 3
daughters and 3 sons.


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JONES