VZCZCXRO6850
PP RUEHDE
DE RUEHKU #0848/01 0721229
ZNY CCCCC ZZH
P 131229Z MAR 06
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 3431
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHLO/AMEMBASSY LONDON PRIORITY 1187
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 000848 
 
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 00000848  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 00000848  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