This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 KUWAIT 001417 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
LONDON FOR TSOU 
DEPARTMENT OF ENERGY FOR IE 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KUWAIT ENERGY UPDATE: RECORD HIGH CRUDE PRICES, 
NEW DISCOVERIES, OVERSEAS REALIGNMENT, MORE KUWAIT PROJECT 
DELAYS 
 
REF: KUWAIT 0676 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for Internet distribution. 
 
¶1.  (U) Summary: Kuwait Export Crude continued to set record 
high prices, selling for almost $65/barrel, the highest in 
its history.  Energy Minister Shaykh Ahmed announced that 
production of the recent gas discoveries will begin in "early 
2007," while KOC announced an additional crude discovery in 
southeast Kuwait that a private industry source called 
"promising."  The new refinery project in Kuwait picked up 
steam, and KPC is reportedly interested in downsizing its 
refinery operations in Europe while expanding it in Asia. 
While Kuwait's own plans for increased production through the 
"Kuwait Project" remain stalled in Parliament, Shaykh Ahmed 
joined the chorus of OPEC members calling for reactivation of 
the 2 million bpd of standby oil output to be made available 
to world markets to ease the record high oil prices.  End 
Summary. 
 
KEC Continues Record Climb 
-------------------------- 
 
¶2.  (U) Kuwait Export Crude (KEC) continued its record climb 
to new heights, reaching almost $65/barrel on April 22.  Spot 
prices for KEC have, for the most part, remained above 
$50/barrel since reaching that point in June 2005.  By 
January 2005 KEC was averaging $55/barrel and in mid-April 
hit $60/barrel for the first time ever.  In 2004, KEC was 
averaging between $28 and $36/barrel.  Even if KEC drops back 
down to $50/barrel, the GOK will see a budget surplus of at 
least $22.5 billion for the 2005/2005 fiscal year.  For the 
first ten months of fiscal year 05/06, Kuwait earned $36.1 
billion in oil revenues, compared with $22.6 billion in the 
first ten months of the fiscal year 04/05. 
 
Gas Production Expected in 2007 
------------------------------- 
 
¶3.  (U) Minister of Energy Shaykh Ahmed Al-Fahd Al-Ahmed 
Al-Sabah announced on April 18 that production of natural gas 
from the new discoveries in northern Kuwait (reftel) would 
begin "in early 2007."  The Minister made these remarks to 
the press in Egypt after meeting with Egypt's Oil Minister. 
According to news reports, initial tests show non-associated 
gas flowing from the newly discovered wells at the Umm Niqa 
and Sabriya fields at a rate of 16,000 - 27,000 Mcf/d.  The 
total tested production rate, between these fields and three 
others, is 112,000 Mcf/d, according to KOC engineers. 
 
And Another Crude Discovery, in the South 
----------------------------------------- 
 
¶4.  (SBU) Kuwait Oil Company (KOC) Chairman Farouk Al-Zanki 
announced to the press on April 20 that KOC has made a new 
discovery in the southeastern part of Kuwait, in the Arifjan 
area.  Al-Zanki told the press that the well had been drilled 
down to the Jurassic Marrat formation, and that initial 
production tests showed an oil rate of a little over 5,300 
bpd.  An executive with an international oilfield services 
companies with intimate knowledge of the new discovery told 
Econ Officer on April 22 that "the quality is promising" in 
the new discovery, but the quantity is not yet fully known. 
He said that this was more of the "difficult oil" that Kuwait 
was beginning to find at deeper depths in the formations. 
 
¶5.  (SBU) Another IOC contact in Kuwait provided Econ Officer 
with rough coordinates of the new discovery, believed to be 
just to the southeast of the Burgan field area.  The 
coordinates provided are roughly: MGRS: 39RTM1735197920, DD: 
28.877967 Lat., 48.102122 Lon. 
 
3 U.S. Firms Pre-Qualified For New Refinery Project 
--------------------------------------------- ------ 
 
¶6.  (U) Local news sources reported in mid-April that Kuwait 
has pre-qualified eleven companies for the construction 
portion of the new oil refinery.  Projected to cost $6.3 
billion, the refinery is expected to have a capacity of just 
over 600,000 bpd, and is planned for the Al-Zour area.  There 
will be two separate tenders for the actual refinery 
production units, a third tender for utilities and services, 
and a fourth tender for storage tanks and a pier.  Foster 
Wheeler has been pre-qualified for the estimated $2-2.4 
billion contract for the installation of three 205,000 b/d 
crude distillation units, and it is competing against four 
non-U.S. companies.  Washington Group and Shaw Group have 
been pre-qualified for the second production unit 
installation tender, estimated at $1 billion, and are 
competing against five non-U.S. companies.  Foster Wheeler, 
along with the Shaw Group, are also competing for the 
estimated $900 million utilities and services package, 
against four non-U.S. companies.  No U.S. companies were 
pre-qualified for the storage tank and pier construction 
contract. 
 
More Refining In Asia, Less In Europe 
------------------------------------- 
 
¶7.  (U) KPC continues to realign its overseas marketing 
strategy towards Asia, with an April 22 announcement that a 
planned joint venture oil refinery with PetroChina could be 
located in Guangdong Province, in the Pearl River Delta area. 
 The announcement comes on the heels of the December 2005 
visit of Energy Minister Shaykh Ahmed to the province to meet 
with PetroChina officials.  The refinery is planned with a 
capacity of 400,000 bpd. 
 
¶8.  (U) At the same time that Kuwait appears to be expanding 
its refinery operations and downstream marketing capacity in 
Asia, it appears to be cutting back on the same in Europe. 
April 23 online news sources reported that KPC has hired JP 
Morgan to look for potential buyers for the company's 
Europoort refinery in Rotterdam.  KPC previously sold off 
other small European refinery assets because they were 
uneconomical, and is probably doing the same with this 40,000 
bpd operation.  The refinery is estimated to be worth $320 
million.  The sale of this asset would leave KPC's 50% stake 
in a 300,000 bpd refinery located in Milazzo, Italy as its 
only remaining European refining asset. 
 
Kuwait Project: Guess What?  Still Delayed 
------------------------------------------ 
 
¶9.  (U) The National Assembly's Economic and Financial 
Affairs Committee approved the legal aspects of the enabling 
law for Kuwait Project in early April, but has yet to approve 
the financial and technical aspects.  The IOCs remain hopeful 
to see some movement on the law in the current parliamentary 
session, but it appears that the Committee wants to take its 
time reviewing the law, and that the full Assembly is busy 
debating other political matters and may not have time to 
focus on the project this Spring.  Many industry contacts 
have suggested to us that, if the project is delayed until 
the Fall of 2006, when many MPs will be gearing up for 
Parliamentary elections, it might be "dead in the water." 
 
Shaykh Ahmed Calls for Increased OPEC Production 
--------------------------------------------- --- 
 
¶10.  (U) Echoing recent calls by other OPEC members, Shaykh 
Ahmed told reporters on his arrival at the International 
Energy Forum in Doha on 23 April that Kuwait supports 
reactivating the extra two million bpd in standby oil output 
that was made available in September 2005 after Hurricane 
Katrina. 
 
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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