VZCZCXYZ0016
RR RUEHWEB

DE RUEHZP #2412/01 3531850
ZNY CCCCC ZZH
R 191850Z DEC 06
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 9528
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1090
RUEHDO/AMEMBASSY DOHA 0003
RUEHME/AMEMBASSY MEXICO 3375
RHMFISS/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L PANAMA 002412 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 12/11/2016 
TAGS: ENRG ETRD PGOV PM
SUBJECT: REFINERY, FUEL HUB AND BIOFUELS DEVELOPMENTS 
 
REF: A. PANAMA 2005 
     ¶B. PANAMA 1999 
 
Classified By: CDA L.ARREAGA FOR 1.4 REASONS (B) AND (E) 
 
¶1. (C) SUMMARY.  In November, representatives from state-run 
Qatar Petroleum (QP) and Occidental Petroleum (Oxy) met with 
Panama's Ministry of Industry and Commerce (MICI) to discuss 
the proposed refinery and tour the Puerto Armuelles site (Ref 
A).  Favorably impressed with Panama's economic and political 
stability as well as the feasibility of the project, QP 
subsequently invited Oxy representatives to a follow up 
meeting in Qatar the week before Christmas.  In unrelated 
meetings, Exxon-Mobil and Chevron-Texaco executives told 
Emboffs that the economics of a Central American refinery did 
not add up regardless of who built it.  In December, Chevron 
advised MICI and the Embassy of an intended $11 million 
project to create a regional fuel storage hub on Panama's 
Atlantic coast.  In September, Texas Biodiesel and Iowa's 
Triple F Incorporated report multimillion dollar contracts 
with Panama's Chiriqui Palm Oil Cooperative for a 150,000 
barrels per day biofuel plant.  END SUMMARY. 
 
--------------------------------------------- 
OXY, QATAR PETROLEUM AND GOP DISCUSS REFINERY 
--------------------------------------------- 
 
¶2. (C) On November 15, Oxy and QP met with MICI Development 
Director Julio Fabrega, Hydrocarbons Director General Wolfram 
¶E. Gonzalez and other MICI staff to discuss Panama's economy, 
investment climate and the refinery project.  (Vice Minister 
Manuel Jose Paredes reportedly stopped by to greet the QP 
representatives.)  QP also toured the Panama Canal and got an 
initial look at Panama's transportation and logistics 
capabilities.  On November 16, Oxy and QP flew to David and 
on to Puerto Armuelles to tour the proposed refinery site and 
meet with representatives from the port management company, 
Petro Terminales Panama (PTP). 
 
¶3. (C) The visit was QP's initial introduction to Panama and 
focused as much on Panama's political and economic climate as 
the fundamentals of the refinery project.  According to Oxy 
project manager the next step in securing QP's commitment to 
the project is an additional feasibility study of six to nine 
months to better quantify the capital costs of the project. 
The need for more detailed cost studies moves the timeline 
for this project out almost a year with startup projected for 
late 2012.  Oxy's project manager told Econoff that the 
participation of additional partners would depend on QP's 
decision to participate and at what funding level. 
 
¶4. (C) Oxy Project Manager told Econoff that the estimated 
capital costs for the project are now $7 to $9 billion (up 
from an initial estimate of $5 to $6 billion) as a result of 
an estimated 25-30% annual increase in worldwide costs for 
construction of this type.  According to Oxy, the key 
components in the increased cost are high global steel prices 
and increased demand for the services of global companies 
with the requisite expertise.  Oxy stated that since most of 
the construction material comes from outside Panama, they 
will "pre-fab" or build as much of the components as possible 
outside of Panama and assemble the pieces at the site. 
 
------------------------ 
THE VIEW FROM THE MAJORS 
------------------------ 
 
¶5. (SBU)  In an unrelated meeting, Exxon-Mobil Latin American 
Regional Manager and Panama Country Manager told Ambassador 
that there was no business case to build a refinery anywhere 
in Central America and that expanding refinery capability was 
not part of Exxon-Mobil's strategy for the foreseeable future. 
 
¶6. (SBU) Chevron-Texaco Latin American Marketing Manager 
Rafael Williamson told Econoff that the economics of a 
Central American refinery did not add up.  Williamson told 
Econoffs that strategically located refineries are either 
collocated with major source(s) of supply or major points of 
consumption.  Williamson stated the Central American and 
Caribbean markets represent less than 1% of the global 
consumption.  He also expressed doubt regarding the 
reliability of the supply/production data for the closest 
major suppliers, Mexico and Venezuela, which is critical to 
determining the return on investment for the project. 
 
--------------------------------------------- -------- 
CHEVRON TO CREATE REGIONAL FUEL STORAGE HUB IN PANAMA 
--------------------------------------------- -------- 

¶7. (SBU)  Chevron executives advised MICI on December 12 of 
plans to invest $11 million in the refurbishment of existing 
tanks located on the Atlantic coast (Ref B) to creating 
between 1.5 and 2.0 million barrels of fuel storage capacity. 
 In a subsequent meeting with Econoffs the same day, Chevron 
representatives stated the project would enhance the security 
of their supply chain for their Central American market - 
Panama, Guatemala, Honduras and El Salvador.  The project is 
estimated to take eight to ten months and require over 300 
locally contracted workers.  $4 million of the estimated $11 
million is expected to be spent in Panama. 
 
¶8. (SBU)  Chevron executives stated an existing Panamanian 
Chevron subsidiary already has the requisite environmental 
permitting and the project can commence after the new year. 
Chevron executives are scheduled to meet with Panama's 
environmental regulatory agency (ANAM) before Christmas to 
clarify the status of their environmental permits.  Comment: 
Post suspects that this project may not sail through ANAM 
without some further scrutiny.  End Comment. 
 
¶9. (SBU) According to Chevron executives, MICI's response to 
the project was favorable.  Predictably, Chevron was asked by 
MICI if the price of fuel in Panama would decrease as a 
result (no) and whether fuel storage capacity would be made 
available to other entities (it depends).  Without directly 
rejecting storage of Venezuelan fuel, Chevron executives 
stated that Chevron only accepted product from suppliers 
meeting their strict safety, quality, and environmental 
standards. 
 
--------------- 
BIOFUELS UPDATE 
--------------- 
 
¶10. (U) On September 23, Houston-based Texas Biodiesel (TB), 
signed an MOU with the Chiriqui Palm Oil cooperative to build 
and manage a biofuel plant with President Torrijos present at 
the signing.  TB states the estimated $143 million dollar 
plant will produce 150,000 barrels of biofuel a day and 
increase local employment by 400%.  TB is helping to secure 
the funding and another U.S. company is supplying the 
equipment for the plant. TB also reports that Iowa-based 
Triple F Incorporated entered into an agreement with the 
cooperative to build a $2.6 million extraction plant. 
Arreaga