VZCZCXRO6703
PP RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHKU #1279/01 2340833
ZNY CCCCC ZZH
P 220833Z AUG 07
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 9787
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 001279 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
ENERGY FOR M. WILLIAMSON; STATE FOR NEA/ARP, EB/ESC/IEC, 
S/CT; BAGHDAD FOR C. RIES 
 
E.O. 12958: DECL: 08/18/2017 
TAGS: EPET EINV KCIP OIL SECTOR IZ KU
SUBJECT: KPC CEO ON FUEL FOR IRAQ, CEIP, KUWAITI OIL AND 
GAS ISSUES 
 
REF: A. KUWAIT 1047 
     ¶B. KUWAIT 1027 
     ¶C. KUWAIT 1058 
     ¶D. KUWAIT 707 
     ¶E. KUWAIT 946 
     ¶F. KUWAIT 1026 
 
Classified By: Charg d'Affaires Alan Misenheimer for reasons 1.4 (b) 
and (d). 
 
 ¶1. (C/NF) Summary: On 19 August, Charg d'Affaires made an 
introductory call on Kuwait Petroleum Corporation Vice 
Chairman and CEO Saad Al-Shuwaib.  Regarding a new fuel 
contract with the Government of Iraq to support power 
generation, Al-Shuwaib said KPC is ready to sign as long as 
the GOI accepts the stipulation that fuel tanker trucks must 
be allowed to cross into Iraq within three days of being 
filled in Kuwait.  Al-Shuwaib said this is a safety and 
security issue.  He said the GOI should agree to the terms 
quickly so that KPC can sign before any political obstacles 
resurface to prevent the contract from being approved.  On 
Critical Energy Infrastructure Protection (CEIP), Al-Shuwaib 
said he is closely tracking progress and has been pleased 
with the results so far.  He would like to see the program 
expanded to include Kuwait's electrical infrastructure.  On 
proceeding with the construction of a $14 billion refinery 
next to Saudi Arabian Chevron in the Neutral Zone, he said a 
final decision would be made in September.  Several U.S. 
companies are interested.  On Project Kuwait and/or other 
prospects for International Oil Companies (IOCs) in Kuwait, 
he said he hoped for a decision by the end of the year.  KPC 
is currently in talks with Shell about gas production and 
with ExxonMobil about heavy crude production.  While ramping 
up its domestic gas production capacity, Kuwait plans to 
import Liquefied Natural Gas (LNG) from Qatar for three to 
five years.  KPC has reportedly approached Houston-based 
Excelerate about handling offshore regasification of the LNG. 
 Al-Shuwaib said a new Oil Minister will probably be named 
after Ramadan.  In the interim KPC has an excellent 
relationship with the Electricity and Water Minister, who is 
also serving as Acting Oil Minister.  Al-Shuwaib said that 
over the long term, he would like to see KPC become more 
independent, like Saudi Aramco.  End Summary. 
 
--------------------------------------------- --------------- 
KPC Ready to Sign with SOMO; Concerned about Idle Fuel Trucks 
--------------------------------------------- --------------- 
 
¶2. (C) Charg d'Affaires and Econoff met with (KPC) CEO Saad 
Al-Shuwaib on 19 August to discuss Kuwaiti fuel supplies to 
Iraq to support power generation (Ref A), among other 
subjects.  Al-Shuwaib said KPC sent the previously agreed 
upon draft contract for new fuel to SOMO (Iraq's State Oil 
Marketing Organization) in recent days after adding one 
clause:  KPC insists that northbound tanker trucks must cross 
the Iraqi border within three days of being filled in Kuwait. 
If the trucks do not cross within three days, KPC will demand 
that they return to their Kuwaiti filling stations to be 
offloaded.  Al-Shuwaib says this is a safety and security 
issue in that the GOK considers it dangerous for full fuel 
trucks to loiter on Kuwaiti territory for extended periods of 
time, as has been the case with the 166 full fuel trucks that 
have been sitting idle in the middle of the Kuwaiti desert 
for the past 10-11 months due to a combination of border 
access issues and payment disputes. 
 
¶3. (C) Al-Shuwaib says KPC is authorized to sign the contract 
as soon as SOMO accepts this additional clause.  According to 
Al-Shuwaib, the outstanding $2.4 million claimed from a 
previous SOMO fuel transportation contract by a Kuwaiti 
transportation company with strong political connections will 
not prevent KPC from signing the new fuel contract.  (Note: 
According to an email sent from Baghdad by Ambassador Ries 
later on 19 August, Iraqi Minister of Oil Shahristani has now 
authorized payment of the outstanding $2.4 million to the 
company.  The disbursement of this money should allow the 
company's 166 tanker trucks to finally deliver to Iraq the 
fuel they have been holding in Kuwait for a number of months. 
 More importantly, it should remove a significant political 
obstacle that has prevented KPC from signing a new fuel 
contract with SOMO).  According to Al-Shuwaib, if SOMO is 
able to return the amended contract to KPC for signature 
quickly, he will be able to sign before political obstacles 
are once again able to intervene. 
 
¶4. (C) Al-Shuwaib was insistent that tanker trucks must not 
 
KUWAIT 00001279  002 OF 003 
 
 
be allowed to loiter on the Kuwaiti side of the border.  He 
asked for USG help to ensure that fuel truck convoys would be 
able to pass expeditiously through the military border 
crossing.  (Note: Kuwait's Ministry of Interior does not 
allow filled tanker trucks to use the commercial border 
crossing at Abdaly-Safwan due to safety and security 
concerns.)  Al-Shuwaib said that if it were necessary to 
detain tanker trucks for an extended period at the border, to 
allow military traffic to pass or for any other reason, a 
holding area should be established on the Iraqi side, not the 
Kuwaiti side.  Econoff told Al-Shuwaib that the USG does not 
consider use of the military crossing to be a long-term 
solution to this problem.  Al-Shuwaib said that he would 
speak to the Ministry of Interior about the long-term 
possibilities for opening the commercial crossing to tanker 
trucks and suggested the Embassy do the same. 
 
------------------------------------------ 
KPC Supportive of Further Progress on CEIP 
------------------------------------------ 
 
¶5. (C/NF) Al-Shuwaib said he had been fully briefed on the 
results of the visit by a USG CEIP team in June (Ref B).  He 
remarked that he was pleased with the level of 
American-Kuwaiti cooperation and impressed by the rapid 
progress being made in identifying and addressing security 
vulnerabilities around Kuwait's oil infrastructure. 
Al-Shuwaib said he would continue to closely monitor CEIP 
efforts and suggested that these should be expanded to 
include enhancing the security of Kuwait's electrical 
infrastructure, without which the oil facilities would be 
unable to operate.  The Charg told Al-Shuwaib to expect 
another CEIP visit in the fall and reminded him that the USG 
was eager to formalize USG-GOK CEIP cooperation through the 
establishment of a Joint Working Group and the signing of a 
Memorandum of Understanding. 
 
--------------------------------------------- ------------ 
Decision in September on New Refinery in the Neutral Zone 
--------------------------------------------- ------------ 
 
¶6. (C/NF)  Regarding any final decision on proceeding with 
the construction of a new $14 billion, 615,000 b/d refinery 
adjacent to the Saudi Arabian Chevron compound in the Divided 
Neutral Zone between Saudi Arabia and Kuwait (Ref C), 
Al-Shuwaib said the matter would be decided by Kuwait's 
Supreme Petroleum Council at their next meeting in early 
September.  (Note: At least five international groups have 
submitted prequalification applications for the major 
contract packages including U.S. companies Foster Wheeler and 
Bechtel.  U.S.-based Fluor is expected to manage the project, 
and chemical reactors will be provided by GE.) 
 
--------------------------------------------- ------- 
Project Kuwait, Other Roles for IOCs Still Uncertain 
--------------------------------------------- ------- 
 
¶7. (C/NF) Regarding Project Kuwait, the long-pending $8.5 
billion proposal to invite International Oil Companies (IOCs) 
to participate in the development and production of Kuwait's 
northern oil fields, Al-Shuwaib said any new movement would 
probably wait until after Ramadan and after the appointment 
of a new Oil Minister.  Al-Shuwaib said he hoped a final 
decision would be made by the end of the year either to 
proceed with the project or to kill it once and for all.  He 
said this proposal has lingered for too long and has damaged 
Kuwait's image.  Possibly referring to a plan for enhanced 
technical service agreements (Ref D), Al-Shuwaib said there 
might be other ways to expand the IOC presence in Kuwait.  He 
added that KPC was already in advanced talks with two IOCs 
regarding some form of partnership in the areas of gas 
production and heavy crude production.  (Note: Based on 
reports from other oil sector contacts, the gas talks are 
with Shell and the heavy crude talks are with ExxonMobil.) 
 
--------------------------------------------- ------------ 
Short-term LNG Imports, Long-term Domestic Gas Production 
--------------------------------------------- ------------ 
 
¶8. (C/NF) Al-Shuwaib said Kuwait's need for gas was great, 
especially for clean power generation.  He said Kuwait needed 
to shift from fuel oil to gas in order to reduce air 
pollution (Ref E).  He added that his goal was to reduce the 
proportion of gas flared from Kuwait's oil production from 
current levels of 10% down to a more acceptable level of 1%. 
Al-Shuwaib said KPC was focused on ramping up production of 
 
KUWAIT 00001279  003 OF 003 
 
 
the estimated 35 trillion cubic foot non-associated gas field 
discovered in 2006, but said Kuwait would need to import gas 
for the next three to five years until domestic gas 
production reaches a sufficient scale.  He said that Kuwait 
was in talks with Qatar about LNG imports which he expected 
to start in 2008.  Since the requirement would only be for 
three to five years, he said Kuwait would pay a private 
company to do offshore gasification rather than make a major 
capital investment in onshore LNG infrastructure.  (Note: 
based on reports from other oil sector contacts, KPC plans to 
hire the Houston-based company Excelerate to do offshore 
regasification.) 
 
--------------------------------------------- ------------ 
Acting Minister Strong, New Minister Likely After Ramadan 
--------------------------------------------- ------------ 
 
¶9. (C/NF) Al-Shuwaib said that following the resignation of 
Oil Minister Shaykh Ali Jarrah Al Sabah in June (Ref F), 
Electricity and Water Minister Mohammad Al-Olaim has 
performed capably as Acting Oil Minister, though most of his 
time has been devoted to the power sector.  Al-Shuwaib said 
that Al-Olaim, a former Kuwait Oil Company Engineer, is an 
effective decision-maker who enjoys a relationship of mutual 
trust and confidence with KPC's management.  Al-Shuwaib 
insisted that KPC doesn't need much of the Minister's time 
since KPC can manage itself.  He added that he would like to 
eventually see KPC become even more independent of the 
Government, along the lines of Saudi Aramco. 
 
¶10. (C/NF) Al-Shuwaib said he expected a new Minister to be 
named after Ramadan, which ends in mid-October.  Complaining 
that the average tenure of an Oil Minister in Kuwait is only 
about 1.5 years, he hopes that the Government will appoint a 
new Minister who will be able to keep his position longer and 
take a long-term approach to decision-making. 
 
********************************************* * 
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/ 
********************************************* * 
MISENHEIMER