VZCZCXRO6277
PP RUEHDE RUEHDH RUEHDIR
DE RUEHKU #0823/01 2311435
ZNR UUUUU ZZH
P 191435Z AUG 09
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 3831
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 KUWAIT 000823 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR NEA/ARP, EEB 
DEPARTMENT OF ENERGY FOR OFFICE OF AFRICAN AND MIDDLE 
EASTERN POLICY GINA ERICKSON 
 
E.O. 12958: N/A 
TAGS: ENRG EPET SENV KU
SUBJECT: KUWAIT AVOIDS MAJOR BLACK OUTS BUT SEES EVER 
INCREASING DEMAND 
 
REF: A. KUWAIT 687 
     ¶B. KUWAIT 722 
 
¶1. (SBU) Summary: While Kuwait has avoided electricity 
shortages so far this summer, marginal excess capacity is 
very limited and increasing demand makes launching two 
long-planned power projects imperative.  Movement forward 
towards awarding one of these, the two gigawatt (GW) Subiya 
power plant, is a positive step to begin addressing probable 
supply shortfalls.  In the longer term, however, without 
greater focus on controlling rampant demand, unconstrained 
electricity consumption threatens to substantially erode 
Kuwait's oil and gas revenues as more and more production is 
allocated for domestic electricity generation.  The focus on 
supply-side solutions is evident in Kuwait's recent LNG 
import deals and moves to explore civilian nuclear power. 
End Summary. 
 
No Blackouts Yet 
----------------- 
 
¶2. (SBU) Despite earlier Ministry of Electricity and Water 
(MEW) concerns (ref a), Kuwait has avoided any major 
blackouts this summer, through limited demand management, 
slightly cooler temperatures, and good luck.  Kuwait's 
maximum available generating capacity is 10.9 gigawatts (GW). 
 According to Ministry of Electricity and Water Director for 
Planning, Suhaila Marafi, the Ministry is currently 
projecting summer peak demand at about 10 GW, though so far 
it appears as if demand will be slightly lower (in June, for 
example, it was 9.96 GW). 
 
¶3. (SBU) Although MEW has been able to keep supply ahead of 
demand, the margin is small.  Marafi noted that power plant 
shut downs or spikes in demand over about 10.5 GW would force 
the ministry to engage in "load shedding," i.e., selective 
power shut downs.  She emphasized that MEW was scrupulously 
maintaining the generators, both because it has little spare 
capacity and because of the generally poor quality of the 
fuel used (heavy fuel oil and crude). 
 
Unsustainable Growth? 
-------------------- 
 
¶4.  (SBU) Although Kuwait has the fifth largest proven oil 
reserves in the world, it is using an ever-increasing amount 
of its oil and gas production domestically.  Kuwait Petroleum 
Corporation Managing Director for International Marketing 
Abdulatif Al-Houti told CDA that the Kuwait Petroleum Company 
(KPC) sells MEW an average of 40-50,000 barrels per day of 
crude (rising to around 100,000 barrels per day in the 
summer), about 170,000 barrels of heavy fuel oil and 
80-100,000 barrels per day of diesel.  In addition it 
provides the Ministry with around 300-400 million standard 
cubic feet (MMSCF) per day of natural gas.  All told, KPC 
provides MEW with around 500,000 barrels per day of oil 
equivalent. 
 
¶5. (SBU) MEW projections are for six percent average annual 
growth in demand (not counting the industrial "mega projects" 
or increased oil sector demand).  This would essentially 
double demand by 2021 and triple it by 2030, with 
corresponding increases in demand for fuel.  Ambitious 
development plans and essentially free electricity (2 fils 
per kilowatt hour or about 2/3 of a cent, with MEW costs of 
about 34 fils per kilowatt hour) help to ensure that Kuwait's 
electricity woes will only get worse.  In a July meeting with 
Econoff, MEW Assistant Undersecretary Ahmad Al-Jassar 
projected that power demand would exceed power supply until 
2012, assuming that both the two GW Subiya power plant and 
the 4.8 GW As-Zour North power plant came on line on time. 
 
¶6. (SBU) In July, Kuwait's new Minister of Electricity and 
Water told Ambassador that he intended to move forward on 
several power projects in order to get ahead of the problem 
(ref b).  On August 18, Kuwait's Central Tender Committee 
moved forward a bid for the two GW Subiya Power Station 
project.  Although the project still has hurdles yet to run, 
this is an encouraging sign.  The Minister expected to tender 
the five-phase 4.8 GW As-Zour north project before the end of 
the year (ref b).  That tender decision is apparently still 
waiting for a decision on whether or not to offer it under 
BOT (Build, Operate, Transfer) terms or as a turnkey project. 
 
 
 
KUWAIT 00000823  002 OF 003 
 
 
Brother Can You Spare a Barrel? 
------------------------------- 
 
¶7. (SBU) Projected growth in electricity demand is one of the 
reasons behind Kuwait's push to develop its natural gas 
reserves.  It is also the reason behind KPC's push to build 
the "fourth refinery" (the tender for which was cancelled 
earlier this year.    The refinery, which some in the Kuwait 
body politic deemed to be not commercially viable, was 
designed to provide low-sulfur fuel oil to the power plants. 
According to some oil sector officials, the refinery project 
will be again presented to the Supreme Petroleum Council 
after the new members are named to that body.  High 
electricity demand also explains Kuwait's interest in 
continuing to negotiate a deal with Qatar for LNG for future 
summers, even though negotiations for LNG provision during 
the summer of 2008 broke down over what the Kuwaitis term 
"unacceptable terms."  Kuwait entered into a three-month 
arrangement to import LNG via Shell for the summer months and 
is negotiating with Shell for next year as well.  Finally, of 
course, increasing demand explains Kuwaiti interest in 
exploring alternative sources of energy, whether nuclear or 
renewable.  One option that does not appear to be on the 
table, so far, is buying electricity from Qatar over the 
partial GCC electrical grid.  According to Marafi, Qatar does 
not have excess power and -- indeed -- purchased 240 MW from 
Kuwait on the day the grid was connected. 
 
Demand Side Management 
---------------------- 
 
¶8. (SBU) The MEW is also looking at more effective demand 
side management, including changing building standards to 
encourage more fuel efficient houses.  Over the last year, 
the MEW has limited monthly connections to 50-60 MW per month 
to keep new connections within its projected increase.  MEW 
has a multi-million dollar budget line to update electricity 
meters and is working with the Kuwait Institute for 
Scientific Research (KISR) on a pilot project to control air 
conditioners (shutting them off for seven minutes at a 
stretch during peak times to reduce demand).  MEW also 
directly controls temperature controls in Kuwait's largest 
mall, making it one of the few malls that isn't chilled to 
the point that sweaters are a necessary fashion accessory. 
Although MEW and other officials acknowledge that the pricing 
structure does not encourage conservation, they do not 
believe that Kuwait's populist parliament would support 
reducing the subsidies.  (Note: Kuwaiti per capita 
electricity consumption is among the highest in the world as 
the resource is essentially free at two-thirds of a cent per 
KWH, and even then many citizens fail to pay their bills 
without penalty.  It is not uncommon for Kuwaitis to leave on 
vacation over the hot summer months leaving the lights on and 
the multiple air conditioning units for their large, 
unoccupied residences going full-blast.  End Note.) 
 
Comment 
------- 
 
¶9. (SBU) Kuwait's power woes result not only from exceedingly 
low tariffs and very high per capita consumption, but also 
from problems with tendering large energy sector projects. 
The current tender process for the Subiya power project is 
the third such tender since 2006.  The tender process for the 
fourth refinery project was scrapped several months after 
three multinational construction firms had been awarded 
contracts.  Planning for Project Kuwait, Kuwait's ambitious 
plan to develop its northern oil reserves, has dragged on for 
almost two decades -- most international oil companies have 
given up and moved on.  That said, Kuwait's power needs will 
continue to grow rapidly, and there appear to be both policy 
grounds for, and commercial opportunities in, working with 
them on both supply and demand side management.  On the 
supply side, the Kuwaitis are looking for more 
environmentally friendly alternatives to high sulfur fuel oil 
and heavy crude.  On the demand side, there is a market 
opportunity for innovative technologies and programs as well 
) but probably not a fix that would bring tariffs more in 
line with the cost of production.  End Comment. 
 
********************************************* ********* 
For more reporting from Embassy Kuwait, visit: 
visit Kuwait's Classified Website at: 
 
http://www.intelink.sgov.gov/wiki/Portal:Kuwa it 
 
KUWAIT 00000823  003 OF 003 
 
 
********************************************* ********* 
WILLIAMS