VZCZCXRO8416
PP RUEHDE RUEHDH RUEHDIR
DE RUEHKU #1117/01 3291140
ZNR UUUUU ZZH
P 251140Z NOV 09
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 4231
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 03 KUWAIT 001117 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP; EEB; ENERGY FOR GINA ERICKSON 
 
E.O. 12958: N/A 
TAGS: EPET ENRG SENV KU
SUBJECT: SCENESETTER FOR VISIT OF DOE DEPUTY SECRETARY 
PONEMAN 
 
REF: A. KUWAIT 1037 
     ¶B. KUWAIT 1036 
     ¶C. KUWAIT 967 
     ¶D. KUWAIT 915 
     ¶E. KUWAIT 338 
     ¶F. STATE 118784 
 
 ¶1. (U) Ambassador and Mission Kuwait warmly welcome the 
December 5-6 visit of Deputy Secretary of Energy Poneman to 
Kuwait. 
 
The Bilateral Relationship 
-------------------------- 
 
¶2. (SBU) Kuwait remains a key bilateral ally for the U.S. and 
has been critical in supporting OIF and OEF, both with 
financial support and in providing a very permissive 
operating environment.  The military estimates that Kuwaiti 
financial and in kind support exceeds one billion dollars 
annually.  For our part, U.S. direct contributions to the 
Kuwaiti economy -- in terms of local purchases and per diem 
expenses for locally engaged staff -- are also considerable. 
Although the extent of the U.S. military and civilian 
presence in Kuwait remains an open secret, the full extent of 
this support is not something that the GoK or we normally 
discuss (ref b). 
 
¶3. (SBU) Our commercial and economic relationship, however, 
has not developed to the level of our military relationship. 
For the first nine months of 2009, U.S. exports to Kuwait 
were about USD 1.3 billion and U.S. imports from Kuwait were 
USD 2.6 billion.  About a third of U.S. exports to Kuwait are 
automobiles and automobile parts.  Kuwait exports around 
150,000 barrels per day of crude oil to the United States. 
U.S. investments in Kuwait are similarly limited:  Dow 
Chemical and Citibank are the two major U.S. investors in 
Kuwait. 
 
Governmental Paralysis -- Slowing Development 
--------------------------------------------- 
 
¶4. (SBU) The ongoing disputes between the GoK and parliament 
are becoming more intense with a "first-ever" questioning of 
the Prime Minister scheduled for December 8.  Although there 
has been speculation that the Amir would again dissolve 
parliament to protect the PM from questioning, several 
observers have told us that they understand that the 
questioning will take place.  (Note:  Constitutionally, the 
parliament may question any minister, including the PM, but 
may not issue a vote of no confidence in the PM.  End Note.) 
Governmental-Parliamentary disputes have contributed to the 
cancellation of several high profile investment projects, 
including a multi-billion dollar joint venture between Dow 
Chemical and the Petrochemical Industries Corporation (K-Dow) 
and the "4th refinery" project (to refine low sulfur fuel oil 
for Kuwaiti power plants). 
 
Dow -Strategic Partner but Mega-Deal Out 
---------------------------------------- 
 
¶5. (SBU) Less than a month after Kuwait's Petrochemical 
Industries Company (A Kuwait Petroleum Corporation 
subsidiary) signed the USD 17.2 billion K-Dow JV, the GoK 
withdrew permission, essentially canceling the deal.  During 
intensive high level advocacy and post-cancellation 
forensics, senior GoK officials stressed that they continued 
to view Dow as a strategic partner, but that the GoK was no 
longer considering a deal on the scale of K-Dow.  Although 
GoK officials have suggested that Dow consider smaller scale 
projects, we understand from Dow that the Kuwaitis have not 
responded positively to a proposal for a similar project at 
about half the cost.  On the other hand, the Kuwait 
Investment Authority invested one billion dollars in Dow's 
take over of Rohm and Haas and Dow is a minority partner in 
KPC's China refinery project. 
 
Oil Committed to Getting to 4 mmb/d by 2020 
------------------------------------------- 
 
¶6. (SBU) Looking forward, Kuwaiti officials have reiterated 
their commitment to increasing their production capacity to 4 
million barrels per day (mmb/d) by 2020.  Kuwait Petroleum 
Corporation is planning to invest approximately USD 70 
billion over the next five years (divided between upstream 
and down stream investments) in furtherance of that goal.  As 
part of the upstream investments, KPC has budgeted drilling 
an additional 551 wells and adding new gathering stations and 
new crude export piers.  According to Kuwaiti oil sector 
 
KUWAIT 00001117  002 OF 003 
 
 
officials, they are looking to have 
80 rigs (including 7 exploration rigs) operational in the 
2013 timeframe. 
 
¶7. (SBU) On the downstream side, Kuwait plans to retender the 
4th refinery project as well as to upgrade the three existing 
refineries to produce "clean fuels" that will meet new 
international standards.  The 4th refinery project is 
budgeted at about USD 12 billion and will refine 600,000 
barrels per day for Kuwait's power sector.  Although Kuwait 
is also seeking to develop its natural gas reserves, most KPC 
officials believe that the country will continue to need to 
use fuel oil to meet summer power demands.  (Note: 
Discussions to secure natural gas supplies from Qatar and to 
resolve continental shelf issues with Iran for access to 
shared natural gas fields have not yet borne fruit.  End 
Note.)  Kuwait is also moving forward with plans to build 
refineries in both Vietnam and China.  The joint venture with 
Sinopec is billed as the largest Sino-foreign joint venture 
in China.  The project, scheduled to be operational by 2013, 
would include a refinery, designed to process 240,000-300,000 
barrels per day of Kuwaiti crude, and a petrochemical 
processing component.  Sinopec will own a 50% stake in the 
joint venture, Kuwait will own a 30% stake. 
 
¶8. (SBU) Kuwaiti officials have acknowledged Kuwait's need to 
bring in IOC expertise to meet their ambitious development 
goals.  The Kuwait Oil Company is reportedly planning to hire 
over a thousand new employees in the next few years, but most 
observers doubt that they will have the expertise needed to 
manage production increases, especially since much of the new 
production will come from more complex fields.   Attracting 
the IOCs is complicated by the fact that Kuwait's 
constitution prohibits foreign ownership of natural resources 
and foreign investment in the oil sector.  In the last year, 
both Chevron and BP have pulled their representative offices 
out of Kuwait after lengthy efforts to make the terms of 
enhanced technical services agreements profitable.  Kuwait 
Petroleum Corporation is in negotiations with ExxonMobil to 
develop its northern heavy oil reserves.  Currently the 
proposal would combine an ETSA for the upstream work with a 
joint venture on the downstream side.  The JV would generate 
steam which it would sell to the Kuwait Oil Company for use 
in steam flooding the reservoir.  According to ExxonMobil, if 
the project moves forward it would be the largest steam flood 
project in the world. 
 
Power Demands Large and Growing 
------------------------------- 
 
¶9. (SBU) Kuwait is facing explosive growth in its demand for 
power and is projecting growth in the 6%-8% range.  Rapid 
economic growth and the need to house a rapidly growing 
population are contributing to the demand growth.  More 
importantly, perhaps, Kuwait subsidizes power at well below 
the cost of production (about two-thirds of a cent per 
kilowatt hour or USD 5-6 billion annually), which removes any 
incentive for conservation.  Kuwaiti officials have said that 
touching these subsidies would be very difficult, if not 
impossible, politically and are looking at other ways to 
mandate energy efficiency.  Kuwait's Ministry of Energy is 
seeking to increase production capacity by 50% (or 5,000 MW) 
in four years.  In September, Kuwait signed with a GE-led 
consortium to build the 2,000 MW Subiya power plant.  The 
rest would be brought on in the first phases of the, yet to 
be tendered, Al-Zour power plant.  Although these projects 
would be built under standard EPC contracts, the ministry is 
examining the possibility of adding additional power via 
Build Operate Transfer (BOT) or Independent Power Projects 
(IPP).  (Note:  The USD 2.4 billion Subiya project only went 
through on its third try, after intensive Ambassadorial-led 
advocacy.  Meeting the ministry's proposed schedule assumes 
that similar delays don't face future projects.  End Note.) 
 
¶10. (SBU) Although our GoK interlocutors have expressed 
interest in renewable energy as a source of power, with some 
expressing their hope that it could contribute up to 10% of 
power generation within 10 years, all acknowledge that it 
will not be able to meet Kuwait's base load demand needs.  In 
addition to building power plants to run on fuel oil, Kuwait 
is exploring the development of nuclear power.  Although 
Kuwait has not officially decided to develop domestic nuclear 
power, it has begun exploring that possibility.  Our 
interlocutors suggest that, once initial economic and siting 
studies are completed by the end of 2010, the GoK is likely 
to move forward with a decision to develop domestic nuclear 
power.  They suggest that initial economic analyses suggest 
that nuclear power would be competitive at $50 per barrel 
 
KUWAIT 00001117  003 OF 003 
 
 
oil.  Although Kuwaiti officials have stressed that they are 
not interested in developing domestic enrichment or 
reprocessing capabilities, they noted that -- given the 
negative G-77 NAM reaction -- it could be politically 
difficult for them to accept the kinds of legally binding 
terms that were included in the UAE's 123 Agreement. 
 
Interest in Cooperation 
----------------------- 
 
¶11. (U) We see Kuwaiti interest in cooperating in a number of 
areas with both the USG and U.S. companies.  There is strong 
interest in cooperating on renewable energy and on energy 
efficiency projects.  The Minister of Electricity and Water 
specifically asked whether the USG could recommend leading 
technology companies in the renewable energy sector and also 
companies that could provide energy planning consulting 
services.  The Director General of the Kuwait Institute for 
Scientific Research is interested in developing scientist to 
scientist contacts in the U.S. in the energy field in order 
to create a center of excellence in the area of renewable 
energy. 
 
¶12. (SBU) The Kuwaitis also expressed interest in cooperating 
on nuclear power.  They noted that they were in talks with 
all the supplier countries, but were especially interested in 
cooperating with the USG on regulatory matters and on 
building human capacity and training.  The Kuwaitis have 
specifically asked whether the USG has instituted any 
restrictions on training of non-Americans (both academic and 
OJT) in the nuclear field.  If so, they are interested in 
learning whether there would be any USG flexibility in 
dealing with a friendly country such as Kuwait. 
 
Meetings 
-------- 
 
¶13. (SBU) We have requested meetings with Prime Minister, 
Sheikh Nasser Mohammed Al-Sabah; Deputy Prime Minister and 
Minister of Foreign Affairs, Sheikh Dr. Mohammad Al-Sabah; 
the President of the National Security Bureau, Sheikh 
Mohammad Al-Khalid Al-Sabah; Minister of Oil and Information 
Sheikh Ahmad Al-Abdullah Al-Sabah; Minister of Electricity 
and Water Dr Bader Shebib Al-Shuraiaan.  The Minister of Oil 
will be out of the country at an OAPEC meeting.  We have 
preliminary indications that the GoK will be able to arrange 
the other meetings. 
 
********************************************* ********* 
For more reporting from Embassy Kuwait, visit: 
visit Kuwait's Classified Website at: 
 
http://www.intelink.sgov.gov/wiki/Portal:Kuwa it 
********************************************* ********* 
JONES