US embassy cable - 04KUWAIT2596

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 002596 
 
SIPDIS 
 
STATE FOR NEA/ARP, E FOR CADE 
EB/ESC/IEC FOR GALLOGLY, TUCKER, AND MCMANUS 
STATE ALSO PASS TO DEPT OF ENERGY 
USDOC FOR 4520/ITA/MAC/OME 
 
E.O. 12958: DECL: 08/15/2009 
TAGS: EPET, ENRG, EINV, BEXP, KU, IZ, IR 
SUBJECT: KUWAIT OIL UPDATE - AUGUST 2004 
 
REF: A. KUWAIT 2524 
     B. 2003KUWAIT 05756 
 
Classified By: CDA TUELLER FOR REASON 1.4 (b) and (d). 
 
1.  (SBU) Summary:  In this version of the Kuwait Oil Update: 
the long-awaited Project Kuwait is given draft approval by 
the Supreme Petroleum Council; Kuwait Petroleum Company CEO 
Nader Al-Sultan tenders his resignation; the GOK moves 
forward in its hunt for gas supplies; a fourth refinery is 
planned; new oil tankers are contracted; and the Kuwait 
energy sector looks for increased cooperation with, and 
investment in, Asia following the Prime Minister's trip.  End 
Summary. 
 
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Project Kuwait - Supreme Petroleum Council Approval 
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2.  (U) The Supreme Council for Petroleum (SPC) met on 10 
August and gave formal approval to the economic model and 
draft contract for the northern oilfields project (Project 
Kuwait), according to local news reports.  The project 
documents will be referred to the Council of Ministers before 
being presented to the National Assembly (NA) at the 
beginning of the next parliamentary session.  According to 
local daily Al-Qabas, the members of the SPC "sensed 
unprecedented seriousness in the need to see the project 
through until its final stages in order to develop the oil 
sector" by increasing production in the northern oilfields by 
500,000 barrels.  Investment in the northern oilfields 
project is projected to be at least seven billion dollars. 
 
3.  (SBU) Many news articles noted that the SPC had changed 
the description of the Project Kuwait bid package from an 
"agreement" or "treaty" to a "contract."  In an 11 August 
telephone conversation with Hani Iskander, General Manager of 
ChevronTexaco in Kuwait, Iskander told EconOff that this 
opened up the possibility for the contract to be awarded by 
Kuwait Oil Company (KOC) directly, without NA approval. 
While not getting his hopes up for a quick approval by the 
NA, Iskander said that this was "another step in the 
process", and a "necessary formality."  Iskander added that 
his sources on the SPC told him that they had "sweetened the 
fiscal terms" and that the "international oil companies 
(IOC's) will be happy." 
 
4.  (SBU) Dirk Lenaerts, Business Service Manager for 
ExxonMobil Kuwait, echoed Iskander's sentiment in a 11 August 
conversation with EconOff, saying that the SPC approval was 
"another important step forward," and that it was the "first 
time that Project Kuwait would actually be formally submitted 
to the NA."  At the same time, Lenaerts expressed skepticism 
about the GOK's stated desire to move forward rapidly, saying 
that "with oil prices so high, why should (the GOK) bother 
with (a $7 billion) investment?" 
 
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KPC CEO Nader Al-Sultan Resigns 
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5.  (U) Local newspapers reported on 7 August that Deputy 
Chairman and CEO of Kuwait Petroleum Company (KPC) Nader 
Al-Sultan had tendered his resignation to the Energy Minister 
and would finish his work when the current KPC board expired 
in September, ending a 33-year career in the oil sector. 
Sultan nominated current KPC Board Chairman Hani Abdel Aziz 
Hussein to succeed him.  Hussein has extensive experience in 
the petrochemical, oil marketing and refinery sectors. 
 
6.  (SBU) According to Hani Iskander of ChevronTexaco, Nader 
Sultan's resignation from KPC was the biggest news of the 
week, more important than the SPC approval of Project Kuwait. 
 "Sultan was concerned with all of the details of Project 
Kuwait", he said, and added that he hoped for increased 
movement on Project Kuwait under Hani Hussein.  Iskander said 
that he thought KPC would be run well under Hussein. 
 
7.  (C) PolOff attended a dinner on 9 August with the Sultan 
family, including Nader Sultan.  The family congratulated 
Nader on his "retirement" and, in one case, for deciding "not 
to work under a crook," (referring to Energy Minister Ahmed 
al-Fahad). Much of the family was in agreement that Nader had 
been forced out of KPC because he was too clean.  Regarding 
his successor, Nader said that the company had held five 
meetings to decide who the next Chairman of KPC would be.  He 
said they had looked outside the company, but had decided on 
Hani Abdel Aziz Hussein because he is widely regarded as the 
only man in the company with enough experience and 
credibility to handle the job.  Responding to a question from 
PolOff, Nader said the Minister knows Hussein is the only 
person up to the job, and would never consider sacking him. 
"He would be scared to do this," he said.  Nader said Hussein 
had insisted to the Minister that he be allowed to bring in 
his "own people" to lead the company, referring to a planned 
reshuffling of top leadership posts in KPC.  Nader said he 
would spend the next two weeks going over the KPC 
organizational chart with his successor to make sure the 
appropriate people were shuffled into and out of the 
appropriate jobs.  Nader said he had requested that his name 
not be placed into consideration for a renewal of the three 
year contract over two years ago. (Note: In PolOff's 8 August 
meeting with PM Advisor Fawaz Al-Sabah, Al-Sabah said the 
decision had been made by the Minister himself (Ref A). End 
Note.) Sultan professed happiness, but it was apparent the 
move will be difficult for him, after 33 years with company. 
---------------------------------------- 
Gas - GOK Plans for Drilling in Al-Durra 
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8.  (C) At a 10 August dinner Nawaf Saud Al-Sabah, the head 
of KPC's Washington office, shared with PolOff the latest on 
KPC's efforts to buy and/or drill for gas.  He said that 
Kuwait had given up on the idea of buying Qatari gas, as the 
Saudis will absolutely not allow Qatar to pipe gas through 
its territory.  Repeating what he told PolOff last year (Ref 
B), he said Shaykh Sabah had approached Saudi Crown Prince 
Abdullah on the issue, and had been told there were no issues 
precluding the sale, but was subsequently told to "forget 
about it" by Saud al-Faisal.  Al-Sabah said Kuwait now has 
plans to work with the Saudis to drill the offshore Al-Durra 
field, irrespective of Iranian objections.  He says Kuwait 
needs all the gas, and has been talking with Saudis to "buy 
them out," or at least buy their portion of the gas as it is 
pumped.  Al-Sabah added that Kuwait has given up on the idea 
of buying from the Iranians, as they are "never sure who we 
are dealing with."  He said he expects a decision to drill 
Al-Durra, which has not yet been approved, would prompt the 
Iranians to get serious about the possibility of selling gas 
to Kuwait. The time from decision until the first pumping of 
gas is expected to take six years, according to Al-Sabah. 
 
9.  (U) Also on the gas issue, 10 August newspapers reported 
that the Kuwait-Iraqi Joint Committee will discuss gas 
projects during their 29 August meeting.  The discussions 
will include the importation by Kuwait of 200 million cubic 
feet of gas from Iraq, and potential Kuwaiti investments in 
the Iraqi Al-Saiba gas field. 
 
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Fourth Refinery Planned 
----------------------- 
 
10.  (U) In another move to provide fuel for power stations, 
a fourth refinery is planned for the Shuaiba area near the 
old Shuaiba refinery, at an estimated cost of KD1 billion 
($3.4 billion).  According to 4 August news reports, planned 
total capacity of the new refinery will be 430,000 barrels 
per day, with an initial capacity of 215,000 barrels per day 
expected to come online in 2008.  Tenders for the front-end 
engineering and design contract are expected to be opened by 
the end of 2004. 
 
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In Other Oil News... 
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11.  (U) As part of a plan to modernize its aging tanker 
fleet and improve its exporting capacity, Kuwait Oil Tanker 
Company (KOTC) has contracted with Korean Hyundai Heavy 
Industries and Daewoo for the purchase of seven new oil 
tankers, in deals worth about $552 million. 
 
12.  (U) KPC is following up on the Prime Minister's recent 
trip to Asia by forming a committee to "follow up its oil 
sector investments in China," according to local news 
reports.  KPC also announced that a delegation would visit 
China to make arrangements for a new contract to supply 
600,000 tons of aviation fuel to China each year, and to open 
an office in China. 
 
13.  (C) After the PM's Asia trip, the PM's office released a 
document to all of the Ministries highlighting desired 
outcomes of the trip and specific objectives.  A copy of the 
document, in Arabic, was provided to EconOff.  An informal 
Embassy translation of this document provides the following 
points on development of the oil sector's relationship with 
Asian countries: 
 
Overall Objective: Develop the oil sector, increase the 
value-added in it, enhance its activities, increase demand 
for its products, and secure markets for it in the long run. 
 
Specific Goals: 
- Work towards signing long-term contracts for selling crude 
oil to those countries. 
- Study joint-venture investment opportunities with strategic 
partners in refineries and petrochemicals projects which 
depend on Kuwaiti oil. 
- Negotiate over joint investments in building strategic 
stocks for those countries, whether in their own countries or 
in other countries neighboring them. 
TUELLER