US embassy cable - 05KUWAIT568

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000568 
 
SIPDIS 
 
STATE FOR NEA/ARPI 
STATE PLEASE PASS DEPARTMENT OF ENERGY FOR IE 
EB/CBA FOR J.F. MERMOUD, W. BEHRENS 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
USDOC FOR 4520/ITA/MAC/AME, 3131/USFCS/OIO 
 
E.O. 12958: DECL: 02/07/2015 
TAGS: EPET, ENRG, BEXP, KU 
SUBJECT: ENERGY MINISTER COMMENTS ON OPEC AND PROSPECTS FOR 
U.S. FIRMS BIDDING ON AL-ZOUR NORTH AND PROJECT KUWAIT 
 
REF: A. 2004 KUWAIT 4556 
     B. 2004 KUWAIT 4557 
     C. 2004 KUWAIT 3426 
     D. 2004 KUWAIT 1594 
 
Classified By: Ambassador Richard LeBaron for reasons 1.4 (a), (b) and 
(d) 
 
1.  (U) Ambassador met on 7 February 2005 with Minister of 
Energy H.E. Shaykh Ahmed al-Fahd al-Ahmed al-Sabah regarding 
a variety of issues.  This cable concerns the Minister's 
comments on the recent OPEC session in Vienna and major 
electricity and oil recovery infrastructure projects in 
Kuwait. 
 
OPEC 
---- 
 
2.  (C) In describing the 29-30 January OPEC session in 
Vienna, Minister Ahmed (who also is the current OPEC 
President) provided some background on the cartel's logic in 
not changing its current production ceiling of 27 million 
barrels/day.  He noted that prices are high despite what he 
characterized as an "oversupply" in the market.  He said OPEC 
planned to gauge its decisions in reaction to market 
movements.  He noted further that for the first time product 
stock had built up in the first quarter of the year, rather 
than, as is typical, the second quarter.  He attributed this 
to moderated demand despite the winter season.  He said he 
expected the market price to drift downward unless there is 
"trouble in Iraq or some other geopolitical instability." 
The Minister said he expected sales to China to pick up in 
the second quarter but that no significant change in price 
was expected before March at the earliest, and even then it 
would be moderated by reduced demand with the end of winter. 
"Price will fluctuate a dollar or two," he said. 
 
3.  (C) Ambassador noted that we will have a new Secretary of 
Energy soon and that Embassy would recommend a visit by the 
Secretary to Kuwait if the Minister thought that beneficial. 
 
SIPDIS 
The Minister responded firmly and positively and commented 
that he anticipated visits from the Russians and senior 
officials of the European Energy Commission.  He said he 
expected the Chinese would visit as well.  Turning closer to 
home, the Minister said that Kuwait awaited the results of 
the Iraqi elections while considering Iraq's return to full 
OPEC participation (note: this would mean the inclusion of 
Iraq's production in the OPEC quota). 
 
 
Al-Zour North 
------------- 
 
4.  (C) Ambassador said that USG had understood there to have 
been a 1996 pledge by the Amir that the contract for the $2 
billion, 2500 megawatt Al-Zour North electricity generating 
plant would be awarded to an American firm.  The Minister 
replied that he anticipated the management company for the 
project would be an American firm, would have the contract 
lead, and 22 to 28 percent of the total contract value.  The 
Minister opined that 7 or 8 firms would make it to the final 
bid group; the French and perhaps the Italians would be there 
as well as the Americans.  There would likely not be Chinese 
or Indian companies in line for the final selection round, he 
said.  He reiterated that he thought a "good competitive 
arrangement" would wind up with an American firm with as much 
as 28 percent of the project.  He clarified that in the final 
scoring of proposals U.S. companies would have a 10 percent 
advantage in the bidding process, the same advantage 
permitted Kuwait's domestic firms. The final selection, the 
Minister said, would be made by the Prime Minister based on 
the recommendations of the Cabinet. 
 
 
Project Kuwait 
-------------- 
 
5.  (C) The Minister was optimistic about movement on Project 
Kuwait, a $7 billion plan to double output of four of 
Kuwait's northern oil fields over the next 20 years.  This 
project has been mired in parliamentary maneuverings since 
1993.  The Minister said that Project Kuwait was a front 
burner issue for the GOK today and that the parliamentary 
Committee on Finance and Economic Affairs would meet on 8 
February 2005 for the first of three to six sessions to 
review outstanding matters regarding the financial and 
technical package for the project.  Among the issues under 
discussion is a proposal in the Project Kuwait package 
enabling legislation that would make the use of Kuwaiti 
agents optional.  The Minister noted that members of 
Parliament and the public are not in favor of agents.  He 
said the government supports a decision to make agents 
optional but that this was a political decision to be taken 
by Parliament.  The Minister did not suggest an end date for 
the Parliament's review; he did, however, reiterate his 
optimism for some movement in the Parliament at long last. 
LEBARON