US embassy cable - 05KUWAIT943

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 000943 
 
SIPDIS 
 
STATE PLEASE PASS DEPARTMENT OF ENERGY FOR IE 
STATE FOR NEA/ARPI 
EB/ESC/IEC FOR GALLOGLY, DOWDY, MCMANUS 
 
E.O. 12958: DECL: 03/08/2015 
TAGS: EPET, ENRG, PREL, PINR, KU, IZ, OIL SECTOR 
SUBJECT: MINISTRY OF ENERGY UNDERSECRETARY OUTLINES GAS 
OPTIONS FOR KUWAIT 
 
REF: 2004 KUWAIT 4557 
 
Classified By: Economic Counselor Stephen Carrig for reason 1.4 (d) 
 
1.  (C) Summary:  During a March 6 meeting with Economic 
Counselor, Ministry of Energy Undersecretary Issa Al-Own 
outlined Kuwait's options for receiving much-needed gas to 
fuel electric power plants.  He said that Kuwait was now 
focusing its efforts on the two most promising options: 
drilling in the disputed offshore Al-Durra gas field, and 
building up a supply channel from Iraq.  Al-Own described the 
other two options, getting gas from Qatar or Iran, as both 
fraught with complications and not promising for the near 
future.  Al-Own also outlined various other aspects of energy 
cooperation between Iraq and Kuwait, including Iraq's desire 
but Kuwait's present reluctance to facilitate the export of 
Iraqi crude through Kuwait.  End Summary. 
 
Kuwait's Gas Needs: The Major Options 
------------------------------------- 
 
2.  (C)  Economic Counselor and Economic Officer met March 6 
with Ministry of Energy Undersecretary Issa Al-Own to discuss 
Kuwait's various options to increase the supply of gas needed 
to fuel its electric power plants, and for other energy 
intensive projects, such as those being developed in Kuwait's 
petrochemical industry (reftel).  (Note: Kuwait has begun the 
bidding process for the construction of a fourth refinery, 
which should substantially increase the supply of domestic 
fuel for power generation.  This refinery will likely not 
come online for at least three to five years, however.) 
Al-Own said that, besides developing its own internal 
refining capacity and looking for new gas fields, Kuwait has 
four options for increasing its gas supplies.  The first 
option would be to drill for gas in the Al-Durra gas field, 
located in the offshore neutral zone between Kuwait and Saudi 
Arabia.  The second option would be to finalize a deal to 
import gas from Iraq.  The third option would be to get gas 
from Qatar through an underwater pipeline, and the fourth 
option would be to import gas from Iran.  Of the four 
options, Al-Own said that the GOK and the Ministry were 
concentrating their efforts on the first two -- drilling in 
the Al-Durra field and building up capacity from Iraq. 
Al-Own estimated that one billion cubic feet of gas per day 
would meet all of Kuwait's current needs, including during 
the peak summer power usage, but added that the Kuwaiti 
petrochemical industry's growing appetite for gas could 
consume whatever amount was supplied. 
 
Al-Durra: Iran Not Happy but Kuwait to Drill Anyway 
--------------------------------------------- ------ 
 
3.  (C) Al-Own described the undeveloped Al-Durra gas field, 
located in the northern part of the offshore divided zone 
between Kuwait and Saudi Arabia, as Kuwait's best prospect 
for meeting a good portion of its gas needs.  He estimated 
that Kuwait could get as much as 400-600 million cubic feet 
of gas per day from Al-Durra.  Parts of the Al-Durra field 
are also claimed by Iran as part of its Arash gas field. 
According to Al-Own, Kuwait proposes to drill on the south 
side of Al-Durra, away from the disputed area.  Al-Own noted 
that 70 percent of the Al-Durra field still would be 
accessible to Kuwait when drilling in water undisputably 
Kuwaiti.  While not providing a specific timeline, Al-Own 
said that the Ministry would tender a 3D seismic exploration 
study for Al-Durra, and that he was just waiting on approval 
from the Ministry of Foreign Affairs to move forward. 
 
 
Iraq - Kuwait Gas Deal: Promising, but Needs Attention 
--------------------------------------------- --------- 
 
4.  (C) Al-Own said that Iraq and Kuwait had finalized, at 
the committee level, a deal to import gas and that the GOK 
had given its approval, but that the deal awaited approval 
from the newly elected Iraqi Transitional Government (ITG). 
Al-Own said that, at a working level, the cooperation was 
good, but that the project was not currently receiving 
political priority by the Iraqis.  While the deal awaits the 
final formation of the ITG, the two sides agreed to have the 
technical teams continue meeting to keep the process moving 
forward.  Al-Own said that the initial plan was to 
rehabilitate existing infrastructure to the point where, 
within one year, Iraq could export 35 million cubic feet of 
gas per day to Kuwait.  Within three years, with additional 
investment in new infrastructure, Kuwait would hope to import 
200 million cubic feet per day.  The line capacity, Al-Own 
explained, would be able to accommodate up to 400 million 
cubic feet in case both sides wish to expand the operation. 
The initial rehabilitation would cost KD 8 million, with KD 6 
million to be provided by Kuwait and the remaining KD 2 
million to be provided by Iraq.  For the second phase of 
infrastructure investment, the cost would be approximately KD 
230 million, with KD 130 million provided by Kuwait and Iraq 
paying for the remaining KD 100 million.  Al-Own said that 
Iraq had asked Kuwait to invest in its gas fields and that 
KUFPEC had done some preliminary exploration and found it 
economically attractive. 
 
5.  (C) Al-Own specifically asked for USG support on helping 
the Iraqis move forward to close the gas deal.  He said that 
his Iraqi counterparts had expressed that they are lacking 
"speed of action from the Americans" on rehabilitating the 
oil sector in Iraq, and that the "Americans must provide 
support" for things to happen.  Al-Own could not provide more 
specific examples of help that the USG could provide but said 
that he would try to get in touch with his Iraqi counterparts 
for further information.  He said that the person to talk to 
would be Mr. Jabar Hussein, General Manager of the Iraq South 
Oil Company. 
 
 
Qatar-to-Kuwait Gas Pipeline: "Nothing Happening" 
--------------------------------------------- ---- 
 
6.  (C) On the third option, building an underwater gas 
pipeline from Qatar to Kuwait, Al-Own said that the two sides 
"talk too much" and that "nothing was happening."  He said 
that there were no disputes between Kuwait and Qatar over any 
aspect of the deal, but that it was in the hands of the 
Saudis, who had so far held back approval of the plan to 
build the pipeline through the territorial waters.  He did 
not see any solution and was "personally not hopeful." 
(Note: Post has heard from other private industry sources 
that there may be some promising signs on this pipeline deal, 
but Al-Own clearly did not have anything hopeful to say on 
the project.) 
 
Iran: Still Talking, but Just Talking 
------------------------------------- 
 
7.  (C) Al-Own said that a team from Iran had just arrived in 
Kuwait to discuss a gas import deal and that Kuwait would 
take anything it could get from Iran to meet its needs.  He 
said that they almost had a deal two years ago but that it 
fell through due to difficulties on the Iranian side.  He did 
not see the Iranians linking a gas import deal to 
negotiations with Kuwait on the boundaries of the Al-Durra 
field.  He did not rule it out as a future possibility, 
however, and observed that the Iranians "want to link 
politics to everything."  He said that the Iranians knew that 
Kuwait was short on gas and were using that to draw out the 
talks.  Although he said that it is often difficult to know 
who is in charge and able to make a decision on the Iranian 
side, he said that "once they sign, they are committed."  He 
thought that, despite Saudi foot-dragging, it could be easier 
to get gas from Qatar than from Iran, but did not sound 
hopeful on either source. 
 
Other Topics: Iraqi Crude Exports, Humanitarian Fuels, 
Divided Zone Reorganization 
--------------------------------------------- ------- 
 
8.  (C) Al-Own acknowledged that the Iraqis had asked about 
exporting crude through Kuwait via pipeline, but he said 
without further comment that the GOK was "not very positive 
on this."  He said that the Iraqis had asked KPC, via the 
Ministry of Energy, to open a business office in Basra, but 
that the Ministry did not see a specific need right now, nor 
did it see the stability required to send its people there. 
Al-Own said the humanitarian fuels contracts between Iraq and 
Kuwait would end in June 2005 but were expected to be 
renewed.  He did not see any problems in the quantities 
requested by the Iraqis, but did find fault with some of the 
logistics and safety operations of the fuel sales.  He gave 
an example of fuels being transferred from one truck to 
another "out in the open and directly underneath high voltage 
lines," to illustrate the safety hazards he has heard about. 
Finally, Al-Own said that Kuwaiti responsibility for the 
onshore production in the divided zone would be transferred 
from one Kuwait Petroleum Company (KPC) subsidiary, Kuwait 
Oil Company (KOC), to another, the Kuwait Gulf Oil Company 
(KGOC), in order to have the entire divided zone operations, 
onshore and offshore, handled by the same company. 
 
BIO Note 
-------- 
 
9.  (C)  Al-Own speaks excellent English and is a friendly 
and open interlocutor.  He has a son who is currently in the 
United States studying chemical engineering in Youngstown, 
Ohio, and his son plans to come back to Kuwait to work for 
Dow Chemical in its joint ventures with the Kuwait 
Petrochemical Industries Company. 
 
10.  (U) Baghdad minimize considered. 
 
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Visit Embassy Kuwait's Classified Website: 
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LEBARON