US embassy cable - 05KUWAIT1496

UNCLAS SECTION 01 OF 03 KUWAIT 001496 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS DEPT OF ENERGY FOR IE 
STATE FOR NEA/ARPI 
EB/ESC/IEC FOR GALLOGLY, DOWDY, MCMANUS 
USDOC FOR 4520/ITA/MAC/AME, 3131/USFCS/OIO 
 
E.O. 12958: N/A 
TAGS: ECON, EPET, ENRG, KU, OIL SECTOR 
SUBJECT: KUWAIT ENERGY UPDATE: RECORD PRICES AND PROFITS, 
GAS PLANS, AND PRODUCTION INCREASE 
 
REF: KUWAIT 0943 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for Internet distribution. 
 
1.  (U) Summary:  Kuwait Export Crude hits another record 
high in March, while sustained high oil prices push Kuwait's 
budget surplus to $9.2 billion for the current fiscal year 
and as high as $12-$13 billion in the next.  Kuwait Oil 
Company expects to boost crude exports by an additional 
150,000 barrels per day by the end of April when the 
rehabilitation of the Gathering Center 15 facility is 
complete.  KOC's Gas Management Division chief describes how 
Kuwait is moving ahead with its gas plans, including plans 
for importation, drilling, and increased domestic consumption 
of gas, and he asks for increased involvement in the sector 
by U.S. companies.  KPC continues expanding into foreign 
markets, and the PR campaign for the Kuwait Project rolls on. 
 The Energy Minister adds to his already overburdened 
schedule and temporarily takes on the Health Ministry 
portfolio after the resignation of the Health Minister.  End 
Summary. 
 
KEC Hits Record High 
-------------------- 
 
2.  (U)  Kuwait Export Crude (KEC) averaged $43.25 per barrel 
for the month of March 2005, an all-time record high for a 
monthly average.  Fiscal year 2004-2005 and 2005-2006 budget 
surpluses, based on 2004-2005 barrel prices, are projected to 
be KD 2.7 billion ($9.2 billion) each year.  The average 
price per barrel in 2005 so far has been $39.40, however, 
which would end up providing a 2005-2006 budget surplus of KD 
3.8 billion ($12.9 billion), if this price scenario keeps up. 
 
Additional Production Coming Online 
----------------------------------- 
 
3.  (U) Kuwait is expecting to be able to boost its crude 
exports by an additional 150,000 barrels per day by the end 
of April 2005 when the rehabilitation of the Gathering Center 
15 (GC-15) facility is complete.  The GC-15 facility was 
damaged in an accidental explosion in January 2002 and kept 
approximately 300,000 bpd in exports off the market.  An 
initial 100,000 bpd was activated when the GC-15 was first 
reopened in January 2005, and the remaining 150,000 is 
expected to come online by the end of the month.  The GC-15 
facility is the largest in Kuwait and is able to handle 
between 250,000 and 300,000 bpd, possible more in the event 
of an emergency. 
 
Gas Network Plans 
----------------- 
 
4.  (SBU) In a meeting with Econ Officer, Kuwait Oil Company 
(KOC) Gas Management Group Manager Mohammad Al-Otaibi said 
that we are now in the "gas century" and that the gas 
business in Kuwait is "absolutely necessary" for Kuwait's 
power stations, its consumers, its petrochemical plants, and 
the business community as it turns to gas-powered factories. 
He said that 60,000 barrels of oil were being used each day 
just to refine gas to be used in Kuwait's power plants, and 
added that KOC's three-year plan forecasts a demand of 1.7 
billion cubic feet of gas per day.  Al-Otaibi's team is 
preparing feasibility studies now on creating a gas pipeline 
network to service consumers and businesses throughout the 
country, and is working with the Kuwait Chamber of Commerce 
and Industry (KCCI) to survey businesses on their estimated 
future gas usage. 
 
5.  (SBU) Echoing what post has heard from other sources 
(reftel), Al-Otaibi said that Kuwait's options for gas 
included importing it from Qatar, Iraq, and Iran, drilling 
for gas in the offshore Al-Durra field, or refining it from 
crude petroleum.  Al-Otaibi said that drilling in the 
offshore Al-Durra field would require time and a "political 
decision,"   He added that, if the GOK gave the industry the 
go-ahead to drill in Al-Durra, it would be handled by Kuwait 
Gulf Oil Company (KGOC) and not KOC, whenever it did 
commence.  He said that KGOC would need to bring in outside 
expertise, however, and that gas exploration, especially 
offshore, would require the help of foreign companies. 
 
6.  (SBU) Al-Otaibi seemed perplexed that more U.S. companies 
were not actively trying to sell products and services into 
the growing gas sector in Kuwait, and asked for Embassy 
support in getting more U.S. companies interested in the 
market.  He said that KOC needed consultants for refinery and 
network upgrades and a new booster station.  He said that 
many American companies have sent him brochures, but that few 
have actively contacted KOC's gas division looking for 
business.  He said that most of the parts and supplies came 
from Italian and Korean companies and that he would like to 
do business with U.S. companies, if they are interested. 
 
Foreign Expansion 
----------------- 
 
7.  (U)  Following on a March 2005 deal between Kuwait 
Petroleum Corporation (KPC) and BP to seek joint investment 
opportunities in China, Royal Dutch/Shell Group signed its 
own deal with KPC for a similar arrangement downstream 
opportunities in China and India.  The arrangements are seen 
as a way to finance and develop new refineries in the region. 
 Press and rumor-mill speculation say that BP and Shell have 
signed these deals not so much for the importance of KPC's 
involvement in Asia but more for raising the profile of the 
two foreign companies as they jockey for position in the 
long-awaiting bidding for the development of the northern 
oilfields. 
 
8.  (U)  In other foreign expansion plans, KPC has 
inaugurated its new Beijing office with a visit at the end of 
March by KPC International Marketing Managing Director Jamal 
Al-Nouri.  Al-Nouri has said that KPC hopes to sign a 
long-term contract with China for supplies of crude.  KPC now 
has offices in China and Japan.  KPC's own subsidiary, the 
Kuwait Foreign Petroleum Exploration Company (KUFPEC), has 
just reported $103.8 million in profits for 2004, an 18.2% 
increase from 2003.  The companies operates in 11 foreign 
countries and owns reported reserves of about 190 million 
barrels of natural gas and 60 million barrels of oil. 
 
Refinery Maintenance and Shutdowns 
---------------------------------- 
 
9.  (U) March 28 online news sources reported that the 
270,000 bpd Mina Abdallah refinery would undertake scheduled 
maintenance in April, reducing output by about 42,500 bpd for 
a short period of time.  Additionally, it was reported that 
the entire refinery would close down for maintenance in 
September 2006.  The refinery management also recently 
reported record profits of $614 million in the first nine 
months of the current fiscal year. 
 
Kuwait Project: PR Campaign in Full Swing 
----------------------------------------- 
 
10.  (U)  The public relations campaign for the development 
of the northern oilfields (the "Kuwait Project") is in full 
swing, with Minister of Energy Shaykh Ahmed Al-Fahd Al-Ahmed 
Al-Sabah and top KPC officials making frequent public 
appearances to defend the project.  The National Assembly's 
Financial and Economic Affairs Committee is wrapping up its 
study of the enabling law for the project and should issue 
its report to the full Assembly soon.  Some Islamists and 
others opposed to the project in the past have now come out 
publicly for it, citing the PR campaign as the deciding 
factor.  Other MPs and economists, such as Jassem Al-Saadoun 
of the Al-Shall Economic Report, remain opposed to the 
project.  The cost of the project is now being reported as 
$8.5 billion, up from the $7 billion previously reported. 
 
Miscellani 
---------- 
11.  (U) The Kuwait Gulf Oil Company (KGOC) will soon take 
over KOC's management of Kuwait's portion of the onshore 
joint operation in the Saudi-Kuwait divided zone, 
consolidating all of Kuwait's divided zone operations within 
KGOC.  EQUATE, the petrochemical joint venture between Dow 
Chemical and Kuwait's Petrochemical Industries Company, has 
posted record profits of $620.5 million for 2004, a 126% 
increase over 2003.  KPC is close to launching a new services 
company, which will handle security, healthcare, and 
logistics for all of KPC's subsidiaries.  The Supreme 
Petroleum Council is expected to approve the charter of the 
new services company soon.  Finally, after the Health 
Minister submitted his resignation on April 10, the Energy 
Minister was given the Health Ministry portfolio to watch 
over temporarily.  According to press reports, he does not 
expect to serve in this capacity "for more than fifteen days" 
and has already empowered the Health Ministry's 
undersecretaries and assistant undersecretaries to run the 
day-to-day affairs of the Ministry. 
 
******************************************** 
Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
******************************************** 
LEBARON