US embassy cable - 05KUWAIT3270

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 003270 
 
SIPDIS 
 
LONDON FOR TSOU 
STATE FOR NEA/ARPI 
STATE PLEASE PASS DEPARTMENT OF ENERGY FOR IE 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
 
E.O. 12958: DECL: 07/24/2015 
TAGS: EPET, ENRG, PINR, BEXP, KU, IR, IZ, OIL SECTOR 
SUBJECT: KOC GAS CHIEF LOOKS FOR HELP IN AVOIDING 
KUWAIT-IRAN GAS DEAL 
 
REF: A. KUWAIT 1496 
     B. KUWAIT 943 
     C. KUWAIT 1884 
 
Classified By: CDA Matthew Tueller for reasons 1.4 (b) and (d) 
 
1.  (C) Summary: At a July 23 meeting, Kuwait Oil Company 
(KOC) Gas Management Group Manager Mohammad Al-Otaibi told 
Econ Officer that Iran was "very eager" to have Kuwait sign 
an agreement to import gas from Iran, but that the GOK was 
still weighing its options.  He asked for any assistance that 
the USG could provide in urging the Kingdom of Saudi Arabia 
to drop its opposition to the proposed Qatar-Kuwait gas 
pipeline, which he described as a much better alternative to 
the Iran pipeline, both politically and financially.  He said 
that resolution of drilling rights in the disputed offshore 
Al-Durra gas field would also have to be resolved between 
Kuwait, Iran and the KSA, but that he didn't think it would 
be resolved "anytime soon."  He said that he would be meeting 
later that day with representatives of the Iraqi Oil Ministry 
to iron out details of the proposed Iraq-Kuwait gas pipeline, 
but that the Iraqis did not have a lot of confidence in the 
security or functionality of the existing pipeline.  He said 
that Kuwait was also exploring various options for bringing 
gasoline from Kuwait to Iraq via pipeline, instead of the 
problematic trucking options currently being used.  End 
Summary. 
 
Iran "Eager" to Sell Gas, but GOK Looking for Other Options 
--------------------------------------------- -------------- 
 
2.  (C) At a July 23 meeting, Kuwait Oil Company (KOC) Gas 
Management Group Manager Mohammad Al-Otaibi told Econ Officer 
that Iran was "very eager" to have Kuwait sign an agreement 
to import gas from Iran, but that the GOK was still weighing 
its options (Refs A and B).  He explained that the planned 
25-year, $7 billion deal was not as settled as previous news 
accounts had portrayed (Ref C), and that he was actively 
trying to recommend against the Iran deal.  He said that "it 
would be much better to deal with the Qataris" for gas, and 
that any deal with the Iranians was fraught with "political 
problems."  He asked for any help the USG could provide in 
convincing the KSA to allow construction of the Qatar - 
Kuwait pipeline through the KSA's waters. 
 
3.  (C) Al-Otaibi noted that the gas pipeline deal was also 
linked, politically, to resolution of the dispute over 
drilling rights in the offshore Al-Durra oil and gas field. 
He said that Iran was already drilling for oil in the area 
and was "flaring off the gas" from the field.  He said that 
he did not think the offshore border demarcation and drilling 
rights issue would be resolved, but that any hope for 
resolution lay in positioning it as an environmental issue 
instead of a political one.  Showing the Iranians that 
flaring off the gas rather than capturing it for use was 
medically damaging to the children of Iran and Kuwait, 
Al-Otaibi said, might bring resolution on the issue, but he 
was not hopeful. 
 
4.  (C) Al-Otaibi said that he has gone to Iran many times to 
discuss oil and gas projects, and went most recently in early 
July to discuss the gas pipeline deal.  He told of meeting 
ordinary Iranians on the street who he described as "hungry 
for change" and told of one Sunni taxi driver who asked "when 
will Imam Bush come to liberate" Iran. 
 
Qatar Gas Deal Still Held Up By KSA 
----------------------------------- 
 
5.  (C) Al-Otaibi was very eager to see the commencement of 
the Qatar - Kuwait pipeline project, and said that Saudi 
Arabia's opposition to the deal was the only thing blocking 
it.  "The problem is policy," he said, "not financial, 
logistic or anything else."  He said that a contact of his in 
Saudi Arabia told him that the Saudi Minister of Defense was 
one of those holding up the project, and he again asked for 
USG support in convincing the Saudis to drop their 
opposition.  Al-Otaibi said that a pipeline from Qatar to 
Kuwait would be in everyone's benefit, including Saudi 
Arabia's, and that it was only the beginning of a much larger 
gas pipeline project.  He said that the pipeline could then 
be extended from Kuwait to Iraq, then on to Turkey and 
Europe, as part of a larger fifty-year strategy for gas 
delivery.  He said that he specifically saw a "tremendous 
opportunity" for ExxonMobil in the Qatar-Kuwait pipeline 
project, and that the French company Total was ExxonMobil's 
chief competitor in this regard. 
 
6.  (C) Bechtel has already completed a study on the Qatar - 
Kuwait gas pipeline, Al-Otaibi explained, and the 540 
kilometer pipeline is expected to take two years to build. 
According to Al-Otaibi, in the absence of a timely approval 
by Saudi Arabia to build the pipeline through the KSA's 
waters, another option was being considered.  This would 
involve building a pipeline from Qatar to the Iranian port of 
Assaluyeh then on to Ganaveh, then to Kuwait.  It would still 
be Qatari gas, which Al-Otaibi described as being of better 
quality than Iranian gas, but Iran would get some financial 
remuneration for the pipeline traversing its territory. 
While this would avoid Saudi Arabian waters, Al-Otaibi 
considered this a long-shot option. 
 
Iraq Gas Deal Almost Complete 
----------------------------- 
 
7.  (C) Al-Otaibi said he would be meeting later that day 
with representatives of the Iraqi Oil Ministry to iron out 
details of the proposed Iraq-Kuwait gas pipeline (Ref B). 
The deal was ready to be finalized, he said, and within one 
to three months he hoped to see the commencement of the first 
phase of the project.  He said that the Iraqis did not have a 
lot of confidence in the security or functionality of the 
existing pipeline, and had "been using the local tribes to 
guard the pipeline."  While noting that the amount of gas to 
be imported from Iraq was not much compared with the amounts 
discussed in the Qatari and Iranian deals, Al-Otaibi 
explained that the Iraqi gas was particularly good for the 
petrochemical production process and would be used primarily 
towards that end in Kuwait's growing petrochemical sector. 
 
8.  (C) Turning his attention to the supply of gasoline from 
Kuwait to Iraq, Al-Otaibi said that there were "many 
problems" with the system of trucking gasoline to Iraq and 
that "better monitoring systems were needed."  He said that 
the two sides were exploring the use of pipelines to bring 
gasoline from Kuwait to Iraq, but that use of the existing 
pipelines "was not realistic" and that new pipelines would be 
needed. 
 
Bio Data 
-------- 
 
9.  (C) Mohammed Al-Otaibi is about 45 years old and speaks 
good English.  He is an up-and-comer in the Kuwaiti oil 
industry, and will likely have a leading role in any future 
gas subsidiary of the Kuwait Petroleum Corporation.  He 
travels frequently and has good relations with the top 
executives of KPC and the Minister of Energy.  He has 
traveled frequently to Iran as part of Kuwait's gas 
negotiations with Iran and is happy to tell 
"people-on-the-street" stories about his travels to Iran and 
conversations with regular Iranians.  He attends certain 
diwaniyas which are frequented by many conservative Islamists 
and speaks openly about the need for more dialogue between 
liberals and conservatives.  He is married with two young 
children, and has plans to vacation in the United States in 
the summer of 2005, "to take (the) children to DisneyWorld." 
 
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Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
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TUELLER