US embassy cable - 05KUWAIT3868

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 003868 
 
SIPDIS 
 
LONDON FOR TSOU 
DEPARTMENT OF ENERGY FOR IE 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
 
E.O. 12958: DECL: 08/30/2015 
TAGS: ECON, EPET, MOPS, KU, IZ, OIL SECTOR 
SUBJECT: KPC CEO ON OIF FUEL, REFINING CAPACITY, AND OIL 
PRICES AND PROFITS, 
 
REF: KUWAIT 1253 
 
Classified By: Ambassador Richard LeBaron for reason 1.4 (b) 
 
1.  (C) Summary: During an August 28 meeting with Kuwait 
Petroleum Corporation (KPC) CEO Hani Hussain, the Ambassador 
thanked KPC for its support for OIF, and noted that the U.S. 
military is currently receiving about 800,000 gallons of jet 
fuel per day from KPC but actually needs 1.1 million gpd. 
Hussain said that he would "see what KPC can do" on this 
issue, but that KPC is currently "having an issue with all 
refined products for all customers."  "We're selling 
everything we can produce," he added.  Hussain called the 
current era of oil prices and profits "the strangest period 
(he has) ever seen," and noted that all KPC subsidiaries are 
doing well simultaneously.  He specifically noted the 
exceptional profits of KNPC, KPC's refining subsidiary, and 
said that the expansion of the refining sector was "coming 
along well," and that the new refinery should come online by 
2010.  End Summary. 
 
OIF Fuel: "We'll See What We Can Do" 
------------------------------------ 
 
2.  (C) The Ambassador met August 28 with Kuwait Petroleum 
Corporation (KPC) CEO Hani Hussain and thanked KPC for all 
its support for OIF and for providing U.S. military forces 
with discounted jet fuel.  Ambassador noted that, while the 
roughly 800,000 gallons per day of jet fuel was very much 
appreciated, the actual requirements for the near term would 
be 1.1 million gpd.  He explained to Hussain that DESC, the 
actual purchaser of the fuel, was hearing from its contacts 
in KPC that there was not any further capacity with which to 
expand deliveries to US forces. 
 
3.  (C) Hussain took down a note of the requested amount but 
was noncommittal and said that he would "see what we can do." 
 He also said that he thought DESC was not taking its maximum 
contractual liftings recently.  He explained that KPC 
currently "has an issue with all (of its) products and all 
customers" based on limited capacity.  To illustrate, he 
explained that he would be meeting with the Minister of 
Energy the next day to discuss products and customers, 
specifically mentioning state-owned Kuwait Airways 
Corporation's complaints about having to pay full market 
price for jet fuel.  He emphasized that the related issue of 
fuel supplied to U.S. forces under the Defense Cooperation 
Agreement (DCA) was a "problem" for KPC, as long as it did 
not receive proper payment for the fuel from the Ministry of 
Defense, but that he "thinks we'll resolve this."  Hussain 
came back to the issue at the end of the meeting, noting that 
KPC has "no problems with our colleagues at DESC," but that 
KPC needed accountability, like any other commercial entity. 
He said that KPC's marketing department, which has the 
responsibility for negotiating fuel contracts with DESC, has 
a certain reluctance to get involved with complicated fuel 
deals because of its "problems in the past," including 
certain deals with oil traders (NFI), and the Halliburton 
case (reftel). 
 
Refining Capacity Expanding, But "We're Selling Everything We 
Can Produce" 
--------------------------------------------- ------------- 
 
4.  (C) Hussain explained that refining capacity was truly 
stretched to the max in Kuwait, adding that KPC was "selling 
everything it could produce."  He said that there was more 
crude available to the world markets from Kuwait and 
elsewhere, if needed, but that "refined products have the 
crunch."  The refining sector was expanding, he said, with 
plans to increase "sophisticated refining of premium 
products."  He noted that Kuwait National Petroleum Company 
(KNPC), the KPC subsidiary in charge of the refineries in 
Kuwait, was doing "very well" and that plans were on track to 
have a new 600,000 barrel/day refinery operational by 2010. 
 
5.  (C) KPC has a team looking at opportunities around the 
world for participation in the refining sector, Hussain 
explained, but added that any participation would "follow the 
market opportunities" for sales of end products.  The 
Ambassador encouraged dialogue between KPC, the Embassy and 
the Department of Energy to look at ways that the Kuwait oil 
sector could invest in refining capacity in the U.S. 
 
"All Sectors Are Doing Well, It's Scary!" 
----------------------------------------- 
6.  (C) Hussain called the current period of sustained high 
oil prices "the strangest period (he has) ever seen."  He 
explained that normally one part of the Kuwaiti oil industry 
would be doing well, production for example, while other 
sectors, like refining, would not be doing as well.  In this 
case, though, "all the sectors are doing well," and he added 
that "it's scary, because it goes in cycles."  Hussain 
explained that KPC has started sending out the prices for 
Kuwait Export Crude (KEC) everyday so that the Council of 
Ministers and other decision makers "don't get confused" by 
all the different prices being quoted on world markets.  (The 
market price for KEC was well below the world oil prices 
quoted in the media.  On August 26, the price of KEC was 
$56.93, while NYMEX crude for October delivery was $67.47, 
and Brent crude was $66.27.) 
 
Bio Note 
-------- 
 
7.  (C) Hussain is an avid reader, and is a big fan of 
classical Arabic writing and history books, especially 
American history.  His father, Abdulaziz Hussain, was also an 
avid reader and donated his book collection to start a 
library and cultural center in Kuwait.  Hussain told us that 
his wish is to retire and simply spend time reading at this 
library named after his father.  He said he had been offered 
the Energy Minister portfolio twice and rejected it both 
times.  When the previous KPC CEO Nader Sultan retired in 
2004, Hussain was told that he could no longer keep saying no 
to taking on additional responsibility, so he took the CEO 
position with the idea that he would serve one three-year 
term.  Hussain's oil industry background is in refining. 
 
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Visit Embassy Kuwait's Classified Website: 
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LEBARON