US embassy cable - 05KUWAIT4685

S E C R E T SECTION 01 OF 05 KUWAIT 004685 
 
SIPDIS 
 
SIPDIS 
 
LONDON FOR TSOU 
DEPARTMENT OF ENERGY FOR SECRETARY BODMAN, MWILLIAMSON AND 
PARTY 
DEPARTMENT OF ENERGY FOR IE 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
 
E.O. 12958: DECL: 11/15/2015 
TAGS: ENRG, EPET, OVIP, PREL, KU 
SUBJECT: SCENESETTER FOR SECRETARY BODMAN'S NOVEMBER 13-14, 
2005 VISIT TO KUWAIT 
 
Classified By: Ambassador Richard LeBaron for reason 1.4 (d) 
 
1.  (SBU) Secretary Bodman will arrive about one week after 
the celebration of the end of the month of Ramadan.  He will 
meet with Energy Minister Shaykh Ahmad Fahd Al-Ahmad Al-Sabah 
and Foreign Minister Shaykh Dr. Mohammed Sabah Al-Salem 
Al-Sabah.  He will also meet with Prime Minister Shaykh Sabah 
Al-Ahmad Al-Jaber Al-Sabah if he returns in time to Kuwait 
from vacation.  As the Energy Minister closes out his OPEC 
Presidency, he is uniquely positioned to offer insights into 
OPEC directions and strategies, as well as into Kuwait's own 
long-term plans for its own petroleum sector. 
 
2.  (S) The visit comes at an opportune moment in the 
bilateral relationship.  Kuwait has pledged an 
extraordinarily generous aid package for the victims of 
Hurricane Katrina, and continues to provide assistance to USG 
priority areas such as Iraq, Afghanistan and Pakistan.  Since 
early 2002, the GOK has provided billions of dollars in free 
and discounted jet fuel for use by Coalition Forces in 
Operation Iraqi Freedom, and continues to do so.  Our energy 
dialogue has a renewed vigor, with a recent visit to the U.S. 
by Ministry of Energy Undersecretary Issa Al-Own laying the 
groundwork for future cooperation. 
 
3.  (SBU) Kuwait publicly claims to have 105 billion barrels 
of crude reserves, or about 8 percent of the world's total. 
It currently produces about 2.5 million barrels per day and 
hopes to raise that to 4 mbpd by 2020.  To do this, Kuwait 
must bring in outside technical assistance and  foreign 
investment.  The visit provides an excellent opportunity to 
make the case that U.S. companies can offer the best of both. 
 
4.  (U) While the technical and managerial expertise of U.S. 
companies has always been welcome in Kuwait, the current crop 
of business opportunities and direct investment potential has 
not been this promising since the nationalization of Kuwait's 
petroleum sector in the 1970s.  The opportunities include: 
potential investment in the development of Kuwait's northern 
oilfields, major commercial opportunities in the construction 
of a new power plant and a new refinery, and the possibility 
of additional foreign direct investment in Kuwait's growing 
and lucrative petrochemical sector. 
 
5.  (U) On the flip side, the GOK has expressed an interest 
in partnering with a U.S. company to invest in additional 
refinery capacity in the U.S.  This topic has seen a renewed 
interest by the GOK in light of new energy legislation in the 
U.S. and the pressing need for additional refining capacity 
highlighted by the recent hurricane damage in the U.S. 
 
Assistance for Hurricane Katrina 
-------------------------------- 
 
6.  (U) As the effects on the people, communities and 
businesses of the U.S. Gulf states became clear in the days 
following Hurricane Katrina, the Government of Kuwait (GOK) 
quickly demonstrated its friendship and its strong bond with 
the United States by becoming the largest donor in the world, 
with a pledged gift of $500 million in assistance.  The Prime 
Minister has already presented $25 million to the 
Bush-Clinton Katrina Fund; another $75 million will be 
donated for humanitarian projects.  The remaining $400 
million will be disbursed after National Assembly approval. 
Although the President, Secretary Rice, and the Ambassador 
have all thanked the GOK and the Kuwaiti people for their 
extraordinary generosity, the visit presents another 
opportunity to express appreciation for Kuwait's assistance 
in our time of need. 
 
Assistance for Iraq 
------------------- 
 
7.  (S) From December 2002 - December 2004, Kuwait provided 
nearly USD 2 billion in free fuel for U.S. and Coalition 
Force use in Operation Iraqi Freedom (OIF) and as Assistance 
in Kind (AIK) for Kuwait-specific activities under the 
Defense Cooperation Agreement (DCA).  Kuwait continues to 
provide jet fuel at a discounted rate, saving the military 
and U.S. taxpayers millions of dollars a year.  It also 
provides in-kind support, estimated at $1-2 billion annually, 
for the U.S. military presence in Kuwait.  Kuwait's support 
facilitates the U.S. military's mission in Iraq and 
Afghanistan, both of which are supported by U.S. forces in 
 
KUWAIT 00004685  002 OF 005 
 
 
Kuwait. 
 
8.  (U) Kuwait is also a generous financial supporter of 
countries and organizations where we have a strategic U.S. 
interest.  It has provided financial assistance in the form 
of grants and concessionary loans to Iraq, Afghanistan, and 
the Palestinian Authority, and was quick to offer $100 
million in assistance to Pakistan after the recent earthquake. 
 
Expanding the Energy Dialogue 
----------------------------- 
 
9.  (C) The excellent dialogue that we have had with Kuwait 
on global and bilateral energy issues continues, with a 
recent visit to the U.S. by Ministry of Energy Undersecretary 
Issa Al-Own.  Al-Own and others in the Kuwait energy sector 
frequently attend U.S. conferences and seminars, and we 
encourage these visits as often as possible.  Al-Own came 
away from his recent meetings with Department of Energy 
Deputy Secretary Clay Sell and Senior International Policy 
Advisor Molly Williamson with a renewed enthusiasm for an 
expanded energy dialogue.  The GOK has also expressed 
interest in having U.S. private sector participation in a 
planned "GCC Strategic Studies Center" to be located in 
Kuwait and to focus on the intersection of energy and 
economic research. 
 
OPEC Leadership 
--------------- 
 
10.  (U) Shaykh Ahmad has made a number of helpful statements 
throughout his tenure this past year as the OPEC President. 
He has said throughout the year that "OPEC remains committed 
to providing the oil market with extra supplies if the market 
so requires," and has continuously called for new investments 
in upstream and downstream capacity.  Kuwait has been in the 
moderate price camp of OPEC for a number of years now. 
Shaykh Ahmad's Presidency of OPEC comes to an end at the end 
of December after the final OPEC meeting of the year, to be 
held in Kuwait in mid-December. 
 
---------------------------------------- 
Energy Projects & Business Opportunities 
---------------------------------------- 
 
Kuwait Project - Development of the Northern Oilfields 
--------------------------------------------- --------- 
 
11.  (SBU) The GOK wants to bring in outside investment from 
international oil companies (IOCs) in order to develop its 
northern oilfields and increase production in four specific 
fields from 450,000 bpd to 900,000 bpd.  Pending National 
Assembly approval, KPC will award the development project to 
one of three oil company consortia. Chevron and ExxonMobil 
lead two of the consortia, while Occidental Petroleum is an 
investor in the third. The GOK hopes to pass the enabling law 
through the National Assembly by the end of this year.  This 
USD 8.5 billion undertaking, known as "Kuwait Project," has 
been in the works for over ten years and oil companies are 
growing increasingly impatient with the numerous delays. The 
IOCs are also concerned about conditions set out in the final 
tender documents and whether the final package offered will 
have a large enough profit margin to merit their 
participation.  The arrangement will be akin to a very large 
technical service agreement; companies will not be able to 
book reserves from the fields they will exploit. 
 
Al-Zour Electricity Plant 
------------------------- 
 
12.  (SBU) Al-Zour North (AZN) is a proposed USD 2.4 billion, 
2500-megawatt electricity plant, currently in the bidding 
phase.  In 1996, the Amir pledged the AZN contract would go 
to an American firm following the cancellation of a previous 
project that had been won by an American company.  Recently, 
the GOK has backed away from the Amir's promise, saying the 
contract will go to the best-qualified firm internationally, 
however U.S. firms are leading most of the consortia bidding. 
 These U.S. companies include Fluor Corporation, Black and 
Veatch, Shaw Group, Washington Group, Bechtel, and General 
Electric.  Parsons Brinckerhoff is acting as technical 
advisor to the Ministry of Energy and they will serve as the 
"client's engineer," supervising the work of the engineering, 
procurement, and construction (EPC) contract winner. 
 
KUWAIT 00004685  003 OF 005 
 
 
 
New Refinery 
------------ 
 
13.  (U) Kuwait's planned fourth refinery, to be located in 
the Al-Zour area in the south of the country, will reportedly 
be the world's largest and will refine 615,000 barrels of 
crude oil each day, according to Kuwait National Petroleum 
Company (KNPC) officials.  This refinery project is part of a 
larger goal of expanding Kuwait's refining capacity from the 
current 930,000 bpd to 1.33 million bpd by 2010.  The 
refinery will take approximately 66 months to complete, and 
is expected to begin production in 2010.  The new refinery 
will replace the existing Shuaiba Refinery, which currently 
refines about 200,000 bpd but is scheduled to be 
decommissioned. The new refinery will produce naphtha, 
kerosene and diesel. 
 
14.  (U) Fluor is the Project Management Services Contractor 
for the new refinery.  KNPC expects to list the qualified EPC 
contractors soon.  Up from earlier estimates of around $3 
billion, the estimated cost for construction of the new 
refinery is now being reported as $6.3 billion.  The Kuwaiti 
private sector will be invited to participate through a 20% 
capital investment and through some construction work being 
awarded to local contractors.  Fluor is also well-positioned 
to provide project management services on upgrades for the 
three existing refineries. 
 
EQUATE And Other Petrochemical Opportunities 
-------------------------------------------- 
 
15.  (U) Established in 1963, Kuwait's Petrochemical 
Industries Company (PIC) built the first chemical fertilizer 
complex in the region.  Besides the company's own 
petrochemical facilities, it is involved in numerous joint 
ventures with international partners.  The EQUATE joint 
venture brings together PIC and Dow Chemical, with a 10% 
share held by a publicly traded Kuwaiti company.  The joint 
venture was established in 1995, with the first olefins plant 
commissioned in 1997.  The plant produces ethylene, ethylene 
glycol and polyethylene.  EQUATE has been very profitable for 
the partners in this joint venture and, this success has led 
to plans to establish new ventures for a second olefins plant 
and an aromatics facility.  EQUATE made a $600 million profit 
last year and is on track to repeat the performance this 
year.  Through its work with Dow in EQUATE and through other 
projects, PIC has now become Dow Chemical's largest 
co-investor worldwide.  In Kuwait alone, their joint 
investments total $3-4 billion. 
 
16.  (U) The Secretary will tour EQUATE, hosted by PIC 
Chairman Saad Ali Al-Shuwaib and EQUATE CEO Hamad Al-Terkait. 
 They will provide a brief overview of the joint venture, a 
description of their future plans, and a tour of their 
facilities. 
 
Kuwait Investments in the U.S. 
------------------------------ 
 
17.  (U)  The GOK has expressed an interest in partnering 
with a U.S. company to invest in additional refinery capacity 
in the U.S.  This topic has seen a renewed interest by the 
GOK in light of new energy legislation in the U.S. and the 
pressing need for additional refining capacity highlighted by 
the recent hurricane damage in the U.S.  While the Kuwaitis 
do not appear to have made formal overtures to any specific 
U.S. company, we should continue to encourage them to explore 
potential investments in U.S. refinery expansion and brief 
them on plans to streamline the regulatory system.  The State 
of Louisiana, through its State Secretary for Economic 
Development, has been in contact with KPC's Washington 
office, and directly with the GOK, to showcase the economic 
and regulatory advantages of investing in new refining 
capacity in that state. 
 
Kuwait's Gas Needs 
------------------ 
 
18.  (C) Kuwait is oil-rich and gas-poor, and needs to secure 
additional supplies of gas for its power plants and 
petrochemical facilities.  Its options are limited and 
fraught with difficulties.  The GOK is in talks with Iraq to 
secure a limited amount of gas, but it won't be enough to 
 
KUWAIT 00004685  004 OF 005 
 
 
meet Kuwait's needs.  A long-stalled plan to import gas from 
Qatar via an undersea pipeline through Saudi Arabia's waters 
is being blocked by the KSA, due to longstanding irritations 
in the Saudi/Qatari relationship.  Kuwait has limited options 
to drill for its own gas, with exploration in the most 
promising option, the offshore Al-Durra field, held up over a 
boundary dispute with Iran.  We were advised recently that 
the Kuwaitis will begin to survey some undisputed areas of 
the field.  Kuwait has also been in negotiations with Iran to 
import gas via pipeline.  We have encouraged Kuwait to 
explore other options and have informed them of the potential 
for ILSA repercussions. 
 
Promoting Study in the U.S. 
--------------------------- 
 
19. (U) Since 9/11, Kuwait has seen the largest percentage 
drop of all the Middle East countries in the number of 
students studying in the U.S.  From a pre-9/11 average of 
2,800 Kuwaitis studying in the U.S., there were only 1,846 
during the 2003-2004 academic year. If this trend continues, 
in less than 15 years, there will be far fewer Kuwaiti elite 
in academia and business, cultural, and political life who 
are intimately familiar with America and sympathetic to our 
values. The reasons for the sharp drop in the number of 
Kuwaitis pursuing advanced degrees in the U.S. are diverse: 
the misperceptions that visas are difficult to obtain and 
America does not welcome Muslims or Arabs, a growing 
preference to attend "American" universities in the region, 
and more students choosing Australia, Canada, and the UK. 
Embassy Kuwait has made increasing the number of Kuwaitis 
studying in the U.S. a Mission priority and is using 
Ambassadorial speeches, media interviews, the internet, and 
information fairs to promote the value and benefits of a U.S. 
education.  The top executives of the Kuwait Petroleum 
Corporation subsidiaries are all U.S.-educated, allowing us 
to have open and meaningful communication with them on 
important energy issues.  We (and U.S. energy companies) are 
concerned that a drop in the number of Kuwaitis studying in 
the U.S. will affect our energy dialogue years in the future. 
 
MIT Connections 
--------------- 
 
20.  (U) On May 12, 2005, the Kuwait Foundation for the 
Advancement of Science and the Massachusetts Institute of 
Technology announced the creation of a research and education 
center devoted to progress on key environmental, hydrologic 
and energy resource goals. The foundation will fund the 
center at the level of $11 million over 10 years. The 
Kuwait-MIT Center for Natural Resources and the Environment 
will be based at MIT. This organization, whose core staff is 
MIT faculty in the sciences, engineering and policy studies, 
will promote interdisciplinary work by those investigators, 
by MIT students, and by Kuwaiti researchers and students. 
There are other connections between Kuwait and MIT, including 
potential development of an entrepreneurship center. 
 
Press Opportunities 
------------------- 
 
21.  (U) Post is eager for the Secretary to engage the 
Kuwaiti and locally-resident international media.  As Kuwait 
has been a consistently reliable bilateral partner, the visit 
offers an opportunity to express gratitude to the Kuwaiti 
government and public for their ongoing support in all 
aspects of the Mission's areas of responsibility in the 
region.  Most importantly, of course, we would like to 
acknowledge their continued support for the War on Terrorism 
and the building of democracy in neighboring Iraq. 
Additionally, it is important to recognize their remarkable 
generosity, whether it has been in support of military 
efforts in the region or through humanitarian assistance to 
the states affected by Hurricane Katrina in the Gulf of 
Mexico. 
 
22.  (U) Proposed media plan:  We propose a 15-minute 
exclusive interview with the editor-in-chief, Walid Al-Nusif, 
of Al-Qabas newspaper, a moderate daily Arabic language 
newspaper, with the second largest distribution in Kuwait, 
(approximately 75,000 copies).  In addition to this 
one-on-one interview, we recommend a media availability prior 
to departure with CNBC, Kuwait TV, and Al-Rai TV, accompanied 
by Kuwait News Agency (KUNA).  The press conference would 
 
KUWAIT 00004685  005 OF 005 
 
 
open with a short statement, followed by a question and 
answer period, not to exceed ten-fifteen minutes total. 
 
Overview of Embassy Kuwait 
-------------------------- 
 
23.  (U) Embassy Kuwait staff consist of 71 State Department 
American employees, 126 other agency Americans, and 350 
local-hire staff. Other agencies at post include Department 
of Homeland Security (Customs), Foreign Commercial Service, 
and nine Department of Defense agencies.  The State component 
of the Embassy has grown almost 70% in the last five years. 
Local staff has increased 30% in the same time period. This 
growth is a direct result of the increased role for the 
bilateral mission due to Kuwait's strategic location and 
support of U.S. efforts in Iraq. 
 
Overview of U.S. Military in Kuwait 
----------------------------------- 
 
24.  (SBU) Kuwait provides a secure rear area for operations 
Iraqi Freedom and Enduring Freedom.  Personnel and materiel 
rotating into and out of Iraq transit through Kuwait.  Kuwait 
hosts U.S. forces at a number of camps throughout Kuwait, 
provides access to air and sea ports of 
embarkation/debarkation, and provides various types of 
support to U.S. forces stationed in country.  The 
headquarters for Coalition Forces Land Component Command 
(CFLCC) is located at Camp Arifjan and is the largest U.S. 
military organization in country.  The U.S. Air Force and 
Navy have units and operations in Kuwait as well.  Kuwait is 
also a major customer for U.S. military equipment and 
services, both through Foreign Military Sales (FMS) and 
Direct Commercial Sales.  Kuwait has 97 open FMS Cases 
(contracts) valued at nearly $7 billion.  Major U.S weapons 
systems include the M1A2 tank, F/A-18 aircraft, and Patriot 
missile system.  More recently, Kuwait has purchased Apache 
helicopters and is considering the purchase of a significant 
number of naval systems as well.  The Embassy's Office of 
Military Cooperation (OMC-K), one of the largest U.S. 
Security Assistance Organizations in the world, is 
responsible for FMS in Kuwait, as well as Security 
Cooperation with the Kuwait Armed Forces. 
 
******************************************** 
Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
******************************************** 
LEBARON