US embassy cable - 05KUWAIT5081

UNCLAS SECTION 01 OF 03 KUWAIT 005081 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
LONDON FOR TSOU 
DEPARTMENT OF ENERGY FOR IE, MOLLY WILLIAMSON 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
 
E.O. 12958: N/A 
TAGS: ENRG, EPET, ECON, BEXP, PINR, KU 
SUBJECT: OIL INDUSTRY CONTACTS TALK INVESTMENTS, PROJECT 
KUWAIT, AND MANAGEMENT CHANGES 
 
REF: KUWAIT 4770 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for Internet distribution. 
 
1.  (SBU) Summary and Comment:  In the first two weeks of 
December, Econ Officer heard from a number of oil industry 
contacts that, while the GOK and the Kuwait oil industry are 
serious about investment in increasing upstream and 
downstream capacity, a bottleneck remains in bringing 
concepts to fruition.  While many contacts said that Kuwait's 
recent public announcement of $44 billion in new investment 
by 2020 was a bit ambitious, other contacts were of the 
opinion that Kuwait could absorb at least that amount and 
more, if contracting could just move faster.  Most oil 
industry contacts said that the Kuwait Project law would 
likely pass the National Assembly, if it comes up for a vote 
on January 16th as the GOK has requested.  Whether the IOCs 
will be satisfied with the terms presented to them after that 
remains to be seen.  One oil industry analyst with a long 
history and good contacts with the KPC hierarchy offered his 
candid assessment of expected management changes at KPC, 
specifically noting the lack of "visionaries" in the field of 
managers and executives among those expected to ascend to the 
top leadership posts in the next few years. 
 
2.  (SBU) Comment: Kuwait's recent announcements of 
investments and certain statements by Minister of Energy and 
current OPEC President Shaykh Ahmad Fahd Al-Ahmad Al-Sabah 
come on the heels of the visit by the U.S. Secretary of 
Energy to Kuwait, and the Secretary's requests for such 
statements from the leading oil producers (reftel).  We hope 
to see further statements after the OPEC meeting this week in 
Kuwait.  End Summary and Comment. 
 
$44 Billion In New Investments? 
------------------------------- 
 
3.  (U) The GOK, through the Ministry of Energy (MoE) or 
Kuwait Petroleum Corporation (KPC), has made various 
statements over the past year regarding plans to increase 
upstream and downstream capacity.  The latest came from MoE 
Undersecretary Issa Al-Own, who told reporters on December 8 
that Kuwait has earmarked more than $44 billion over the next 
15 years (or about $3 billion per year) to upgrade its oil 
facilities.  This is part of KPC's "2020" plan, which aims to 
boost production from the current 2.5 million bpd to 4 mbpd 
by 2020. 
 
4.  (SBU) Econ Officer spoke with a number of well-placed oil 
industry contacts to gauge the reality behind this ambitious 
investment program.  Some contacts said that the number 
appeared high, but that the focus should not be on the amount 
pledged for new investments but whether KPC could eliminate 
some of the bureaucracy needed to move forward on these 
projects.  Most contacts agreed with this sentiment, and many 
questioned whether KPC and the MoE had the capacity to 
actually see all of these projects through to completion. 
 
5.  (SBU) Kamel Harami, an oil analyst who used to work for a 
KPC subsidiary and is still well-connected with the KPC 
leadership, said that he thought that the $44 billion figure 
was actually a conservative estimate and that the Kuwait oil 
industry could actually absorb more than the $3 billion a 
year in new upstream and downstream investments that KPC 
envisions in its 15 year plan.  He also cited the contracting 
approval process as the bottleneck, noting that in some cases 
"it takes 35 signatures just to get a small contract 
awarded." 
 
Kuwait Project Up For January 16 Vote 
------------------------------------- 
 
6.  (SBU)  According to December 7 news reports, the GOK has 
requested that the National Assembly hold a January 16 vote 
on the enabling law for the participation of foreign 
international oil companies (IOCs) in the development of 
Kuwait's northern oilfields (Kuwait Project).  This follows a 
December 3 decision by the Assembly's new Financial and 
Economic Affairs Committee to refer the law to the full 
Assembly, and not review it again as some MPs had requested. 
Most oil industry contacts believe that the votes exist for 
the passage of the law, but they question whether the IOCs 
will be satisfied with the terms.  Harami, the former KPC 
employee and current oil analyst, said that he had just heard 
 
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that Kuwait's State Audit Bureau, acting on the request of 
National Assembly Speaker MP Jassem Al-Khorafi, had submitted 
a briefing on the project which includes some questions about 
the constitutionality of the enabling law.  He said that he 
did not think that this would hold up the parliamentary 
debate, but that it would likely be included in any debate. 
 
7.  (U) On December 10, on the opening day of the second 
annual Kuwait International Petroleum Conference & 
Exhibition, organized around the theme "Meeting Future 
Demands Through Wise Decision,"  ExxonMobil Exploration 
Company Vice President Rick Vierbuchen made a direct case for 
the Kuwait Project in his keynote address.  He noted that the 
purpose of bringing in IOCs was not to share what Kuwait was 
currently producing with foreign companies, but to expand the 
total value of resources that Kuwait could produce, and then 
give those companies a fair rate of return for doing so. 
Vierbuchen also pointed out to the audience that ExxonMobil 
and its partners in its Kuwait Project consortium (Shell, 
ConocoPhillips and Maersk) together spend about $1 billion a 
year on research and development (R&D).  If this spending 
continued, which Vierbuchen projected it would, then 
throughout the twenty-year life of the project, this 
particular consortium would also be contributing its $20 
billion in R&D to the project. 
 
8.  (SBU) Vierbuchen's address was followed by a presentation 
by oil analyst Kamel Harami, who also supported the Kuwait 
Project and offered a number of justifications for its 
passage.  In a private conversation with Econ Officer, Harami 
said that he believed the law would pass, and he said that he 
did not think it would have a chance of passing through the 
National Assembly under any other Energy Minister except for 
the current one.  He also said that the Kuwait Project 
division within KPC was "losing people" and having a hard 
time retaining some of the employees that had come there from 
other KPC divisions. 
 
Changes At The Top 
------------------ 
 
9.  (SBU) Harami also privately shared with Econ Officer his 
assessment of the top leadership at KPC and the Ministry of 
Energy and of potential changes in the next year or two.  He 
said that Ministry of Energy Undersecretary Issa Al-Own's 
term has expired but that he is "being kept by the Minister 
until a suitable replacement could be found."  He was not 
sure why Al-Own is still around, "because certainly there are 
suitable replacements available," but he did not want to 
speculate on how long Al-Own would remain in his position. 
Harami, formerly President of the KPC subsidiary Kuwait 
Petroleum International (KPI) is much more familiar with the 
KPC structure than with the Ministry.  He said that KPC CEO 
Hani Hussain "might stay on until his term expires in 
September" but wanted out by the end of this year.  He said 
that Hussain, like his predecessor Nader Al-Sultan and like 
Kuwait's OPEC Governor Siham Al-Razzouqi, is a "visionary" 
but that the next level of leadership within KPC is "light" 
and does not have similar people as qualified. 
 
10.  (SBU) Harami said that Petrochemical Industries Company 
(PIC) Chairman Saad Al-Shuwaib is the most likely successor 
to replace Hussain in the CEO position at KPC, but that he is 
"not as well-rounded" as Hussain, given that Al-Shuwaib's 
entire career has been with PIC. (Note: Hussain worked his 
way up the chain through a number of different KPC 
subsidiaries, including PIC, Kuwait National Petroleum 
Company, and the KPC Marketing division.)  He said that KOC 
Chairman Farouk Al-Zanqi could also be in the running for the 
KPC CEO job, but that he might move to lead the Kuwait 
Project division if current Kuwait Project Managing Director 
(and former KOC Chairman) Ahmed Al-Arbeed leaves. 
 
11.  (SBU Harami explained that while Al-Arbeed might have 
also been a contender for the KPC CEO job, he is "currently 
on the outs with the Minister," because of his involvement in 
the Dana Gas company, based in the U.A.E.  He said that 
Al-Arbeed had gotten involved in the U.A.E.-based publicly 
traded company without the Minister's permission, and that he 
might leave the Kuwait oil industry completely and go into 
the private sector.  (Note: Al-Arbeed is on the Board of 
Directors of Dana Gas.  The company was established in 
Sharjah in September 2005 and was initially listed on the Abu 
Dhabi Stock Market.) 
 
 
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LEBARON