US embassy cable - 03ABUDHABI4694

C O N F I D E N T I A L ABU DHABI 004694 
 
SIPDIS 
 
DEPT FOR NEA/RA, NEA/ARP, INR/EC, EB/IEP, EB/CBA 
USDOE FOR INT'L AFFAIRS - COBURN, ALSO CALIENDO 
USDOE FOR OFFICE OF THE SECRETARY - RHONDA HUDOME 
USDOC FOR 1000/OC/ 
USDOC FOR 4520/ITA/IEP/ONE 
USDOC FOR 4530/ITA/MAC/ONE/DGUGLIELMI 
4500/ITA/MAC/DAS/WILLIAMSON 
3131/CS/OIO/ANESA 
 
E.O. 12958: DECL 10/21/08 
TAGS: EPET, PGOV, BEXP, ENRG, ECON, EINV, TC 
SUBJECT:  UAE: DOLPHIN SIGNS MAJOR GAS SUPPLY AGREEMENTS 
 
REF: ABU DHABI 1513 
 
(U) Classified by Ambassador Marcelle M. Wahba, for reasons 
1.5 (b) and (d). 
 
1.  (C) Summary and comment: The Ambassador met with 
Occidental Petroleum CEO Dr. Ray Irani 10/21 -- days after 
Dolphin Energy Limited (DEL) signed two long-term supply 
agreements with the UAE's major power and water companies. 
DEL, in which Oxy maintains 24.5 percent equity, intends to 
begin pumping gas from Qatar's giant North Field in 2006. 
The supply agreements represent a major step forward for 
the Dolphin project, which heretofore had committed $3.5 
billion to build a Qatar-UAE pipeline, but had no confirmed 
customers in place.  The gas pricing agreement remains to 
be agreed with Dubai.  Dr. Irani commented that most of the 
major international energy companies would have waited 
until the terms of the price of the gas had been decided 
before signing a supply agreement, but Oxy is confident 
that pricing agreements with Abu Dhabi and Dubai are only a 
matter of time -- noting that senior UAE shaykhs "have 
given [him] their word."  End summary. 
 
--------------------------------------------- ------ 
Supply Agreements: Signed, Sealed, And Delivered... 
--------------------------------------------- ------ 
 
2.  (C) More than a year after the selection of U.S. firm 
Occidental Petroleum to participate in the ambitious 
Dolphin project to pump natural gas from Qatar to the UAE, 
new UAE Deputy Premier and de facto Foreign Minister Shaykh 
Hamdan bin Zayid signed 10/19 two supply agreements on 
behalf of Dolphin with the UAE's major power and water 
companies.  Dr. Irani confirmed that these initial 
agreements commit the UAEG to the purchase of 2 billion 
cubic units per day of natural gas from DEL.  Dr. Irani was 
confident, however, that the UAE would agree to purchase up 
to 3 billion cubic units a day by 2007 or 2008 to keep pace 
with Dubai's development and resultant increase in gas 
demand. 
 
3.  (U) The initial agreement with the Abu Dhabi Water and 
Electricity Authority (ADWEA) was signed by its chairman, 
Shaykh Diyab bin Zayid, and provides for a 25-year supply 
of gas from Qatar to ADWEA's subsidiaries -- namely the Al- 
Taweelah Power Company that manages the major Al-Taweelah 
power plant located halfway between Abu Dhabi and Dubai. 
Al-Taweelah will receive natural gas from Qatar's Ras 
Laffan refinery and distribute gas to secondary power 
plants throughout the Emirates. 
 
4.  (U) The second agreement with Union Water and 
Electricity Company (UWEC) was signed by its chairman, 
Shaykh Hamed bin Zayid, and supercedes a short-term supply 
contract with DEL initiated earlier this year.  The new 
agreement commits Dolphin to provide natural gas to UWEC's 
new power and desalination plant in Fujairah for 25 years, 
and will utilize existing pipelines from Al-Taweelah to Al- 
Ain, and a new pipeline (currently under construction) from 
Al-Ain to Fujairah to transport the gas. 
 
------------------------------ 
...But The Pricing Agreements? 
------------------------------ 
 
5.  (C) With the supply agreements signed, Oxy now is eager 
to resolve the pricing issue (see ref).  Dr. Irani 
speculated that Abu Dhabi Crown Prince Khalifa would insist 
that Dubai Crown Prince Muhammed bin Rashid (MbR) pay the 
same price for Dolphin gas as Abu Dhabi's power and water 
companies.  Dubai currently receives natural gas from Abu 
Dhabi at very low, subsidized prices.  Dr. Irani posited 
that MbR would acquiesce, but probably request another 
subsidy or transfer from Abu Dhabi as compensation.  The 
Ambassador commented that the political machinations among 
the senior shaykhs to resolve the pricing issue would 
provide a glimpse into emerging UAE leadership dynamics. 
 
Wahba