US embassy cable - 04ABUDHABI2437

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 002437 
 
SIPDIS 
 
NOFORN 
 
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 07/21/2009 
TAGS: EPET, PGOV, BEXP, ENRG, ECON, EINV, TC 
SUBJECT:  UAE NEARING MAXIMUM OIL PRODUCTION LIMITS 
 
REFS: A) STATE 149293 
 
      B) ABU DHABI 2339 
      C) ABU DHABI 2254 
      D) ABU DHABI 2028 AND PREVIOUS 
 
1.  (U) Classified by Charge d'Affaires Richard A. 
Albright, a.i., for reasons 1.5 (B) and (D). 
 
2.  (C/NF) Summary: During a July 20 meeting with Charge 
and Econoff, Abu Dhabi National Oil Company (ADNOC) Deputy 
CEO and new member of the Supreme Petroleum Council (see 
ref C) Abdullah Nasser Al-Suweidi stated that the UAE has 
taken concrete steps to increase oil production and bring 
down oil prices, but is quickly approaching its production 
capacity.  The UAE is producing nearly 2.5 million barrels 
per day (mbd), and could move to its maximum sustainable 
capacity of 2.6 fairly quickly.  The UAE could reach its 
short-term surge capacity of 2.8 mbd only if it lifted 
restrictions on flaring gas.  End summary. 
 
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Current Oil Output 
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3.  (C/NF) Al-Suweidi emphasized that the UAE could 
comfortably produce 2.6 mbd -- 1.3 mbd from Abu Dhabi's 
onshore fields (operated by ADCO), 600,000 b/d from the 
ADMA-OPCO operated offshore fields, approximately 550,000 
b/d from the offshore Zakum fields, and less than 130,000 
b/d from Dubai.  He suggested that production could surge 
to 2.8 mbd only if the UAE lifted restrictions on flaring 
gas.  (Note: ADNOC has a "Zero Flaring" policy out of 
concern for potentially damaging Abu Dhabi's fields and 
resultant environmental fall-out.  But since GASCO, the 
local gas processing company, does not have the capacity to 
manage the additional associated gas, higher oil output 
would require the flaring of the excess gas.  End note.) 
 
4.  (C/NF) Al-Suweidi acknowledged that while ADNOC could 
hypothetically reach 3.0 mbd at the well-head, being able 
to actually move, process, and export that amount would 
require significant investment to increase the capacity of 
the surface facilities (i.e. the collection and processing 
facilities). 
 
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Plans To Increase Production 
---------------------------- 
 
5.  (C/NF) Al-Suweidi told Charge that ADNOC already had 
developed plans to increase Abu Dhabi's sustainable 
production capacity to 2.7 mbd by end 2005 and 3.0 mbd by 
2008, most of which would come from new production in the 
Upper Zakum field and smaller offshore fields.  Development 
of these other offshore fields requires major investments 
in infrastructure, however, and will take some time.  He 
added that ADCO's (onshore) production capacity had fallen 
100,000 b/d during the last year, but -- with field 
upgrades -- would again increase to 1.4 mbd by the end of 
2005. 
 
6.  (C/NF) Al-Suweidi confirmed that ADNOC is making 
progress on its evaluation of the final three bids from 
ExxonMobil, BP and Shell to develop the Upper Zakum field 
(ref D).  ADNOC recently dispatched a technical team to 
Houston, London and The Hague, respectively, to consult 
with oil execs from each of the three companies.  Al- 
Suweidi would not speculate about when the SPC might make a 
decision on Zakum, and noted that ADNOC had not even given 
the oil companies a deadline for submitting improvements to 
their offers.  Al-Suweidi added that Upper Zakum probably 
would be the last concession for a while, as ADNOC had no 
intention of offering new concessions to international oil 
companies in the near future.  "We have a good mix of 
international participation here," and ADNOC probably would 
renew any old concessions set to expire in the coming years 
(i.e. a Japanese concession in 2011 and other small 
concessions in 2013/14). 
 
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Comment 
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7.  (C) Although not specifically addressed by Al-Suweidi, 
there are other factors that could temporarily limit the 
UAE's oil production.  The weather and high winds sometimes 
prohibit full production from the offshore facilities. 
Regularly scheduled maintenance also can affect the 
production of any one field for an extended period of time. 
Finally, ADNOC would have to receive specific instructions 
from the Supreme Petroleum Council (SPC) to increase 
production significantly above current levels and flare 
gas.  Al-Suweidi's recent appointment to the SPC, however, 
and his claim that "[all SPC members] think the same way," 
make us less concerned that the SPC would contradict ADNOC. 
 
Albright