US embassy cable - 04MANAMA1422

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 001422 
 
SIPDIS 
 
STATE FOR NEA/ARPI, EB 
 
E.O. 12958: DECL: 09/13/2014 
TAGS: PREL, ENRG, EPET, BA, PROG 
SUBJECT: MINISTER OF OIL DISCUSSES PETROLEUM SECTOR WITH 
AMBASSADOR 
 
REF: STATE 166919 
 
Classified by Ambassador William T. Monroe for reasons 1.4 
(b) and (d). 
 
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Summary 
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1.  (C) Minister of Oil Isa bin Ali Al Khalifa told the 
Ambassador September 6 that U.S. companies have participated 
successfully in the development of Bahrain's petroleum and 
petrochemicals sector, and he looks forward to continued 
cooperation with the U.S.  He stated that his primary concern 
is finding a steady supply of natural gas, and noted that 
Qatar is the natural source.  As discussions with Qatar have 
become stuck because of Saudi Arabia's lack of clarity on 
whether a pipeline can pass through Saudi territory, a 
Bahraini official visited Iran to discuss the supply of gas. 
The Ambassador responded that the United States would be 
greatly concerned about a deal with Iran and recommended that 
Bahrain focus on the Qatar option.  The Minister said that 
Saudi Arabia intends to expand oil production in the Abu 
Saafa oil field from 140 thousand to 300 thousand barrels per 
day, and he hopes the Saudis continue to donate their share 
of the field's production to Bahrain.  End Summary. 
 
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U.S. Firms Welcome in Bahrain 
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2.  (C) Minister of Oil Isa bin Ali Al Khalifa welcomed the 
Ambassador to Bahrain during their September 6 introductory 
meeting and explained that Bahrain has a long track record of 
successful cooperation with American companies in the 
petroleum sector.  He noted that the Ministry had recently 
invited four American firms - Chevron Phillips Chemical, Dow 
Chemicals, Huntsman, and ABB Lummus - out of nine companies 
total to submit proposals for the development of a new $1.4 
billion naptha cracker.  The timetable for the project is 
still not clear, but it likely will proceed because the GOB 
has calculated that the internal rate of return on the 
investment would be 16 percent and the plant would employ 
many Bahrainis. 
 
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Searching for Steady Supply of Gas 
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3.  (C) He stated that his main concern is access to a steady 
supply of natural gas.  The Ambassador noted that he had met 
with Exxon concerning the proposed pipeline project from 
Qatar.  Al Khalifa said that the Emir of Qatar had told him 
that Qatar wants to proceed with the project but Saudi Arabia 
had caused it to get bogged down.  The Qatar plan was to 
build a pipeline from Qatar to Bahrain, and onward to Kuwait 
through Saudi territory.  However, the Saudi government has 
not yet signaled whether this would be acceptable. 
 
4.  (C) The Minister said that Crown Prince Salman bin Hamad 
Al Khalifa had taken possession of the gas issue and had 
formed a committee to explore Bahrain's options.  An Under 
Secretary from the Ministry of Finance and National Economy 
 
SIPDIS 
visited Iran to discuss the supply of gas.  The Ambassador 
interjected that the United States would be greatly concerned 
with a Bahraini gas deal with Iran, and strongly recommended 
that Bahrain conclude a deal with Qatar.  The Minister said 
that Bahrain's intent was to show the Qataris that it had 
other options, and noted that perhaps Saudi Arabia or Iraq 
could supply gas to Bahrain.  He commented, however, that 
Qatar was the most logical solution. 
 
5.  (C) The Minister stated that Bahrain has domestic 
supplies of natural gas to satisfy current consumption but 
needs access to additional supply to meet future demand.  He 
said that the national economy and industries must grow and 
the lack of gas is already acting as a constraint on 
expansion.  Bahrain could take advantage of high 
international prices for urea and methanol if it had 
sufficient supplies of gas to expand its petrochemical 
industry.  He noted that ALBA, Bahrain's aluminum 
manufacturer, had signed an agreement with U.S.-firm ALCOA in 
2003 to produce aluminum jointly on a sixth production line, 
but that deal was in jeopardy because Bahrain did not have 
enough gas to support the sixth line.  He indicated that 
Bahrain had drilled for gas in Bahraini territorial waters 
near the border with Qatar but had come up empty.  Chevron 
and Petronas are scheduled to drill additional test holes in 
the vicinity of Hawar Island. 
 
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Saudi Generosity with Oil 
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6.  (C) Regarding oil, Al Khalifa said that though Saudi 
Arabia and Bahrain officially share the 140,000 barrels per 
day produced in the Abu Saafa field, Saudi Arabia donates its 
half to Bahrain.  The Saudis had announced previously their 
intent to invest in the field to expand production to 300,000 
barrels per day, and the Minister hoped that Saudi Arabia 
would continue to donate its share to Bahrain, saying the 
Saudis have been very generous.  He indicated that Bahrain 
both benefits and loses from high international oil prices. 
While Bahrain exports oil products, it purchases crude to 
process in its refinery.  The net impact of high 
international oil prices on Bahrain's economy is positive, 
but there are costs as well. 
 
MONROE