US embassy cable - 04ABUDHABI4400

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 004400 
 
SIPDIS 
 
C O R R E C T E D COPY (CHANGED SUBJECT) 
 
DEPT FOR NEA/RA, NEA/ARP, INR/EC, EB/IEP, EB/CBA 
USDOE FOR INT'L AFFAIRS - COBURN 
USDOC FOR 1000/OC/ 
USDOC FOR 4520/ITA/IEP/ONE 
 
E.O. 12958: DECL: 12/05/2014 
TAGS: EPET, ENRG, ECON, TC 
SUBJECT: NEW UAE OIL MINISTER CONFIRMS MODERATE STANCE 
AT OPEC 
 
(U) Classified by Ambassador Michele Sison for reasons 1.4 
(B) and (D). 
 
1. (C) Summary: New UAE Energy Minister Al-Hamili told 
Ambassador on December 5 that the UAE was committed to 
meeting market needs.  He also underlined the UAE's interest 
in market stability and moderate prices that support global 
growth.  The Minister stressed that OPEC was doing all it 
could to stabilize the market.  The UAE is producing at (or 
near) its maximum sustainable capacity of 2.6 mb/d. 
Al-Hamili said that the sudden drop in prices had made "some" 
OPEC members nervous, but that prices were still high enough 
that members couldn't (or shouldn't) complain.  Although 
Al-Hamili declined to predict the outcome of the upcoming 
December 10 OPEC meeting, he made it clear that the UAE would 
endeavor to play a positive role at the meeting.  End Summary. 
 
2. (C) Ambassador paid a courtesy call on Mohammed bin Dha'en 
Al-Hamili, the new UAE Minister of Energy, on December 5. 
Ambassador used the opportunity to note USG appreciation for 
actions taken by producers recently to meet rising oil 
demand. She noted that, in spite of the past week's decline 
in crude prices, prices remained volatile and high, and were 
of concern to global economic growth.  The winter heating 
season was not the time to signal an impending drop in 
supply.  Minister Al-Hamili quickly replied that he 
understood the need for market stability and reiterated the 
UAE's desire to meet consumer country needs.  He stressed 
that the UAE and other large producers such as Saudi Arabia, 
Kuwait and Iraq take a longer-term view than some other OPEC 
members.  The Emiratis understand, he said, that they benefit 
more from moderate prices.  The UAE did not want to impede 
global growth, or encourage investment in higher cost 
alternatives, he emphasized. 
 
3. (C) Al-Hamili said that he would be attending an OAPEC 
meeting immediately after the OPEC meeting, and would also be 
meeting informally with other Arab producers in advance of 
the OPEC meeting to "compare notes" and production figures. 
He admitted that OPEC members tended to "play their cards 
close to their chest," making it difficult to predict the 
outcome in advance.  He noted that both the Iranians and the 
Venezuelans had made hawkish statements on production, 
responding to the recent sharp drop in oil prices, but stated 
that prices were still high enough that OPEC members "didn't 
have a reason to complain." 
 
4. (C) Al-Hamili explained that, unlike some other oil 
ministers, he was not likely to make any public 
pronouncements before the meeting.  The Ambassador noted that 
Al-Hamili had already made some positive statements about the 
need for continuity after his November 21 swearing-in. 
Al-Hamili explained that he believed that markets needed to 
hear reassurances that "cabinet shuffles would not lead to 
policy changes."  In response to Ambassador's mention of 
concerns that the OPEC meeting results might produce 
"surprises" that would add to volatility, Al-Hamili stressed 
that OPEC needed to play a "responsible role" in stabilizing 
the market and in providing the market with enough crude to 
meet demand. 
 
5. (C) Al-Hamili stated that prices needed "to adjust" and 
that the recent drop in prices was expected.  He said what 
had surprised everyone, however, was the speed of the fall. 
This, and the traditional decline in demand during the second 
quarter, was making some OPEC members nervous.  He also noted 
that OPEC members (excluding Iraq) were only overproducing 
quota by about one million barrels per day mb/d.  OPEC 
production, including Iraq, was about 30 mb/d. 
 
6. (C) Al-Hamili underscored that OPEC was doing all it could 
to stabilize the market to the extent of appearing to 
"micromanage" it.  Al-Hamili said that OPEC producers, 
including the UAE, were producing at or near maximum 
capacity.  He said that the UAE could produce more, but only 
by flaring associated gas -- which is prohibited in the UAE 
-- and risking damaging the reservoirs.  (Note:  The UAE's 
maximum sustainable production capacity is 2.6 mb/d.) 
Al-Hamili opined that market speculation (rather than 
supply/demand fundamentals) provided much of the pressure 
behind current high prices.  He noted that paper transactions 
(i.e., oil futures) were about 5 times greater than the 
actual physical flow of oil.  He said that world demand was 
about 82 mb/d (of which U.S. demand was 9 mb/d for gasoline 
alone) and the paper transfers were 400 mb/d.  He assessed 
the price drop as being due to oil speculators exiting the 
market, but added that speculators could easily re-enter the 
market driving up the price. 
7. (SBU) Ambassador also raised the problems an American 
company (Caltex) was having with gasoline price controls in 
the UAE.  Caltex is a joint venture partner in a chain of gas 
stations in Dubai and the northern emirates of the UAE.  The 
price it can charge at the pump is set below the wholesale 
cost of gasoline.  Minister Al-Hamili said that he was very 
much aware of the problem, and that all three UAE 
distribution companies were taking huge losses.  He said that 
his ministry was interested in helping the distribution 
companies, but that the final decision rested with the full 
cabinet.  He explained that the UAEG was worried that raising 
gasoline prices would pass through to higher inflation and 
hurt consumers, whereas the companies logically needed a 
market rate to make money.  He said that the ministry was 
looking at solutions and suggested that the oil companies 
again provide some coordinated proposals to the ministry. 
 
8. (C) Bio Note:  Minister Al-Hamili comes from the Abu Dhabi 
National Oil Company (ADNOC) and was also previously the 
UAE's governor at OPEC from 1994-2002.  He is a Harvard 
Business School Graduate and a certified accountant.  During 
the meeting, he noted that he was still readjusting moving to 
the ministry and the different rhythms of a public sector 
job.  He stated that although ADNOC, as Abu Dhabi's national 
oil company, was not really a private company, it tried to 
operate like one and he was used to getting to his desk at 
7:00 am.  It was also clear that he hopes to bring some of 
the private sector's work ethic to the Ministry. End Bio Note. 
 
9. (C) Comment:  This was a very encouraging meeting. 
Al-Hamili stated that the UAE is interested in moderate 
prices that will not damage global growth and is committed to 
market stability.  Based on our past experience with the 
ministry, we believe that these views reflect the UAEG's 
position and will be reflected in the UAE's position in 
Cairo.  We would predict that the UAE would continue its role 
as one of the moderates. 
 
10. (C) Comment Cont. Because the UAE's individual emirates 
own their oil resources, not the UAEG, the federal Minister 
of Energy has little influence on plans to expand production. 
 Those are controlled by the Emirates of Abu Dhabi, which has 
over 90% of the country's proven oil reserves.  We will 
pursue with ADNOC CEO Yousef Omair bin Yousef in the near 
future. End Comment. 
SISON