US embassy cable - 05MANAMA64

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000064 
 
SIPDIS 
 
STATE FOR NEA/ARPI, EB 
COMMERCE FOR ITA/MAC/ONE LOUSTAUNAU AND HOFFMAN 
 
E.O. 12958: DECL: 01/12/2015 
TAGS: PREL, ENRG, EPET, BA 
SUBJECT: BAHRAINI MINISTER OF OIL AND AMBASSADOR DISCUSS 
PETROLEUM SECTOR 
 
REF: A. MANAMA 00024 
 
     B. 04 MANAMA 01422 
 
Classified By: Ambassador William T. Monroe for reasons 
1.4 (b) and (d). 
 
1.  (C) The Ambassador met with  Oil Minister Shaikh Isa Bin 
Ali Al Khalifa on January 11 to discuss developments in the 
petroleum industry.  The Minister opened the meeting by 
commenting on press speculations that he will lose his job in 
an impending cabinet shuffle.  He asserted he would still be 
Bahrain's "oil man" and dismissed reports that the Ministry 
of Oil would be merged with the Ministry of Electricity and 
Water. 
 
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Abu Sa'afa Oil Field Expansion 
------------------------------ 
 
2.  (C) Turning to the issue of oil and recent squabbles with 
Saudi Arabia, the Ambassador inquired about the status of 
Saudi Arabia's oil grants to Bahrain.  The Minister noted 
that the situation was ironic:  Bahrain had invested $700 
million to double production of the Abu Sa'afa field only to 
receive a lower quantity of oil.  (NOTE:  Bahrain and Saudi 
Arabia inaugurated the Abu Sa'afa oil field expansion on 
December 26, 2004.  Overall production increased from 150 
thousand barrels per day (bpd) to 300 thousand bpd.  Prior to 
the expansion, Bahrain received its share of 75 thousand bpd, 
Saudi Arabia's share of 75 thousand bpd, and an additional 
grant against Bahrain's reserves of 50 thousand bpd for a 
total of 200 thousand bpd.  According to King Hamad (ref A), 
although Bahrain invested $700 million in the expansion, it 
is now receiving only its share of Abu Sa'afa production -- 
150 thousand bpd.  Saudi Arabia is not granting Bahrain any 
of its share of Abu Sa'afa and Saudi Arabia suspended the 
grant of 50 thousand bpd in July 2004.  END NOTE).  The 
Minister said higher international oil prices would help 
offset the lower quantity Bahrain receives.  He also told the 
Ambassador that despite the disappointment, Saudi Arabia is 
always very supportive and close to Bahrain. 
 
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Natural Gas 
----------- 
 
3.  (C) The Ambassador asked for an update on the project to 
run a natural gas pipeline from Qatar to Bahrain and on to 
Kuwait.  The Minister said that in principle Qatar is ready 
to go and he recently signed an agreement of intent with the 
GOQ on the project.  However, Qatar appears to be in no rush 
to work out pricing, and Saudi Arabia has still not approved 
the Bahrain-to-Kuwait portion of the pipeline, which would 
traverse Saudi territorial waters.  The Ambassador asked when 
Bahrain will have a gas shortage problem.  The Minister 
responded by saying, "now."  He said the GOB already had to 
cancel the deal between U.S.-firm ALCOA and Bahrain's 
aluminum manufacturer (ALBA) to develop a sixth production 
line because of a lack of gas.  The Minister said the Crown 
Prince is heading a committee to discuss the gas shortage. 
The Ambassador asked what was stopping Qatar from proceeding 
with the pipeline to Bahrain.  The Minister responded by 
saying, "In this part of the world there is a lot of kissing 
and shaking of hands, but at the end no results." 
 
4.  (C) The Minister mentioned that Iran had offered Bahrain 
gas from its offshore fields, but minimized the importance of 
its offer, noting that unlike the proposed Qatar deal, Iran 
had not yet developed the field from which the gas would 
come.  The Ambassador reaffirmed that the United States would 
oppose such a deal with Iran. 
 
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Upcoming Projects 
----------------- 
 
5.  (C) Three projects with possible U.S. content were 
discussed. First on the list was a $160 million 
desulferization project.  The Minister told the Ambassador 
that at an Oil Council meeting on January 10, the GOB invited 
five American companies, BP, and a Korean firm to compete for 
the project.  He did not say who the American companies are. 
The Minister said the Bahrain Petroleum Company (BAPCO) will 
soon start a $440 million project to upgrade its refinery. 
In regard to the $1.4 billion naptha cracker project (ref B), 
the Minister said BAPCO is reviewing the proposals.  He 
stated that to be a viable joint-venture project, BAPCO must 
retain at least a 30 percent share, but some companies wanted 
a greater portion of the profits.  He did not comment on the 
status of any American company bids. 
 
MONROE