US embassy cable - 05ABUDHABI634

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000634 
 
SIPDIS 
 
E.O. 12958: DECL: 02/12/2014 
TAGS: EPET, ENRG, ECON, IR, TC 
SUBJECT: EB ASSISTANT SECRETARY WAYNE MEETS WITH UAE ENERGY 
MINISTER 
 
REF: DUBAI 265 
 
Classified By: Ambassador Michele Sison for reasons 1.4 (b) and (d) 
 
 1. (C) Summary: UAE Energy Minister Al-Hamili told visiting 
A/S Wayne that the UAE would be adding 200,000 barrels of 
production capacity in 2005.  He explained that the UAE 
decision to buy gas from Qatar was one of price.  In response 
to A/S Wayne's questions about reported Iranian-UAE gas 
purchase deals, Al-Hamili explained that the UAEG had a 
contract with Crescent to purchase Sharjah gas.  However, 
given the shared nature of the offshore Mubarak field and 
Crescent's concession, he didn't know whether Crescent was 
actually selling it any Iranian gas.  End Summary. 
 
2. (C) Assistant Secretary for Economic and Business Affairs 
Tony Wayne met with UAE Energy Minister Mohammed bin Dha'en 
Al-Hamili on February 7.  Ambassador and Econchief 
(notetaker) attended the meeting. 
 
OPEC and Oil Supplies 
--------------------- 
 
3. (SBU) A/S Wayne thanked Al-Hamili for the UAE's efforts to 
keep oil markets well supplied over the last year.  Al-Hamili 
explained that the UAE (and OPEC) wanted to assure the market 
that it would continue to supply oil and would make up for 
any disruptions.  He noted that prices were "not entirely" 
under OPEC control, citing geopolitics and speculation as 
contributing factors.  He added that OPEC was concerned about 
stock build-ups in  the second quarter of the year, but 
believed that it was premature to cut the quota. 
 
4. (SBU) Al-Hamili noted that outgoing Secretary of Energy 
Spencer Abraham had called him to thank him for the UAE's 
positive steps during the last OPEC meeting.  A/S Wayne said 
that incoming Energy Secretary Bodman would undoubtedly also 
like to meet with and talk to Al-Hamili. 
 
5. (SBU) A/S Wayne agreed that uncertainty negatively 
affected the energy market, noting that it was difficult to 
determine exactly how big a role speculation played.  For 
that reason, he stressed it was important for experts from 
both producer and consumer countries to talk to understand 
how each calculated their supply and demand equations. 
Al-Hamili said that the IEA was constantly in contact with 
OPEC and he thought that the IEA appreciated OPEC's efforts. 
He agreed that it was important to establish a 
producer-consumer dialogue.  He noted that "paper barrels" 
(i.e., futures and options) traded were four times actual 
physical barrels being traded. 
 
Capacity Building 
----------------- 
 
6. (C) Noting that demand had risen close to capacity, A/S 
Wayne asked Al-Hamili for the UAE's expansion plans. 
Al-Hamili said that the UAE planned to increase its spare 
capacity.  He noted that the UAE always had some spare 
sustainable capacity, but that recent events had cut into it. 
 Al-Hamili noted that the UAE could produce an additional 
200,000 barrels per day above its sustainable capacity (2.5 
mb/d) if it flared gas, but that Abu Dhabi government policy 
prohibited ADNOC from flaring gas.  He added that the UAE 
would be adding 200,000 barrels of capacity in 2005.  He 
noted, however, that it was expensive to add spare capacity, 
and that the UAE's foreign equity partners wanted to see the 
capacity utilized and get a return on their investment.  He 
added that the UAE shared this view.  Noting that consuming 
countries were calling for alternative energy and increased 
conservation, he asked rhetorically what producers would do 
with their spare capacity. 
 
7. (C) A/S Wayne asked about UAE plans to expand natural gas 
production.  Al-Hamili explained that UAE natural gas was 
high in sulfur and the UAE needed to invest in 
desulphurization units.  The UAE uses its natural gas for 
injection and as a feed stock for power generation and 
desalinization. Al-Hamili said that the Ministry of Energy 
was currently using a mixture of gas and diesel for power 
generation and the Emirate of Abu Dhabi was currently 
subsidizing the diesel feed stock costs for federal power 
generation by one billion dirhams.  He added that buying gas 
from abroad was a question of economics.  If foreign gas 
(i.e., Qatar) was cheaper, it allowed the UAE to use its own 
gas for reservoir management.  He pointed to Iraq as an 
example of poor reservoir management.  He opined that the 
quality of Iraqi crude was worse than it was 20 years 
previously, because the Iraqis had not invested in it. 
(Note: The majority Abu Dhabi owned Dolphin project is a $3.5 
billion project to bring in gas via pipeline from Qatar.) 
 
8. (C) In response to A/S Wayne's question about Abu Dhabi's 
plans to tender a 28% stake in the Upper Zakkum field, 
Al-Hamili said that he thought the process would be coming to 
a close. He noted that the field was complex and that Abu 
Dhabi was less concerned with revenues than it was with 
technology and technology transfer. He said that the field 
currently produced at 550,000 barrels per day and he thought 
it could go to 1 mb/d without exhausting the field. 
 
Iranian Gas 
----------- 
 
9. (C) A/S Wayne asked Al-Hamili about Crescent Petroleum's 
reported deal to purchase Iranian gas.  Al-Hamili 
acknowledged that his predecessor had signed a contract with 
Crescent Petroleum in the Emirate of Sharjah for the Federal 
Electricity and Water Administration (FEWA) to purchase gas 
from Crescent out of the offshore Mubarak field.  He stressed 
that the UAEG did not have a contract with Iran to purchase 
gas.  The problem, he explained was that the Mubarak field, 
which lies near the Iranian-controlled, and UAE claimed, 
island of Abu Musa, is shared by Iran and Sharjah.  FEWA had 
signed a contract for gas from Sharjah, but Crescent's 
concession crosses into Iran.  (Note: Each emirate in the UAE 
controls its own oil and gas resources.  End Note.) 
Al-Hamili said that he saw Crescent's gas as a short term 
solution and the Dolphin project as the longer run solution. 
 
10. (C) Al Hamili said that the Iranians did not have any 
large fields near Abu Musa.  Most of their gas was further 
north.  He explained that he had talked to a Total 
representative about Iran, who had told him that Iran was 
using its gas domestically.  It had shortages over the 
winter, when it needed gas for heating but a surplus in the 
summer. 
 
This cable has been cleared by Assistant Secretary Wayne. 
SISON