US embassy cable - 05ABUDHABI2624

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 002624 
 
SIPDIS 
 
STATE PASS USTR - BELL 
ENERGY FOR MOLLY WILLIAMSON 
NSC FOR HUTTO 
 
E.O. 12958: DECL: 06/12/2010 
TAGS: ECON, EPET, ENRG, ETRD, ELAB, TC, Energy 
SUBJECT: SUSTAINING ENERGY DIALOGE - UAE 
 
REF: A. STATE 96427 
     B. ABU DHABI 1872 
 
Classified By: (U) Classified by Ambassador Michele J. Sison for reason 
s 1.4 (B) and (D) 
 
 1. (C) Summary: On June 12, Ambassador met with UAE Energy 
Minister Al-Hamili as part of our continued dialogue on 
energy issues, to include briefing him on U.S. efforts to 
spur conservation and improve energy efficiency and 
exchanging views on the volatile oil supply situation. 
Al-Hamili noted that he had been tracking several of 
President Bush's recent speeches on the subject, mentioning 
POTUS' May 25 remarks at a Shell hydrogen fueling station. 
Al-Hamili complimented the U.S. on its conservation efforts 
and noted that the UAE would be bringing on 200,000 barrels 
per day in production capacity by end-2005/early 2006.  He 
said that he thought oil supply and demand were roughly in 
balance, and linked current price fluctuations to fears of 
sharply limited spare production capacity.  Al-Hamili 
expressed concern that oil producers would not be able to 
keep up with increased demand, even though $50 per barrel oil 
made more investments attractive.  He noted that the UAE and 
other Gulf states were facing difficulties in getting 
companies to bid on major oil and gas projects, since the 
"good firms" were already overwhelmed with work.  Al-Hamili 
also asked about ongoing U.S. - UAE Free Trade Agreement 
negotiations.  End Summary. 
 
2. (C) Ambassador and Econchief met with UAE Energy Minister 
Mohammed bin Dha'en Al-Hamili on June 12 to deliver ref A 
points, the first day he was in the country and available for 
a meeting.  She stressed our shared responsibilities for 
market stability and explained U.S. efforts to spur 
conservation and energy efficiency.  Ambassador underscored 
that that we remain a dependable and reliable partner in 
global energy markets.  She shared U.S. concerns about the 
tight oil supply situation and the increases in oil 
production capacity that would be needed to fuel world 
economic growth.  Ambassador shared recent POTUS speeches on 
energy and briefed on the upcoming visit of Molly Williamson, 
Senior Foreign Policy Advisor to Secretary of Energy Bodman. 
Al-Hamili welcomed Williamson's visit. 
 
3. (C) Al-Hamili complemented U.S. efforts on conservation 
and improving fuel economy standards. He said that he had 
always been reluctant to drive a SUV, because they were "gas 
guzzlers," even though gas prices in the UAE were relatively 
cheap.  He added, however, that his Ministry was pushing the 
UAEG to raise gas prices or lift the gasoline price cap 
entirely, since retail companies were losing around two 
dirhams (50 cents) per gallon on gas sold in the UAE.   He 
also said that the UAE would be adding another 200,000 
barrels per day in capacity by the end of 2005 -- early 2006. 
 He joked, however, that he worried about the USG's 
investment in alternative energy sources, jesting that as an 
energy producer "we (Emiratis) feel conservation is good, but 
alternatives are bad." He then expressed his real concern 
that supply would not be able to keep pace with growing 
demand. 
 
4. (C) Ambassador asked whether the UAE was experiencing 
constraints such as shortages of steel or drilling rigs to 
increasing production capacity.  (This had been a theme 
raised by several U.S. and other energy companies operating 
in Abu Dhabi.  Ref B) Al-Hamili agreed that this could be a 
problem in bringing new projects on line, but shouldn't 
affect existing projects.  In discussing foreign investment 
in the UAE's oil sector, Al-Hamili added that countries such 
as the UAE, Kuwait, Saudi Arabia, and Qatar were having 
problems getting companies to bid on large oil and gas 
projects. There were a limited number of qualified companies 
to bid on large projects, and they were overwhelmed with 
work.  The companies that would bid wanted a premium for 
their services. 
 
5. (C) Al-Hamili viewed current supply and demand for oil as 
roughly in balance, adding that U.S. stocks were increasing. 
He explained that he found the continuing high -- and 
volatile -- oil prices disturbing, noting that oil producers 
were used to daily price fluctuations of a few cents, not 
dollars.  He speculated that the continuing price volatility 
represented market fears about limited spare production 
capacity.   He told Ambassador that he thought world spare 
production capacity was being sharply squeezed and might be 
down to one to two million barrels.  He questioned whether 
the Saudis had the "real" spare capacity they claimed. 
Al-Hamili said that the UAE was producing at a level it was 
"comfortable" with; one that it was sure would not damage the 
reservoirs or require flaring. 
6. (C) Al-Hamili then asked Ambassador about the progress of 
the U.S. - UAE Free Trade Agreement.  He said that the USG 
needed to recognize that the UAE relied heavily on foreign 
labor, and that meeting all of the ILO's requirements could 
be difficult.  He agreed, however, that a solution could be 
found.  Al-Hamili also commented that the Dubai businessmen 
sometimes felt like they were being "kept in the dark" and 
that the UAEG had not done as much outreach as should have. 
Al-Hamili noted that the USG appeared to be pushing for quick 
negotiations and that the UAE negotiators were not used to 
that pace.  As an aside, he also commented that the number of 
UAE FTA negotiations was proliferating, with the UAE talking 
to the EU, the U.S., Australia, and others. 
SISON