US embassy cable - 05ABUDHABI2957

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 002957 
 
SIPDIS 
 
STATE FOR NEA/ARPI AND EB/ESC/IEC/EPC 
ENERGY FOR MOLLY WILLIAMSON AND JOHN BRODMAN 
NSC FOR HUTTO 
 
E.O. 12958: DECL: 07/02/2015 
TAGS: EPET, ENRG, TC 
SUBJECT: DOE WILLIAMSON ENERGY DISCUSSIONS IN UAE 
 
REF: ABU DHABI 02690 
 
Classified By: Ambassador Michele J. Sison for reasons 1.4 (B) and (D). 
 
1. (C) Summary.  DOE officials Molly Williamson and John 
Brodman met UAEG counterparts to discuss the UAE's oil sector 
and oil market issues.  The delegation, accompanied by 
Ambassador and econoff, briefed UAEG interlocutors on 
Secretary Bodman's recent travel to Moscow, Baku and Kiev. 
 
SIPDIS 
Williamson also outlined the proposed U.S. energy bill and 
raised the proposed "NOPEC" amendment.  The UAE officials 
noted that the UAE is currently producing at capacity, but 
that expansion efforts are in process.  All of the officials 
repeated concerns that manpower and resource constraints are 
creating bottlenecks in the refining process.  The UAE 
Minister of Energy explained that the UAE is opening new 
desalination plants along the Gulf of Oman (instead of the 
Arabian Gulf), to avoid further raising salinity levels in 
the Gulf.  U.S. oil and gas executives working in the UAE 
commended the UAE's favorable business environment.  End 
summary. 
 
2.  (U) On June 22, DOE Senior Foreign Policy Advisor Molly 
Williamson and DOE DAS for International Energy Policy John 
Brodman, met with Mohammed bin Dha'en Al Hamili, the UAE 
Minister of Energy, Mohammed Habroush Al Suwaidi, a senior 
advisor to UAE President Khalifa, and Abdullah Nasser Al 
Suwaidi, Deputy CEO of the Abu Dhabi National Oil Company 
(ADNOC).  All three officials are members of the Supreme 
Petroleum Council (SPC), which determines the emirate of Abu 
Dhabi's oil policy, oversees ADNOC, and determines Abu 
Dhabi's position on OPEC issues (note: The UAE's emirates 
control their own mineral resources.  Abu Dhabi possesses 94% 
of the proven oil reserves in the UAE).  All three officials 
welcomed a possible November visit to the UAE by Secretary of 
Energy Bodman. 
 
Producing at Max Capacity, Expansion in the Works 
--------------------------------------------- ---- 
 
3. (C) UAE officials conveyed the same message to Williamson 
at all of the meetings -- the UAE is currently producing at 
its maximum sustainable capacity (2.5-2.6 mb/d), but planned 
expansion will raise production to around 3.0 mb/d by the end 
of the decade.  ADNOC's Al Suwaidi stated that 200,000 b/d 
will come from onshore and 200,000 b/d will come from 
offshore fields.  This planned production is a measured 
increase in line with UAE's careful reservoir management 
policy. During the meeting with Al Suwaidi, ADNOC's Head of 
the Marketing Research and Analysis Department stated that 
the most significant offshore expansion project will increase 
the exploitation of the mammoth Upper Zakkum offshore oil 
field.  (Note: The Upper Zakum oil field, a complicated 
field, has high reserves but a low recovery rate.  The SPC is 
in final negotiations with Exxon/Mobil for a 28% stake in the 
project.  Exxon and the SPC anticipates that it will be able 
to boost production from 540,000 b/d to 750,000 b/d.) 
 
4. (C) In a separate meeting with Exxon-Al-Khaleej President 
Frank Kemnetz, Kemnetz said that the UAE "is doing all the 
right things to try to increase supply responsibly," but he 
noted that the UAE's ability to increase production 
significantly in the short term is as much a policy as a 
technical and environmental question.  "Given known 
resources, the question is: to what extent will the UAE be 
willing to increase production -- and thus increase depletion 
rates -- in response to demand."  (Note: ADNOC officials have 
told us in the past they can temporarily raise production by 
flaring, but that they do not do so out of environmental 
concerns and because they do not want to risk damage to their 
reservoirs in ways that would impact long term output. 
During his meeting with Williamson, ADNOC's Al Suwaidi 
emphasized the UAE's policy of gradually increasing 
production.) 
 
High Prices From High Demand, Bottlenecks in Downstream 
--------------------------------------------- ---------- 
 
5. (C) Petroleum Minister Al Hamili noted that the current 
high oil prices are due to unexpected demands for more energy 
and market speculation that there is not enough supply to 
meet demand.  UAE officials are clearly concerned about the 
high price of oil, but they note that they are not able to 
increase production rapidly.  According to Habroush, "I can 
assure you that as an oil producing country, our interest is 
to keep prices reasonable and to increase production.  We all 
believe that the high price of oil is not in our long term 
interest, but sometimes the price of oil is not in our 
hands."  Al Hamili, Habroush, and Al Suweidi each noted that 
the sudden uptick in demand for energy (from countries like 
China, India, and Pakistan) had resulted in demand 
significantly outstripping supply, and that as a result all 
of the Gulf's oil producing countries are facing challenges 
in increasing upstream production.  They all repeated what we 
have heard from U.S. oil service companies, that shortages of 
engineers, raw materials, and equipment are causing 
downstream refining and shipping bottlenecks and impeding oil 
producing nations from being able to significantly increase 
the quantity of crude supplied to the market.  Al Hamili 
explained that the UAE wants to expand capacity to address 
supply concerns, but that increasing crude production will do 
little to alleviate the problem until the downstream problems 
are addressed. 
 
6. (C) Al Hamili explained that the UAE is also having 
problems finding contractors to undertake large oil and gas 
expansion projects.  He told Williamson that when the UAE 
tenders a project, the SPC invites 15-20 international 
companies to bid, but of late, only one or two respond 
(reftel).  He acknowledged that the companies, overwhelmed 
with work, are behaving responsibly and are not willing to 
over commit themselves.  But he underscored that the UAE and 
other oil-producing countries are struggling to find quality 
companies to bid on the projects. 
7. (C) In a discussion about India and Pakistan's desperate 
need for energy, Al Hamili explained that the UAE would like 
to provide them with gas, but it is a question of 
feasibility, asking rhetorically, "how do we get it to them 
in time to meet their needs?"  He also observed that Iran has 
the ability to meet some of India and Pakistan's gas needs, 
but "that of course, is another issue."  (Note: Outgoing 
Pakistani Ambassador told Ambassador last week that Ehsan 
Ullah, from Sharjah's Crescent Petroleum, has been named the 
new Pakistani Ambassador to the UAE.  Ullah is a school 
friend of Musharraf, and he has lived in Sharjah, UAE for 20 
years.  He will be well-suited to help Pakistan in its 
endeavor to import hydrocarbons from the UAE.) 
 
Environmental Concerns, Shift in Production Strategy 
--------------------------------------------- ------- 
 
8. (C) Mohammed Habroush Al Suwaidi explained that as the 
Arabian Gulf is essentially a land-locked sea, the Gulf 
countries' many water desalination plants have significantly 
increased the Gulf's salinity.  Out of concern for the long 
term environmental impact of this, the UAE is locating its 
new desalination plants in Fujairah, along the Gulf of Oman. 
(Note: Williamson accompanied then Deputy Secretary of 
Commerce Bodman to the UAE in 2003, when he discussed with 
then Minister of Economy and Planning Sheikh Fahim bin Sultan 
Al Qasimi the long-term environmental impact on the Arabian 
Gulf from too much desalination.  While in 2003 the 
discussion centered around an awareness of the problem, it is 
evident that the UAE is now implementing an action plan to 
deal with the problem.) 
 
UAE Aware of NOPEC, Trusts U.S. to Work it Out 
--------------------------------------------- - 
 
9. (C) ADNOC officials asked Williamson about the recent AP 
news items on the "No Oil Producing and Exporting Cartels" 
(NOPEC) amendment to the energy bill, and expressed concern 
that some in the U.S. Congress believed OPEC was fixing 
prices.  During a discussion with the Minister of Energy 
about NOPEC, Al Hamili hoped this amendment would remain 
low-profile, and expressed his confidence that the amendment 
would not become part of the bill, noting "we know you are 
working on it and we trust and believe that you will get it 
worked out."  (Note: The International Affairs Advisor to 
Mohammed Bin Zayed, Crown Prince of Abu Dhabi, phoned 
Ambassador later that day from Morocco to ask about press 
articles he had seen about the NOPEC amendment.) 
 
UAE, A Good Place for U.S. Companies 
------------------------------------ 
 
10. (C) During a roundtable discussion, U.S. oil and oil 
service representatives in the UAE viewed the UAE as a secure 
and profitable place for U.S. companies to do business, and 
they were unified in their assessment that the UAE is 
behaving responsibly with its wealth by investing in its 
people.  In a similar vein, Exxon's Kemnetz noted during his 
meeting with Williamson and Brodman, "The UAE's success is a 
motivator for political and economic reform in the region. 
Their neighbors see the economic growth and want to emulate 
them and get a piece of the pie.  This is why U.S. companies 
should be solidly behind a U.S./UAE Free Trade Agreement." 
11. (U) This cable has been cleared by Molly Williamson. 
SISON