(C) ABU DHABI OVERPRODUCING QUOTA BY 200,000 B/PD,

C O N F I D E N T I A L ABU DHABI 001086 SIPDIS DEPT FOR NEA/RA, NEA/ARP, INR/EC, EB/IEP, EB/CBA USDOE FOR INT'L AFFAIRS -- COBURN, ALSO CALIENDO USDOC FOR 4520/ITA/IEP/ONE USDOC FOR 4530/ITA/MAC/ONE/DGUGLIELMI 4500/ITA/MAC/DAS/WILLIAMSON 3131/CS/OIO/ANESA E.O. 12958: DECL 03/05/13 TAGS: EPET PGOV BEXP ENRG ECON TC SUBJECT: (C) ABU DHABI OVERPRODUCING QUOTA BY 200,000 B/PD, BUT STILL HAS EXCESS CAPACITY OF 400-450K B/PD ¶1. (U) Classified by DCM Richard A. Albright for reasons 1.5 (B) and (D). ¶2. (C) A western oil executive in an excellent position to know told Econchief March 5 that he believes that the Abu Dhabi National Oil Company (ADNOC) is overproducing the UAE's 2.14 million barrel per day (bpd) OPEC quota by as much as ten percent, i.e., around 200,000 bpd. This statement tracks with an earlier private admission to Econchief by the number two official at ADNOC that Abu Dhabi's senior oil policy organization, the Supreme Petroleum Council (SPC),had issued instructions at the turn of the year for ADNOC to ramp up output to take advantage of high prices -- a move driven both by an ongoing budget crunch resulting from low returns on the government's portfolio investments, as well as concern that oil prices might drop considerably in a post-Iraq contingency environment. ¶3. (C) Our western oil source said that at current rates of production (i.e., ten percent over quota or around 2.3 million bpd) Abu Dhabi could probably increase sustainable output by as much as 450,000 bpd. It would not take much time to reach that level of output, but it would require direction from the senior-most leadership -- the SPC, or better yet, President Zayid himself -- because to reach such a level ADNOC would need to relax environmental guidelines and a number of other internal rules limiting output per field and per well, scheduling of maintenance, etc. The most significant hurdle to be overcome would be to temporarily lift the ban on flaring of gas because while ADNOC can produce the oil without difficulty, the local gas processing company, GASCO, will not have the capacity to absorb the additional associated gas that would result from a ramp up in crude production. ¶4. (C) COMMENT: We believe our source is in a position to know Abu Dhabi's current spare capacity and would find his number of 450k barrels per day generally credible, if a bit on the conservative side. WAHBA