UAE NEARING MAXIMUM OIL PRODUCTION LIMITS

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 002437 SIPDIS NOFORN DEPT FOR NEA/RA, NEA/ARP, INR/EC, EB/IEP, EB/CBA USDOE FOR INT'L AFFAIRS - COBURN, ALSO CALIENDO USDOE FOR OFFICE OF THE SECRETARY - RHONDA HUDOME USDOC FOR 1000/OC/ 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 07/21/2009 TAGS: EPET PGOV BEXP ENRG ECON EINV TC SUBJECT: UAE NEARING MAXIMUM OIL PRODUCTION LIMITS REFS: A) STATE 149293 B) ABU DHABI 2339 C) ABU DHABI 2254 D) ABU DHABI 2028 AND PREVIOUS ¶1. (U) Classified by Charge d'Affaires Richard A. Albright, a.i., for reasons 1.5 (B) and (D). ¶2. (C/NF) Summary: During a July 20 meeting with Charge and Econoff, Abu Dhabi National Oil Company (ADNOC) Deputy CEO and new member of the Supreme Petroleum Council (see ref C) Abdullah Nasser Al-Suweidi stated that the UAE has taken concrete steps to increase oil production and bring down oil prices, but is quickly approaching its production capacity. The UAE is producing nearly 2.5 million barrels per day (mbd),and could move to its maximum sustainable capacity of 2.6 fairly quickly. The UAE could reach its short-term surge capacity of 2.8 mbd only if it lifted restrictions on flaring gas. End summary. -------------- Current Oil Output -------------- ¶3. (C/NF) Al-Suweidi emphasized that the UAE could comfortably produce 2.6 mbd -- 1.3 mbd from Abu Dhabi's onshore fields (operated by ADCO),600,000 b/d from the ADMA-OPCO operated offshore fields, approximately 550,000 b/d from the offshore Zakum fields, and less than 130,000 b/d from Dubai. He suggested that production could surge to 2.8 mbd only if the UAE lifted restrictions on flaring gas. (Note: ADNOC has a "Zero Flaring" policy out of concern for potentially damaging Abu Dhabi's fields and resultant environmental fall-out. But since GASCO, the local gas processing company, does not have the capacity to manage the additional associated gas, higher oil output would require the flaring of the excess gas. End note.) ¶4. (C/NF) Al-Suweidi acknowledged that while ADNOC could hypothetically reach 3.0 mbd at the well-head, being able to actually move, process, and export that amount would require significant investment to increase the capacity of the surface facilities (i.e. the collection and processing facilities). -------------- Plans To Increase Production -------------- ¶5. (C/NF) Al-Suweidi told Charge that ADNOC already had developed plans to increase Abu Dhabi's sustainable production capacity to 2.7 mbd by end 2005 and 3.0 mbd by 2008, most of which would come from new production in the Upper Zakum field and smaller offshore fields. Development of these other offshore fields requires major investments in infrastructure, however, and will take some time. He added that ADCO's (onshore) production capacity had fallen 100,000 b/d during the last year, but -- with field upgrades -- would again increase to 1.4 mbd by the end of ¶2005. ¶6. (C/NF) Al-Suweidi confirmed that ADNOC is making progress on its evaluation of the final three bids from ExxonMobil, BP and Shell to develop the Upper Zakum field (ref D). ADNOC recently dispatched a technical team to Houston, London and The Hague, respectively, to consult with oil execs from each of the three companies. Al- Suweidi would not speculate about when the SPC might make a decision on Zakum, and noted that ADNOC had not even given the oil companies a deadline for submitting improvements to their offers. Al-Suweidi added that Upper Zakum probably would be the last concession for a while, as ADNOC had no intention of offering new concessions to international oil companies in the near future. "We have a good mix of international participation here," and ADNOC probably would renew any old concessions set to expire in the coming years (i.e. a Japanese concession in 2011 and other small concessions in 2013/14). -------------- Comment -------------- ¶7. (C) Although not specifically addressed by Al-Suweidi, there are other factors that could temporarily limit the UAE's oil production. The weather and high winds sometimes prohibit full production from the offshore facilities. Regularly scheduled maintenance also can affect the production of any one field for an extended period of time. Finally, ADNOC would have to receive specific instructions from the Supreme Petroleum Council (SPC) to increase production significantly above current levels and flare gas. Al-Suweidi's recent appointment to the SPC, however, and his claim that "[all SPC members] think the same way," make us less concerned that the SPC would contradict ADNOC. Albright