SUSTAINING ENERGY DIALOGE - UAE

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
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