DOE WILLIAMSON ENERGY DISCUSSIONS IN UAE

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
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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
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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
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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
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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
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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