MEETING WITH UAE ENERGY MINISTER

C O N F I D E N T I A L SECTION 01 OF 03 ABU DHABI 003884

SIPDIS

ENERGY FOR SENIOR ADVISOR TO THE SECRETARY MOLLY WILLIAMSON
NSC FOR CHASE HUTTO

E.O. 12958: DECL: 02/08/2014
TAGS: ECON EPET ENRG ETRD ELAB IR MU TC
SUBJECT: MEETING WITH UAE ENERGY MINISTER

REF: A. ABU DHABI 3799


B. ABU DHABI 3767

C. STATE 163206

D. STATE 156227

Classified By: CLASSIFIED BY AMBASSADOR MICHELE J. SISON
FOR REASONS 1.4 (B) AND (D).


1. (C) Summary: On September 11, Ambassador met with UAE
Energy Minister Al-Hamili to thank him for UAE and OPEC
support after Hurricane Katrina (including a $100 million UAE
donation to relief efforts) and brief him on U.S. and
international efforts to respond to the crisis. Al-Hamili
said that he thought OPEC wanted to be helpful and might
announce a production increase during its September 19
meeting. Oil producers needed to expand capacity to keep up
with projected demand increases and oil companies needed to
invest more in refineries, he emphasized. Ambassador also
noted the impact that high oil prices were having on
developing countries and urged that the UAEG take this into
consideration as it looked at its assistance levels.
Ambassador stressed USG opposition to investments in Iran's
oil and gas sector and our concern about the Crescent/Dana
project. The Minister said that he shared our concerns about
depending on Iran as a source of natural gas, but noted that
the UAE needs energy. Ambassador asked about the impact of
the August 31 increase in UAE gasoline prices. Al-Hamili
admitted that there had been a strong domestic reaction.
Al-Hamili also said that the International Energy Agency
would be debuting its 2005 Middle East North Africa Energy
Outlook in the UAE on November 20. End Summary.

Responding to Energy Supply Disruptions
--------------


2. (SBU) Ambassador and Econchief met with UAE Energy
Minister Mohammed bin Dha'en Al-Hamili on September 11 to
thank him for the UAE's support after Hurricane Katrina,
including the $100 million cash relief donation and for
OPEC's efforts to make incremental oil available to the
market. Noting that this day was also the anniversary of the
terrible attacks of September 11, Ambassador also stressed
UAEG - USG cooperation in the fight against terrorism.
Al-Hamili said that he had been watching the television
coverage of the effects of Hurricane Katrina and was
"sickened" by the destruction and suffering. He also noted
the changes in the world post September 11. He said that
Emiratis pre-September 11 had got used to quick and easy
travel to and through the U.S. Now, the additional necessary
security measures delayed everyone and made transiting
airports more difficult. Al-Hamili added that all travelers
were more nervous about the potential for terrorism.


3. (SBU) Ambassador briefed Al-Hamili on the impact of the
hurricane on U.S. oil and gas production and refining and on
the IEA's coordinated response. She discussed the USG's
efforts to further increase long-term energy security and
passed the Minister a copy of a White House Fact Sheet on the
national energy plan, signed into law August 8.

OPEC
--------------


4. (C) Al-Hamili said that OPEC wanted to help deal with the
supply disruption, adding that he thought OPEC would probably
agree to increase production at its upcoming meeting. There
had been discussions in the media by OPEC members of
increases ranging from 500,000 barrels per day to one million
barrels per day. Al-Hamili said that he hoped that reports
of production increases would calm the market, but that he
feared the move would be "cosmetic." OPEC, he noted, keeps
raising production and supply and the market is well supplied
with crude. The current problem was with refined product.
In addition, oil producers needed to increase capacity to
keep up with growing demand, particularly in China and India.
This would "take time," however.


5. (C) Al-Hamili also said that the major oil companies could
be doing more to alleviate the gasoline crisis. He said that
"everyone wants to invest upstream (in drilling),since that
is where the money is." The major oil companies, he noted,
needed to take some of their cash and invest in refining
capacity as well.


6. (SBU) The Ambassador noted that high gas prices were
hurting the developing world and urged that the UAEG consider
this factor when making decisions on its aid programs (the
UAE is a key nontraditional donor to Palestine, Jordan,
Pakistan, and several African countries). Ambassador,
referring to upcoming discussions on development at the UNGA
Summit, noted U.S.-UAE shared goals in ensuring that
assistance is effective. Al-Hamili said that he understood
the impact of high oil prices on developing countries, but
stressed that many countries, including some that could ill
afford it, subsidized the price of gasoline. He argued that
these subsidies distorted the market and cost countries
valuable revenue. He agreed with Ambassador that good
governance and transparency were key to development.

Iranian Gas and ILSA
--------------


7. (C) Ambassador, drawing on ref d talking points,
underscored USG opposition to investment in Iran's petroleum
sector. She specifically noted our concern about Crescent
Petroleum,s plans to develop the infrastructure to bring in
gas from Iran and asked the Minister to consider the
consequences of such a step. The fact that governmental
authority within the UAE would permit -- and even sanction
Sharjah Emirate participation -- was troubling. The Minister
acknowledged USG concerns about Iranian policy
(proliferation, support for terrorism and human rights),
adding that he shared concerns about depending on Iran as a
source of gas. He said that he worried that Iran would
disavow or cancel any oil or gas deal that it made with its
neighbors, if its policies changed. Security of supply was
not assured. The problem was, he said, that Iran has massive
gas reserves (the second largest in the world).


8. (C) The problem was, he explained, that the UAE needs gas,
and Iran has massive supplies of gas. The issue was
complicated by the fact that individual emirates, not the
federal government control their own hydrocarbon resources.
He acknowledged that the Federal Electricity and Water
Administration has a contract with Crescent to purchase gas
during the winter months. The contract, he noted, is for gas
from Crescent and does not specify Iranian gas. The
Ambassador countered that the infrastructure investment and
the amount of gas concerned, strongly suggests that Iran,s
Salman Reserve is the source of the gas.


9. (C) Al-Hamili explained that he did not have the details
about the Crescent Petroleum/Dana Gas arrangement, or any
infrastructure investments on the Iranian side of the border.
He noted, however, that "you know" that Sharjah's gas
supplies are decreasing and that a company would need to be
"stupid" to invest the kind of money into infrastructure on
the UAE side, without an assured supply of gas. Ambassador
urged the UAE Federal Government to delve further into the
Crescent/Dana issue, and added that she would be raising the
issue directly with the ruler of Sharjah. (Sharjah Emirate, a
partner in Sharjah gas, will be a shareholder in Dana.)

Investment and Liberalization
--------------


10. (SBU) Ambassador passed Al-Hamili a copy of the G-8
leaders' statement on global economy and oil. She noted that
the G-8 encouraged oil-producing countries to take all steps
to foster a favorable investment climate, something that the
UAE has been doing. In the context of liberalization,
Ambassador also asked about the reaction to the UAE's August
31 decision to raise gasoline prices between 28 and 31
percent to $1.83 per gallon for high octane gas and diesel
prices by 22%.


11. (C) Al Hamili noted that the recent increases still did
not cover the distribution companies' losses. Unlike some of
the UAE's neighbors, he explained, the UAE did not have
separate domestic and foreign prices. Distributors had to
pay market rates for gasoline and diesel. He added, however,
that the public response to the price increase was highly
negative and that he didn't think the government could raise
prices again. Al-Hamili said that the day after the price
increase, the Omani Minister of Economy had visited the UAE.
The Omani complained that the UAE should have coordinated its
decision with Oman, since the day after the decision, UAE
cars had flooded the town of Buraimi (across the border from
the UAE town of Al Ain) to buy cheaper gas and emptied the
stocks in two hours.

IEA to Launch MENA Energy Outlook
--------------


12. (SBU) The Minister told Ambassador that the IEA would be
launching its Middle East and North Africa 2005 Energy
Outlook in the UAE on November 20 and that the head of the
IEA had promised to come.
SISON