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