SCENESETTER - VISIT OF ENERGY SECRETARY BODMAN TO

S E C R E T SECTION 01 OF 04 ABU DHABI 004546

SIPDIS

ENERGY FOR SENIOR FOREIGN POLICY ADVISOR MOLLY WILLIAMSON,
SENIOR ADVISOR GETTO, AND DAS BRODMAN

E.O. 12958: DECL: 11/16/2015
TAGS: EPET ENRG ETRD AE
SUBJECT: SCENESETTER - VISIT OF ENERGY SECRETARY BODMAN TO
UAE

REF: A. ABU DHABI 4367

B. ABU DHABI 4104

C. ABU DHABI 3884

D. ABU DHABI 3580

E. ABU DHABI 3441

F. ABU DHABI 3439

Classified By: Ambassador Michele J. Sison for reasons 1.4 (B) and (D).



1. (C) We look forward to Secretary Bodman and team's
November 11 to 13 visit to the UAE. The UAE is both a key
regional security partner and a major oil producer. It holds
8 to 9 percent of the world's proven oil reserves and is the
world's fifth largest natural gas reserves. The individual
emirates, rather than the UAE federal government, control
their own hydrocarbon reserves, which mean that Abu Dhabi
emirate, which controls over 94 percent of the oil and gas
reserves, is by far the richest and most powerful of the
seven emirates. Abu Dhabi emirate also funds 56% of the
federal budget and pays for a number of expenses -- including
defense -- that would normally be funded by a federal
government. The UAE's current oil production capacity is
2.5-2.6 million barrels per day (mb/d),of which Abu Dhabi
emirate produces about 2.4 mb/d. Minister of Energy
Al-Hamili has publicly said that the UAE will increase its
oil production capacity by 200,000 barrels per day by March
2006, primarily from its onshore fields. The UAE is also the
only Gulf OPEC member that has always maintained a
partnership with international oil companies (IOCs).
ExxonMobil, BP, Total, Shell, and the Japan Oil Development
Company are all minority shareholders in one or more of the
three main upstream oil companies, with ADNOC holding the
majority share on behalf of Abu Dhabi. U.S. companies hold a
45% market share in oil and gas field equipment, spare parts
and services.


2. (SBU) We have scheduled meetings for you with UAE
President Sheikh Khalifa bin Zayed Al-Nahyan, Minister of
Energy Mohammed bin Dha'en Al-Hamili, Abu Dhabi National Oil
Company CEO Yousef Omair bin Yousef, and long-time
Presidential Advisor - Mohammed Habroush Al-Suwaidi (who
holds the rank of minister). All are members of Abu Dhabi's
Supreme Petroleum Council (SPC),which makes the key
decisions regarding Abu Dhabi Emirate's oil and gas policy.

General Themes
--------------


3. (C/Rel UAE)

-- Thank the UAE for working closely with us on supporting
Iraq (military, financial, humanitarian aid) and other
humanitarian needs world wide (i.e., $100 million for
Pakistan earthquake relief, aid to Palestinians).

-- Thank the UAE for support for oil market stability by
producing at or near sustainable capacity and supportive
public statements in context of OPEC meetings.

-- Inquire about UAE plans for short and medium term
expansion of oil production capacity and potential
constraints.

-- Express appreciation for the ongoing partnership between
IOCs and ADNOC and interest in building on that partnership,
especially for U.S. companies. (Note: ExxonMobil would
prefer that we do not carry a strong, specific advocacy
message on its behalf for the Upper Zakum bid, citing the
sensitive nature of the negotiations and the timing.)

-- Thank the UAE for their generous financial support for
Hurricane Katrina reconstruction ($100 million cash).

Update on Regional Efforts
--------------


4. (C) The UAEG is an important partner in our efforts to
bring stability to the region. The UAE pledged $215 million
assistance to Iraq during the Madrid donor's conference, and
publicly committed to forgiving most of Iraq's $3.5 billion
in debt to the UAE. In addition, the UAE has provided
extensive support for the Iraqi security forces, by training
police and military (engineering) forces and by providing
equipment to the Iraqi security forces. The UAE also
provides the U.S. military with bases in Afghanistan and in
the UAE. The Al-Dhafra air base supports the U.S. 380th air
wing, which provides reconnaissance and refueling support to
Operations Iraqi and Enduring Freedom. In addition, UAEG
special forces and support troops are in Afghanistan
supporting Operation Enduring Freedom. The UAE prefers to
keep its military cooperation with us low-key. The UAE is
also a major donor to humanitarian and reconstruction efforts
-- including a $100 million cash donation to the U.S. for
Hurricane Katrina and a further $100 million cash donation to
Pakistan for earthquake relief. The UAE is a generous aid
donor to the Palestinians and recently started a $100 million
housing project for Palestinians called Sheikh Khalifa City.
Oil Production and Expansion Plans
--------------


5. (C) The Abu Dhabi Company for Onshore Operations (ADCO) is
the operating company responsible for Abu Dhabi Emirate's
onshore production. It is 60% owned by ADNOC and 40% owned
by international oil company partners. Currently ADCO is
producing around its capacity of 1.2 mb/d and has plans to
add 100,000 barrels per day to capacity by end 2005 and
another 100,000 barrels per day by end 2006. (Note: This
pace is somewhat slower than Al-Hamili,s public claim.) we
understand ADCO is developing a plan to increase production
capacity to 1.5 - 1.6 mb/d by the end of the decade. Much of
the increase in production would need to come from ADCO's
smaller fields, which would be more expensive to exploit (ref
F).


6. (C) The Abu Dhabi Marine Operating Company (ADMA/OPCO)
operates ADMA's offshore concessions. It is also 60% ADNOC
owned and 40% owned by the international oil companies.
ADMA-OPCO currently produces approximately 500,000 to 600,000
b/d of oil and 1 bcf per day of natural gas. We understand
the company has a program to increase sustainable production
capacity 150,000 barrels per day by 2008 and was developing a
plan for increasing production capacity by another 200,000
barrels per day (from currently undeveloped fields).
ADMA/OPCO can currently produce 600,000 barrels per day --
which we understand it is doing -- but cannot sustain this
production in the long term. The program involves building a
pipeline from ADMA/OPCO's offshore facilities on Das Island
to onshore gas processing facilities. With this pipeline and
some upgrades, ADMA/OPCO should be able to produce at 600,000
barrels per day for the next 25 years (ref d).


7. (C) The Zakum Development Company (ZADCO) operates the oil
fields of Upper Zakum, Umm Al-Dalkh and Satah. ZADCO's
current oil production is 550,000 b/d, which it plans to
increase to 600,000 b/d in the next three to five years.
Currently, this company is 88% owned by ADNOC and 12% owned
by the Japanese, but ADNOC is in final negotiations with
ExxonMobil for a 28% stake in the Upper Zakum field.

Constraints on Production Increases
--------------


8. (C) Several factors limit the Abu Dhabi emirate's ability
to raise oil production capacity. It faces the same physical
and personnel constraints as other world oil producing
countries, with steel, drilling rigs, and trained engineers
in short supply. In addition, international oil company
executives note that Abu Dhabi needs to change its
"political" culture to be more aggressive in developing its
assets. Both ADNOC and the SPC have a very conservative
mindset about preserving Abu Dhabi's oil wealth for the long
term rather than immediately exploiting it. Currently
ADNOC's reservoir management policy requires fields to be
able to produce at the same rate for 25 years. It appears
that Abu Dhabi Crown Prince Sheikh Mohamed bin Zayed is
pushing ADNOC to move more quickly, but that his older
brother UAE President and SPC chair Khalifa (and some of his
key advisors) still take a more cautious approach. The
current fixed price arrangements between ADNOC and its IOC
partners act as a disincentive for the international oil
companies to aggressively develop new oil resources. In
addition, the current oil concessions expire in 2014 (ADCO)
and 2018 (ADMA/OPCO). According to at least one oil company
executive, the short remaining life of the concessions also
discourages the IOCs from making the kind of aggressive
investments that Abu Dhabi needs to dramatically increase the
production of its fields.

Critical Infrastructure Protection
--------------


9. (S) Abu Dhabi recognizes that protecting its onshore and
offshore infrastructure is critically important. Over the
past four years, the Abu Dhabi National Oil Company (ADNOC)
has commissioned risk assessment studies and taken steps to
boost the physical security of its facilities, but the
process is not complete, and the UAE's facilities --
particularly its offshore ones -- remain vulnerable to
attack. All of Abu Dhabi's exported oil goes through one of
three terminals, the offshore Das Island and Zirku facilities
and the onshore Jebel Dhana terminal. These terminals are
considered to be Abu Dhabi's most critical choke points.
Although a terrorist attack or other disruption could
temporarily shut down exports and production, ADNOC officials
maintain that the UAE would be able to continue exporting by
using its reserves. ADNOC officials maintain that their
focus on safety and preventing/minimizing the impact of major
industrial accidents has reduced the number of choke points
and may help to mitigate the impact of a terrorist attack.
UAEG officials have told us they are more concerned with the
vulnerability of water and power facilities, since their
disruption would have a more immediate impact on UAE
residents.

Major Projects
--------------


10. (C) The most significant ongoing energy projects in the
UAE are the development of Upper Zakum and the Dolphin
project to build a pipeline to bring natural gas to the UAE
from Qatar. ADNOC has entered into final negotiations with
ExxonMobil that will grant the U.S. company a 28 percent
equity stake in Upper Zakum, bringing ADNOC's share to 60
percent. ADNOC chose ExxonMobil largely because its advanced
technologies will be critical to increasing recovery rates in
the challenging field. With ExxonMobil's technical
contributions, ADNOC hopes that Upper Zakum's oil production
will gradually rise from 530,000 to 600,000 b/d in three
years to 700,000 bpd and beyond. We understand that the
remaining negotiations are about the fiscal terms of the
agreement. ExxonMobil CEO Lee Raymond met with UAE President
Khalifa on October 2 in order to allow Abu Dhabi to raise any
major outstanding issues. We understand that the Emiratis
did not raise any major issues and that the Supreme Petroleum
Council is to meet this month to make a final decision on the
Upper Zakum tender.


11. (C) The U.S. company Occidental Petroleum has a 24.5
percent stake in the 4 billion dollar Dolphin Project, which
will begin to pump natural gas from Qatar to the UAE by the
end of 2006. The UAE government has already signed 25-year
contracts to purchase 2.2 billion cubic feet per day (bcf/d)
from Dolphin Energy, and the pipeline is designed to
eventually carry 3.2 bcf/d. Occidental tells us that they
are not concerned about finding demand to meet additional
supply and that the UAE hopes eventually to buy 4 bcf/d from
the pipeline. Discussions to begin this year will likely
increase Dolphin's 2.2 bcf/d commitments. Demand for natural
gas is increasingly overwhelming because Abu Dhabi needs to
fuel its industrialization plans and Dubai is a major
consumer. The arrival of Dolphin gas will contribute to gas
re-injection for oil production and to ADNOC's plans to build
a gas network that would serve 120,000 industrial,
residential and commercial customers in the UAE.

Buying Iranian Gas
--------------


12. (C) On October 3, the UAE closed its IPO for a 34.3%
share of a new gas company, Dana Gas, which is partially
owned by Crescent Petroleum in Sharjah emirate. This company
will be purchasing Iranian gas from the Salman field. The
Iranians are building a pipeline to Crescent Petroleum's
offshore platform in the Mubarak field (shared by Sharjah and
Iran). Crescent is building the pipeline and other
infrastructure on the UAE side of the border to bring in and
utilize the gas. Ambassador, CG Dubai, and State A/S Tony
Wayne have raised USG concerns about this project with UAEG
officials and officials from Abu Dhabi, Sharjah, and Ras
Al-Khaima emirates.

Megaports
--------------


13. (U) On May 11, the Dubai Government and the USG signed a
Memorandum of Understanding to implement DOE's Megaports
Initiative at Dubai Port. DOE will supply Dubai Customs with
equipment, materials, and training for the purpose of
detecting and interdicting illicit trafficking in nuclear and
other radioactive materials. DOE plans to install 8-10
radiation portal monitors, and are looking at a 9 month to 1
year set up period. The MOU requires Dubai customs to
provide the USG with data on detections or seizures of
radioactive material made as a result of the DOE-provided
equipment. The site survey and stakeholders meetings have
taken place, and a DOE engineering survey is currently
underway in Dubai.


SISON