EB ASSISTANT SECRETARY WAYNE MEETS WITH UAE ENERGY

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000634

SIPDIS

E.O. 12958: DECL: 02/12/2014
TAGS: EPET ENRG ECON IR TC
SUBJECT: EB ASSISTANT SECRETARY WAYNE MEETS WITH UAE ENERGY
MINISTER

REF: DUBAI 265

Classified By: Ambassador Michele Sison for reasons 1.4 (b) and (d)


1. (C) Summary: UAE Energy Minister Al-Hamili told visiting
A/S Wayne that the UAE would be adding 200,000 barrels of
production capacity in 2005. He explained that the UAE
decision to buy gas from Qatar was one of price. In response
to A/S Wayne's questions about reported Iranian-UAE gas
purchase deals, Al-Hamili explained that the UAEG had a
contract with Crescent to purchase Sharjah gas. However,
given the shared nature of the offshore Mubarak field and
Crescent's concession, he didn't know whether Crescent was
actually selling it any Iranian gas. End Summary.


2. (C) Assistant Secretary for Economic and Business Affairs
Tony Wayne met with UAE Energy Minister Mohammed bin Dha'en
Al-Hamili on February 7. Ambassador and Econchief
(notetaker) attended the meeting.

OPEC and Oil Supplies
--------------


3. (SBU) A/S Wayne thanked Al-Hamili for the UAE's efforts to
keep oil markets well supplied over the last year. Al-Hamili
explained that the UAE (and OPEC) wanted to assure the market
that it would continue to supply oil and would make up for
any disruptions. He noted that prices were "not entirely"
under OPEC control, citing geopolitics and speculation as
contributing factors. He added that OPEC was concerned about
stock build-ups in the second quarter of the year, but
believed that it was premature to cut the quota.


4. (SBU) Al-Hamili noted that outgoing Secretary of Energy
Spencer Abraham had called him to thank him for the UAE's
positive steps during the last OPEC meeting. A/S Wayne said
that incoming Energy Secretary Bodman would undoubtedly also
like to meet with and talk to Al-Hamili.


5. (SBU) A/S Wayne agreed that uncertainty negatively
affected the energy market, noting that it was difficult to
determine exactly how big a role speculation played. For
that reason, he stressed it was important for experts from
both producer and consumer countries to talk to understand
how each calculated their supply and demand equations.
Al-Hamili said that the IEA was constantly in contact with
OPEC and he thought that the IEA appreciated OPEC's efforts.
He agreed that it was important to establish a
producer-consumer dialogue. He noted that "paper barrels"
(i.e., futures and options) traded were four times actual
physical barrels being traded.

Capacity Building
--------------


6. (C) Noting that demand had risen close to capacity, A/S
Wayne asked Al-Hamili for the UAE's expansion plans.
Al-Hamili said that the UAE planned to increase its spare
capacity. He noted that the UAE always had some spare
sustainable capacity, but that recent events had cut into it.
Al-Hamili noted that the UAE could produce an additional
200,000 barrels per day above its sustainable capacity (2.5
mb/d) if it flared gas, but that Abu Dhabi government policy
prohibited ADNOC from flaring gas. He added that the UAE
would be adding 200,000 barrels of capacity in 2005. He
noted, however, that it was expensive to add spare capacity,
and that the UAE's foreign equity partners wanted to see the
capacity utilized and get a return on their investment. He
added that the UAE shared this view. Noting that consuming
countries were calling for alternative energy and increased
conservation, he asked rhetorically what producers would do
with their spare capacity.


7. (C) A/S Wayne asked about UAE plans to expand natural gas
production. Al-Hamili explained that UAE natural gas was
high in sulfur and the UAE needed to invest in
desulphurization units. The UAE uses its natural gas for
injection and as a feed stock for power generation and
desalinization. Al-Hamili said that the Ministry of Energy
was currently using a mixture of gas and diesel for power
generation and the Emirate of Abu Dhabi was currently
subsidizing the diesel feed stock costs for federal power
generation by one billion dirhams. He added that buying gas
from abroad was a question of economics. If foreign gas
(i.e., Qatar) was cheaper, it allowed the UAE to use its own
gas for reservoir management. He pointed to Iraq as an
example of poor reservoir management. He opined that the
quality of Iraqi crude was worse than it was 20 years
previously, because the Iraqis had not invested in it.
(Note: The majority Abu Dhabi owned Dolphin project is a $3.5
billion project to bring in gas via pipeline from Qatar.)


8. (C) In response to A/S Wayne's question about Abu Dhabi's
plans to tender a 28% stake in the Upper Zakkum field,
Al-Hamili said that he thought the process would be coming to
a close. He noted that the field was complex and that Abu
Dhabi was less concerned with revenues than it was with
technology and technology transfer. He said that the field
currently produced at 550,000 barrels per day and he thought
it could go to 1 mb/d without exhausting the field.

Iranian Gas
--------------


9. (C) A/S Wayne asked Al-Hamili about Crescent Petroleum's
reported deal to purchase Iranian gas. Al-Hamili
acknowledged that his predecessor had signed a contract with
Crescent Petroleum in the Emirate of Sharjah for the Federal
Electricity and Water Administration (FEWA) to purchase gas
from Crescent out of the offshore Mubarak field. He stressed
that the UAEG did not have a contract with Iran to purchase
gas. The problem, he explained was that the Mubarak field,
which lies near the Iranian-controlled, and UAE claimed,
island of Abu Musa, is shared by Iran and Sharjah. FEWA had
signed a contract for gas from Sharjah, but Crescent's
concession crosses into Iran. (Note: Each emirate in the UAE
controls its own oil and gas resources. End Note.)
Al-Hamili said that he saw Crescent's gas as a short term
solution and the Dolphin project as the longer run solution.


10. (C) Al Hamili said that the Iranians did not have any
large fields near Abu Musa. Most of their gas was further
north. He explained that he had talked to a Total
representative about Iran, who had told him that Iran was
using its gas domestically. It had shortages over the
winter, when it needed gas for heating but a surplus in the
summer.

This cable has been cleared by Assistant Secretary Wayne.
SISON