BAHRAINI MINISTER OF OIL AND AMBASSADOR DISCUSS

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000064

SIPDIS

STATE FOR NEA/ARPI, EB
COMMERCE FOR ITA/MAC/ONE LOUSTAUNAU AND HOFFMAN

E.O. 12958: DECL: 01/12/2015
TAGS: PREL ENRG EPET BA
SUBJECT: BAHRAINI MINISTER OF OIL AND AMBASSADOR DISCUSS
PETROLEUM SECTOR

REF: A. MANAMA 00024


B. 04 MANAMA 01422

Classified By: Ambassador William T. Monroe for reasons
1.4 (b) and (d).


1. (C) The Ambassador met with Oil Minister Shaikh Isa Bin
Ali Al Khalifa on January 11 to discuss developments in the
petroleum industry. The Minister opened the meeting by
commenting on press speculations that he will lose his job in
an impending cabinet shuffle. He asserted he would still be
Bahrain's "oil man" and dismissed reports that the Ministry
of Oil would be merged with the Ministry of Electricity and
Water.

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Abu Sa'afa Oil Field Expansion
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2. (C) Turning to the issue of oil and recent squabbles with
Saudi Arabia, the Ambassador inquired about the status of
Saudi Arabia's oil grants to Bahrain. The Minister noted
that the situation was ironic: Bahrain had invested $700
million to double production of the Abu Sa'afa field only to
receive a lower quantity of oil. (NOTE: Bahrain and Saudi
Arabia inaugurated the Abu Sa'afa oil field expansion on
December 26, 2004. Overall production increased from 150
thousand barrels per day (bpd) to 300 thousand bpd. Prior to
the expansion, Bahrain received its share of 75 thousand bpd,
Saudi Arabia's share of 75 thousand bpd, and an additional
grant against Bahrain's reserves of 50 thousand bpd for a
total of 200 thousand bpd. According to King Hamad (ref A),
although Bahrain invested $700 million in the expansion, it
is now receiving only its share of Abu Sa'afa production --
150 thousand bpd. Saudi Arabia is not granting Bahrain any
of its share of Abu Sa'afa and Saudi Arabia suspended the
grant of 50 thousand bpd in July 2004. END NOTE). The
Minister said higher international oil prices would help
offset the lower quantity Bahrain receives. He also told the
Ambassador that despite the disappointment, Saudi Arabia is
always very supportive and close to Bahrain.

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Natural Gas
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3. (C) The Ambassador asked for an update on the project to
run a natural gas pipeline from Qatar to Bahrain and on to
Kuwait. The Minister said that in principle Qatar is ready
to go and he recently signed an agreement of intent with the
GOQ on the project. However, Qatar appears to be in no rush
to work out pricing, and Saudi Arabia has still not approved
the Bahrain-to-Kuwait portion of the pipeline, which would
traverse Saudi territorial waters. The Ambassador asked when
Bahrain will have a gas shortage problem. The Minister
responded by saying, "now." He said the GOB already had to
cancel the deal between U.S.-firm ALCOA and Bahrain's
aluminum manufacturer (ALBA) to develop a sixth production
line because of a lack of gas. The Minister said the Crown
Prince is heading a committee to discuss the gas shortage.
The Ambassador asked what was stopping Qatar from proceeding
with the pipeline to Bahrain. The Minister responded by
saying, "In this part of the world there is a lot of kissing
and shaking of hands, but at the end no results."


4. (C) The Minister mentioned that Iran had offered Bahrain
gas from its offshore fields, but minimized the importance of
its offer, noting that unlike the proposed Qatar deal, Iran
had not yet developed the field from which the gas would
come. The Ambassador reaffirmed that the United States would
oppose such a deal with Iran.

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Upcoming Projects
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5. (C) Three projects with possible U.S. content were
discussed. First on the list was a $160 million
desulferization project. The Minister told the Ambassador
that at an Oil Council meeting on January 10, the GOB invited
five American companies, BP, and a Korean firm to compete for
the project. He did not say who the American companies are.
The Minister said the Bahrain Petroleum Company (BAPCO) will
soon start a $440 million project to upgrade its refinery.
In regard to the $1.4 billion naptha cracker project (ref B),
the Minister said BAPCO is reviewing the proposals. He
stated that to be a viable joint-venture project, BAPCO must
retain at least a 30 percent share, but some companies wanted
a greater portion of the profits. He did not comment on the
status of any American company bids.

MONROE