Identifier
Created
Classification
Origin
06ABUDHABI3026
2006-07-25 14:06:00
CONFIDENTIAL
Embassy Abu Dhabi
Cable title:  

ADNOC'S SOUR GAS DEVELOPMENT PLANS

Tags:  EPET ENRG EINV PINR AE 
pdf how-to read a cable
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FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 6295
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHDE/AMCONSUL DUBAI 6314
RHEHAAA/WHITE HOUSE WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003026 

SIPDIS

SIPDIS

DEPARTMENT FOR NEA/ARP, EB/ESC/IEC/EPC
NSC FOR HUTTO
ENERGY FOR WILLIAMSON, GETTO AND BRODMAN
OVP FOR KEVIN O'DONOVAN

E.O. 12958: DECL: 07/25/2016
TAGS: EPET ENRG EINV PINR AE
SUBJECT: ADNOC'S SOUR GAS DEVELOPMENT PLANS

REF: A. ABU DHABI 1219


B. ABU DHABI 470

ABU DHABI 00003026 001.2 OF 002


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


This cable contains business proprietary information.

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003026

SIPDIS

SIPDIS

DEPARTMENT FOR NEA/ARP, EB/ESC/IEC/EPC
NSC FOR HUTTO
ENERGY FOR WILLIAMSON, GETTO AND BRODMAN
OVP FOR KEVIN O'DONOVAN

E.O. 12958: DECL: 07/25/2016
TAGS: EPET ENRG EINV PINR AE
SUBJECT: ADNOC'S SOUR GAS DEVELOPMENT PLANS

REF: A. ABU DHABI 1219


B. ABU DHABI 470

ABU DHABI 00003026 001.2 OF 002


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


This cable contains business proprietary information.


1. (C) Summary: Exxon Al-Khalij president Frank Kemnetz
(protect) briefed Ambassador and Econchief on developments in
Abu Dhabi's oil and gas sector including its proposal to
develop its onshore non-associated gas fields near the Shah
and Bab fields. Exxon and Occidental Petroleum are two of
the companies that have been invited to express interest in
this project. Kemnetz confirmed that Abu Dhabi's onshore
production capacity had increased to 1.4 million barrels per
day and that he did not expect any more large increases
onshore before 2009/10. He said that he thought Upper Zakum
was on track to increase its production to 750,000 barrels
per day in the medium to long term. End Summary.

ADNOC's Sour Gas Project
--------------


2. (C) Kemnetz told Ambassador that ADNOC was planning to
issue a significant tender later in 2006 to develop its
on-shore non-associated gas reserves near the Bab and Shah
oil fields. (Note: The Shah field is near the Saudi border.
End Note.) According to Kemnetz, ADNOC has invited
expressions of interest from a number of companies, including
ExxonMobil. He added that he had heard that ADNOC had
extended the invitation to some Asian (i.e., Chinese)
companies and expressed concerns that some of invitees did
not have the expertise to handle Abu Dhabi's sour gas.
(Note: In an earlier conversation with Econchief, Oxy of Abu
Dhabi GM David Scott (protect) said that Oxy had also been
invited to express its interest and noted that ADNOC had
invited "more than the usual players." Kemnetz's comments
appear to confirm this. End Note.)


3. (C) Kemnetz explained that Abu Dhabi's gas is highly sour
(containing large concentrations of Hydrogen Sulfide) and

under high pressure. He stressed that developing these
non-associated gas fields would require significant technical
expertise. He expressed his concern that ADNOC did not have
the technical expertise to effectively evaluate the
competence of all of the potential bidders, especially given
the ambitious time frames contemplated. He also said that as
this contract moved to tender he worried that there would be
political pressure brought to bear on ADNOC on who could
actually bid.


4. (C) Kemnetz acknowledged Abu Dhabi's massive need for gas.
He added, however, that the plans appeared very ambitious,
given the relative lack of knowledge about the non-associated
gas fields. In addition, he noted that there were other
economic factors to consider (i.e. what to do with the sulfur
and the Carbon Dioxide byproducts). He noted that there was
already more sulfur production worldwide than the market
demanded, so ADNOC might decide dispose of the Hydrogen
Sulfide via deep injection, which presented its own technical
challenges.

Oil Field Development
--------------


5. (C) Kemnetz briefly discussed ADNOC's plans to increase
oil production capacity. He noted that the Abu Dhabi Company
for Onshore Operations (ADCO) had added capacity in 2005/06,
bringing its production capacity to 1.4 million barrels per
day, confirming what ADNOC Deputy CEO had told us earlier
this year. (Ref b). He said that he did not expect any
further large increases in production capacity before the
2009-2100 time frame. Kemnetz briefly discussed Exxon's plan
to increase production at the Upper Zakum oil field. (Ref A).
He said that he expected to be able to increase the
production to 750,000 barrels per day, but that it would take
time (i.e., beyond the 2010 timeframe). He stressed that
Upper Zakum could relatively rapidly increase production by
20-25 thousand barrels per day using existing facilities, but
that new facilities would be needed to be build to go beyond
that.

ABU DHABI 00003026 002.2 OF 002




6. (C) In response to a question from econchief, Kemnetz
confirmed that ADNOC's major onshore fields and Upper Zakum
were at "pretty low depletion rates" despite the fact that
they had been produced for many years. He commented that the
major impediment to Abu Dhabi's increasing oil production was
political, with Abu Dhabi committed to sustaining oil
production for the long term. ADNOC was happy to increase
production as long as it did not speed up reservoir
depletion. It was developing some of its remoter (more
expensive and difficult) fields rather than increasing
production at its existing giant field. Kemnetz noted that
this was a problem that appeared to affect all of the Arab
members of OPEC. He noted that, even in Upper Zakum, which
had extremely low depletion rates at current production
(around 520 thousand barrels per day); there was some
pressure to focus on the more difficult areas of the field
rather than to focus on the easy areas first.

Emirate of Fujairah Refinery and Oil Terminal
--------------


7. (C) Kemnetz briefly discussed the UAE's plans to build an
oil refinery in the Emirate of Fujairah and a possible
pipeline from Abu Dhabi to Fujairah as a way to avoid the
bottleneck in the straits of Hormuz. Kemnetz noted that he
was not sure whether a new greenfield refinery and pipeline
made commercial sense, and that the UAE likely had a broader
political strategic motivation. He noted that building a
pipeline solely out of fear that someone might shut down the
straits was not the most logical response and that it should
be possible to develop contingency planning for keeping the
straits open or reopening them quickly. Kemnetz also
acknowledged that Abu Dhabi might have a broader goal of
fostering economic development in the northern emirates.

ADNOC CEO - Khalifa's Man, Not MbZ's
--------------


8. (C) Kemnetz briefly discussed the rumors about pressures
on ADNOC CEO Yousef Omair bin Yousef. He said that he took
occasional rumors of bin Yousef's departure with a "grain of
salt" since he was UAE President Sheikh Khalifa bin Zayed
Al-Nahyan's trusted person. Kemnetz said that it was clear
that Khalifa wanted a person in charge of ADNOC that he
trusted. He speculated, however, that Abu Dhabi Crown Prince
Sheikh Mohammed bin Zayed Al-Nahyan's (MbZ) people were
criticizing bin Yousef. It was clear that ADNOC had not done
a good job forecasting gas demand and bin Yousef made a good
scapegoat. He said that MbZ would not be happy hearing that
a project needed to be delayed because the power was not
there. That said, he noted that he was struck by the way in
which President Khalifa had maintained his control over the
financial levers of power in Abu Dhabi (ADNOC, ADIA, and the
Abu Dhabi Department of Finance). He further speculated that
some of the otherwise unexplainable shifts in ADNOC's
decisions reflected Khalifa saying one thing and MbZ saying
another.

Comment
--------------


9. (C) The UAE's projected energy needs are immense as
development plans (especially in Abu Dhabi and Dubai) take
place. Because oil and gas belong to the individual
emirates, there is no unified development plan. There are at
least two U.S. firms interested in this project and we expect
increasing interest as it moves forward. End Comment.
SISON