Identifier
Created
Classification
Origin
06ABUDHABI4326
2006-11-22 07:05:00
CONFIDENTIAL
Embassy Abu Dhabi
Cable title:  

UAE OFFICIALS DISCUSS OIL AND GAS EXPANSION PLANS WITH EIA

Tags:  ECON EPET ENRG AE 
pdf how-to read a cable
VZCZCXRO6023
PP RUEHDE
DE RUEHAD #4326/01 3260705
ZNY CCCCC ZZH
P 220705Z NOV 06
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 7724
INFO RUEHDE/AMCONSUL DUBAI 6649
RHEBAAA/DEPT OF ENERGY WASHDC
RHEHNSC/NSC WASHDC
RUEHHH/OPEC COLLECTIVE
RHEHAAA/WHITE HOUSE WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 004326 

SIPDIS

SIPDIS

ENERGY FOR MOLLY WILLIAMSON AND GUY CARUSO
NSC FOR HUTTO
WhiteHouse for OVP KEVIN O'DONOVAN

E.O. 12958: DECL 06/21/2016
TAGS: ECON EPET ENRG AE
SUBJECT: UAE OFFICIALS DISCUSS OIL AND GAS EXPANSION PLANS WITH EIA
ADMINISTRATOR CARUSO


ABU DHABI 00004326 001.2 OF 002


(U) Classified by Ambassador Michele J. Sison for reasons 1.4 (B) and
(D).

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 004326

SIPDIS

SIPDIS

ENERGY FOR MOLLY WILLIAMSON AND GUY CARUSO
NSC FOR HUTTO
WhiteHouse for OVP KEVIN O'DONOVAN

E.O. 12958: DECL 06/21/2016
TAGS: ECON EPET ENRG AE
SUBJECT: UAE OFFICIALS DISCUSS OIL AND GAS EXPANSION PLANS WITH EIA
ADMINISTRATOR CARUSO


ABU DHABI 00004326 001.2 OF 002


(U) Classified by Ambassador Michele J. Sison for reasons 1.4 (B) and
(D).


1. (C) Summary: UAE Minister of Energy Al-Hamili told the 12th Annual
ECSSR Energy Conference that the UAE would increase its oil
production capacity to 2.7 mb/d in 2006. He told EIA Administrator
Guy Caruso that he did not know what OPEC would decide about oil
production during its December meeting. ADNOC CEO Yousef Omair bin
Yousef told Caruso that he thought that OPEC would not vote for
further production cuts in December as long as prices stabilized.
Al-Hamili also noted that ADNOC had higher ultimate recovery rates
(averaging 40%) than other oil companies in the region, due to its
conservative reservoir management practices. Both Al-Hamili and bin
Yousef noted that ADNOC valued its foreign partners for the advanced
technology that they brought to the table. End Summary.


2. (U) The 12th Annual Energy Conference of the Emirates Center for
Strategic Studies and Research (ECSSR),entitled China, India, and
the United States: Competition for energy Resources and the
simultaneous visit of EIA Administrator Guy Caruso, provided Embassy
with an opportunity to receive a broad overview of upcoming UAE
energy plans and concerns. During his visit, Caruso met with UAE
Minister of Energy Mohamed bin Dha'en Al-Hamili and ADNOC CEO Yousef
Omair bin Yousef to discuss energy issues.

The UAE's Oil Production Plans
--------------


3. (U) During the conference and in subsequent meetings, UAE
officials discussed ADNOC's plans to increase oil production
capacity. Al-Hamili gave the keynote address to the audience and
made papers with his comments that the UAE would increase oil
production to 2.7 million barrels per day (mb/d) by end 2006 and 3.5
mb/d by the "end of next year." He also noted that the UAE had
invested "tens of billions" of dollars in increasing oil and gas
production capacity. ADNOC's manager for marketing and refining told

the audience that ADNOC was currently producing 2.7 mb/d (including
condensates) and planned to increase production to 4 mb/d by 2015. He
added that ADNOC had invested over $7 billion in the last two years
in efforts to increase production, and was working closely with its
international oil company (IOC) _partners.


4. (SBU) Bin Yousef told Caruso and Ambassador that ADNOC continued
to expand its production capacity. The UAE saw a clear growth in
global demand and wanted to try and meet that demand. Bin Yousef
said that ADNOC's plan was to increase production to 3.5 mb/d and
then to 4 mb/d, "depending on the time horizon." Whether the UAE
could ultimately produce more than 4 mb/d was difficult to predict,
he said. It would depend on whether that production would be
economically sound.


5. (C) Both Al-Hamili and bin Yousef noted that the UAE's partnership
with IOCs gave it access to advanced technology and techniques.
Al-Hamili said that the UAE's ultimate rate of recovery of oil
reserves averaged around 40% although it varied from field to field.
He said that he thought this was high compared to other countries in
the Middle East. Al-Hamili noted that ADNOC had partnered with
ExxonMobil on further developing the Upper Zakum field to take
advantage of Exxon's advanced technology.


6. (SBU) Both Al-Hamili and bin Yousef commented on the high costs of
capital investments. Bin Yousef noted that it was difficult for
ADNOC to get qualified bidders for exploration and production
contracts. He added that he had heard that the cost increases over
the past 4-5 years had been on the range of 70%. Al-Hamili argued
that producers would be reluctant to invest in increasing capacity if
they were unsure whether their would be customers. He praised the
various producer-consumer dialogues for increasing transparency.
Al-Hamili also said that, although everyone supported improving
energy efficiency, he didn't want to see oil discriminated against by
other energy resources (such as coal).

Natural Gas Production - the UAE needs Gas
--------------


7. (U) The manager for refining and marketing told the ECSSR audience
that Abu Dhabi had the fifth largest reserves of gas in the world and
was determined to play a bigger role in the global gas market. He
said that ADNOC was investing approximately one billion dollars per
year from 2003 to 2007 in increasing gas production.


8. (SBU) Al-Hamili told Caruso and Ambassador that the UAE was
looking seriously at developing its gas reserves, since supply was
not keeping up with demand. He noted that development in the UAE

ABU DHABI 00004326 002.2 OF 002


rather than taking into account any possible limitations in energy
supplies proceeded under the assumption that the gas would be
available. He commented that ADNOC would need to seek out the best
available technology to develop its gas reserves, because the gas was
sour (high in sulfur) and the fields were deep. Bin Yousef noted
that the UAE did not plan to expand its 25 year old natural gas plant
because it needed to meet increasing domestic demand. He said that
ADNOC was in the process of completing a pipeline from its offshore
gas facilities to its onshore facilities, and would then be able to
use its offshore gas reserves to meet domestic demand (including for
reservoir management, domestic energy needs and petrochemicals).


9. (SBU) Both Al-Hamili and bin Yousef discussed the future
development of a global market for LNG with Caruso. Both commented
that the UAE had been one of the first countries in the region to
export LNG (to Japan). The first contracts had been for 20 years and
were subsequently renewed for an additional 20 years. Al-Hamili said
that gas, unlike oil, was still traded primarily via long term
contracts, although he was noticing that newer contract lengths were
getting shorter


10. (SBU) Al Hamili explained that the UAE's power generation system
was built to meet the summer's anticipated maximum demand. In the
winter it only operated at about 30% of capacity. He said that the
UAE was in the process of creating a national electricity grid. He
added that in the future the GCC would connect a GCC-wide grid. This
could eventually be connected to the electricity grids of various
countries and the GCC could eventually sell power to Egypt or other
countries in the region. He noted that the European energy market
worked like this, with companies bidding for inexpensive power.


OPEC Decisions on Production
--------------


11. (SBU) Al-Hamili told the ECSSR audience, that the UAE sought to
stabilize oil markets and defend the interests of oil producers when
oil prices fall to unacceptable levels. HE also stressed, however,
that "The UAE also seeks to preserve the interests of oil consumers
by avoiding unacceptably high oil prices, which might have a damaging
effect on world demand." He added that the UAE had always abided by
OPEC decisions aimed at stabilizing the markets and was one of the
"first member states to cut its production" after OPEC decided to
lower its production ceiling as of November 1. He later told Caruso
that he had told reporters that he did not know what OPEC would
decide in its upcoming December meeting in Abuja. Yousef Omair
separately said that he did not expect further OPEC cuts in December
as long as the market stabilized.

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


12. (C) Al-Hamili's remarks on planned UAE oil production are much
more ambitious than the UAE is going to be able to meet. ADNOC
Deputy CEO Abdulla Nasser Al-Suwaidi (protect) told econchief on
November 21, that Al-Hamili must "have included a lot of liquids" in
his estimates. He added that ADNOC would not reach 3.5 mb/d by the
end of 2007. He noted that people want to build excitement in their
speeches, but need to build the excitement on achievable objectives.
Given that Al-Hamili is usually well informed about oil issues, we
suspect that his remarks were changed in the editing process and no
one caught it. A conversation with Energy Ministry Economic Director
Hamdan Al-Akbari tends to confirm this view. He noted that in the
original Arabic version of the speech that he had seen, the comment
was that the UAE would increase production to 3.5 mb/d "in the coming
years." The English language transcript and Arabic and English
language papers reported it as "by the end of next year." End
Comment.


13. (U) Administrator Caruso and party did not have time to review
this message prior to departure.

Sison