UAE ENERGY MINISTER ON OPEC AND OIL PRODUCTION

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001922 SIPDIS SIPDIS DEPARTMENT FOR NEA/ARP, EEB/ESC/IEC/EPC NSC FOR HUTTO ENERGY FOR SENIOR POLICY ADVISOR WILLIAMSON E.O. 12958: DECL: 11/26/2017 TAGS: EPET ENRG ECON AE SUBJECT: UAE ENERGY MINISTER ON OPEC AND OIL PRODUCTION REF: A. ABU DHABI 539 ¶B. 06 ABU DHABI 4325 ABU DHABI 00001922 001.2 OF 002 Classified By: Ambassador Michele J. Sison for reasons 1.4 (b & d). ¶1. (C) Summary: Ambassador, accompanied by Econchief, met with UAE Energy Minister Mohammed bin Dha'en Al-Hamili on November 25. Al-Hamili argued that OPEC was not setting prices and that there was a USD 15-20 per barrel "political" premium on oil prices. He stated that price volatility complicated investment decisions, but that the UAE would be continuing its investments. In regard to the shut down of some of Abu Dhabi's offshore production for required maintenance, he stated that contractually, Abu Dhabi National Oil Company (ADNOC) met its commitments to its customers either by providing more oil in advance of the maintenance or -- if necessary -- afterwards. According to an Abu Dhabi Marine Operating Company (ADMA/OPCO) engineer, the Abu Dhabi Gas Liquefaction Ltd. (ADGAS) had shut down one of its LNG trains on Das Island for maintenance. ADMA/OPCO had used this shut down to de-bottleneck its own facilities, raising sustainable production capacity from 550,000 barrels per day to between 600,000 and 625,000 barrels per day (if new wells are drilled). End Summary. OPEC and Oil Prices -------------- ¶2. (SBU) Ambassador and Al-Hamili discussed the Riyadh OPEC summit and the scheduled December 5 OPEC extraordinary meeting in Abu Dhabi. Al-Hamili said he was extremely busy in his last month as OPEC president. He said he would be heading to Singapore on November 26 for a conference, returning on November 29th, leaving for a meeting in Doha on the 30th, then returning to host the OPEC meeting on December 4th and 5th. He noted that he was glad to be turning the reigns of the presidency over to Algeria. In response to Ambassador's question about the OPEC commitment to renewable energy, Al-Hamili stated that investment was good, but there was "a long way to go" before renewables replaced fossil fuels as a major power source. (Note: During the Riyadh OPEC summit, UAE President Sheikh Khalifa bin Zayed Al-Nahyan reiterated the UAE's commitment to supplying oil to the international markets and his commitment to developing clean, safe, and cheap alternative sources of energy. President Khalifa also pledged USD 150 million for scientific research in the fields of energy, environment, and climate change. End Note.) ¶3. (C) With regard to the current high prices, Al-Hamili reiterated his contention that the fundamentals were largely in balance, noting that refineries were not producing at full capacity and global stocks were "comfortable." With regard to prices, he stated OPEC does not set prices, adding he had heard that there was a "geopolitical" premium of USD 15-20 per barrel. What concerned him, he added, was price volatility. It made it difficult to make investment plans. Since volatility in crude prices contributed to volatility in petroleum product prices, it was difficult for investors to know whether to move forward on investments in refineries, for example. He added that the UAE did not make its investment decisions on the basis of USD 100 per barrel of oil, but -- in any case -- was continuing to invest. ADNOC Maintenance and Production Cuts -------------- ¶4. (SBU) Ambassador and Al-Hamili briefly discussed scheduled maintenance, which had reportedly shut down around 600,000 barrels per day of production for between two and three weeks in November in Abu Dhabi's offshore fields. Al-Hamili stated that he did not have all of the details on the maintenance program, adding that it was sometimes easier to shut down production to perform maintenance rather than to try and perform maintenance while the system was operating. In any case, Al-Hamili asserted, scheduled maintenance was calculated into contractual arrangements with customers. If ADNOC promised X barrels per day to its customers over a year, it would make up the shortage resulting from scheduled maintenance by providing extra oil either before or after the maintenance, preferably before. The market panic did not reflect any overall shortage in supply. (Note: Al-Hamili's remarks track with those of Exxon Al-Khaleej President Frank Kemnetz, who had earlier told Econchief that ADNOC would average out supplies to make sure that it met its commitments. End Comment. ABU DHABI 00001922 002.2 OF 002 ¶5. (C) An ADMA/OPCO engineer told Econchief that the shut down was due to required ADGAS maintenance on its Das Island LNG plant. (Note: ADGAS processes the associated gas from Abu Dhabi's offshore oil production. End Note.) ADGAS had to shut down one of its three LNG trains, which affected production for both ADMA/OPCO and Zadco (ADMA/OPCO's sustainable capacity was about 550,000 barrels per day, he noted.) ADMA/OPCO used the opportunity to de-bottleneck its facilities raising its sustainable capacity to around 600,000 to 625,000 barrels per day. He cautioned, however, that bringing this additional capacity on board would require additional well drilling. The long-term goal would be to increase production capacity to around one million barrels per day (700,000 from existing fields and 300,000 from new fields). ADNOC Deputy CEO Abdulla Nasser Al-Suwaidi told Econchief in November 2006, that ADNOC's goal was to increase production capacity for ADMA/OPCO to one million barrels per day by around 2014 (ref b). SISON