UPDATE ON ABU DHABI'S ENERGY PLANS

S E C R E T SECTION 01 OF 03 ABU DHABI 000539 SIPDIS SIPDIS ENERGY FOR PERSON E.O. 12958: DECL: 04/01/2017 TAGS: EPE ENRG ECON IR AE SUBJECT: UPDATE ON ABU DHABI'S ENERGY PLANS REF: A. ABU DHABI 490 ¶B. ABU DHABI 474 ¶C. 06 ABU DHABI 4325 ABU DHABI 00000539 001.2 OF 003 Classified By: Ambassador Michele J. Sison for reasons 1.4 (B) and (D). ¶1. (U) This message contains business proprietary information. ¶2. (C) Summary: Abu Dhabi's near term focus will be to develop its gas reserves, both through its sour gas project and a pipeline to bring offshore gas onshore. The goal would be to double the current billion cubic feet per day that ADNOC provides to the Abu Dhabi Water and Electricity Authority (ADWEA) by around 2011. The current plan is also to add around one million barrels per day of oil production by 2014/2015. Abu Dhabi's International Petroleum Investment Company will be building a pipeline capable of carrying 1.5 million barrels per day from Abu Dhabi to Fujairah (on the Indian Ocean) which would bypass the Straits of Hormuz. The proposed 500,000 barrel per day refinery that IPIC is in discussions with U.S. firm Conoco Phillips over is still in the study phase as projected costs have skyrocketed. End Summary. Abu Dhabi Focusing on Gas -------------- ¶3. (C) On March 27, ADNOC Deputy CEO Abdullah Nasser Al-Suwaidi (protect) told Econchief that ADNOC's near term focus would be on developing Abu Dhabi's gas reserves. ADNOC would look to doubling the one billion cubic feet per day of gas it provides to the Abu Dhabi Water and Electricity Authority by around 2011. Al-Suwaidi stated that Abu Dhabi would prefer to develop its own reserves rather than depending on imports. He said that he had heard that the Iranians were now demanding $5 per-thousand cubic foot from Dana Gas (in the Emirate of Sharjah) up from the $1 previously agreed on. (Comment: Embassy and Consulate General have raised both policy and legal concerns about the proposed Dana Gas-Iran gas deal for several years. The UAE infrastructure is ready, but the Iranians have refused to supply the gas arguing that the price is not high enough. End Comment.) ¶4. (C) Al-Suwaidi briefly discussed the Dolphin Project, whereby the UAE would buy natural gas from Qatar. The pipeline recently began operations in a limited way, with Dubai purchasing 400 million cubic feet per day of "early gas" from Qatar Petroleum (at a price of $4 per thousand cubic foot). According to Al-Suwaidi, ADNOC manages the onshore pipeline to Dubai and also started blending in 600 million cubic feet per day of its own gas, which Dubai is buying at "commercial rates." ADNOC will supply this gas until June. Once the Dolphin project is fully operational, Dolphin Gas from Qatar will flow through Abu Dhabi to Dubai, with no ADNOC gas blended in to it. ¶5. (C) Al-Suwaidi acknowledged the growing power demand facing Abu Dhabi. He added that ADNOC could not meet ADWEA's increased gas needs this summer. In the short run, the plants could burn liquids (although he noted that this was not a preferred solution). In an emergency, ADNOC could cut gas reinjection and divert the gas to other uses. In the short to medium term, ADNOC has two projects to increase gas production in Abu Dhabi by around 2011. ADNOC has put out for tender a sour gas development project (ref a). In addition, the Abu Dhabi Marine Operating Company has let a contract for a pipeline and associated facilities from Das Island to the Abu Dhabi mainland to bring in gas from the Umm Shaef field (hopefully around 500 million cubic feet per day) by 2011. The pipeline itself should be ready by around 2009, which should increase sustainable oil production at ADMA/OPCO to 600,000 barrels per day by 2010 (as gas handling improves). ¶6. (C) Al-Suwaidi reiterated his earlier comments that the next large increase in oil production should come on line in the 2014-2015 timeframe (ref c). He projected that ADNOC would increase onshore production by around 400,000 barrels per day and offshore about 600,000 barrels per day. Critical Energy Infrastructure Protection -------------- ¶7. (S) Al-Suwaidi and Econchief briefly discussed the UAE's efforts to protect its critical energy infrastructure. ABU DHABI 00000539 002.2 OF 003 Econchief noted that the USG would be interested in working with the UAE to protect energy infrastructure. Al-Suwaidi noted that ADNOC was coordinating with the government on CEIP and that he had met with the Commander of the Critical National Infrastructure Force, Sheikh Ahmed bin Tahnoun Al-Nahyan. He explained that ADNOC had provided some safety training for troops on the force and engaged in discussions about security. He noted, wryly, that "they" wanted ADNOC to provide everything, including food and housing. Al-Suwaidi also noted that a U.S. consulting company, Good Harbor, was working on CEIP. (Note: ADNOC Security Team Leader Martin Fuller (protect) had previously noted that he had been instructed to sign a large contract with Good Harbor. The Chairman of Good Harbor is Richard Clarke, former Special Assistant to the President for Global Affairs). End Note.) ¶8. (S) Al-Suwaidi said that he was much more worried about an attack on the UAE's power and water facilities than on the oil infrastructure. A successful attack on a major facility could cause problems and cut exports, but would be repairable. However, a successful attack on the power and water infrastructure, and "it gets dark," people can't keep their food fresh, water supplies shut off. The potential near term impact on the UAE would be much greater. Pipeline to Fujairah on -- Refinery under Discussion -------------- -------------- ¶9. (SBU) On March 28, the UAE press announced that the International Petroleum Investment Company (IPIC) awarded the project management consultancy services contract for the Abu Dhabi Crude Oil Pipeline project to ILF Consulting Engineers. The project involves the construction of a 360 kilometer (48 inch diameter) pipeline and associated facilities from Habshan in the Emirate of Abu Dhabi to Fujairah. The pipeline will have a capacity of carrying 1.5 million barrels per day (mb/d) and will include storage and terminal facilities for crude export. Khadem Al-Qubaisi, Division Manager for IPIC's Investment Management Division, told Econchief that IPIC would also be working with the China Petroleum Engineering and Construction Company. He added that IPIC had worked with CPECC on a pipeline in Pakistan and had been impressed with both cost and timeliness. He noted, wryly, that having gained some experience with the company on the Pakistan project, he was able to negotiate a 30% cut in the price. IPIC has already ordered certain long-lead items such as steel, and Al-Qubaisi said that he expected the pipeline to enter into service by 2009. ¶10. (C) Al-Qubaisi explained that the pipeline would serve a strategic purpose by allowing Abu Dhabi crude to bypass the Straits of Hormuz in case of increased tensions. He added, however, that the pipeline would also be commercially viable. The depth of Abu Dhabi's Jebel Dhana oil export terminal, he noted, was shallow enough to be difficult for very large crude carriers to enter. IPIC had estimated that they could cut 50 cents per barrel off the cost of transport. ¶11. (C) Al-Qubaisi said that IPIC was still studying the question of building a 500,000 b/d refinery in Fujairah. It has a cooperation agreement to examine the feasibility of the refinery. He explained that IPIC had contracted with Foster Wheeler to conduct an assessment of the refinery, which had determined that construction costs had skyrocketed. He said that IPIC would be examining cutting back refinery capacity. In any case, he said that IPIC would continue to study the project this year, and that he did not think it would move forward in the near term. IPIC -------------- ¶12. (C) IPIC was established in 1984 as a wholly owned Government of Abu Dhabi investment vehicle. It was established to invest in hydrocarbons and related sectors outside the emirate of Abu Dhabi. IPIC does not typically participate in the day- to-day management of companies, but does play an active role on the boards of companies. IPIC's focus has largely been in Asia, Africa, and Europe in order to capture more value for ADNOC's oil exports. Al-Qubaisi said that he thought and would be recommending that IPIC look into investing in the North American market in order to diversify its investment base. He commented, frankly, that IPIC's risk/return profile was fairly risky and entry into the North American Market would help reduce the risk. ¶13. (C) Bio Note: Al-Qubaisi transferred from the Abu Dhabi ABU DHABI 00000539 003.2 OF 003 Investment Authority in the late 90s. While at ADIA, he specialized in North American equities, and noted that this was one reason he thought IPIC needed to expand into the American market. He speaks excellent English. End Bio Note. SISON