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

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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.

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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

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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