VZCZCXRO1061
PP RUEHDE
DE RUEHAD #0539/01 0911038
ZNY SSSSS ZZH
P 011038Z APR 07
FM AMEMBASSY ABU DHABI
TO RUEHC/SECSTATE WASHDC PRIORITY 8679
INFO RUEHHH/OPEC COLLECTIVE
RUEHDE/AMCONSUL DUBAI 6963
RHEBAAA/DEPT OF ENERGY WASHDC
RHEHNSC/NSC WASHDC
RHEHAAA/WHITE HOUSE WASHDC

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