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ADNOC stalls diesel term talks because of fuel uncertainty after Qatar spat

FILE PHOTO: Logos of ADNOC are seen at Gastech, the world's biggest expo for the gas industry, in Chiba, Japan, April 4, 2017. REUTERS/Toru Hanai/File Photo

By Jessica Jaganathan

SINGAPORE (Reuters) - Abu Dhabi National Oil Company (ADNOC) has temporarily halted talks with buyers for its long-term diesel contracts because of concerns it may need the fuel in case of the loss of natural gas supplies from Qatar, industry sources said on Wednesday.

The talks were for unspecified volumes of diesel for loading from its Ruwais refinery over July 2017 to June 2018 but they have been stalled because ADNOC may be setting aside the fuel as back up for power generation needs, especially as temperatures soar above 40 degrees Celsius, said three sources familiar with the matter.

"(ADNOC) is still calculating its demand for local requirements," one of the sources familiar with the matter said, speaking on condition of anonymity as he was not authorised to speak with the media.

However, an ADNOC spokesman said that the term talks for diesel are ongoing.

The United Arab Emirates generates all of its electricity using natural gas. However, the country is considering back-up plans after a diplomatic dispute with Qatar, said a second source.

Saudi Arabia, Bahrain, the UAE and Egypt imposed sanctions on Qatar last month, accusing it of financing extremist groups and allying with the Gulf Arab states' arch-foe Iran, allegations that Doha denies.

Qatar exports 1.7 billion cubic feet per day of natural gas to the Abu Dhabi Water and Electric Co and the Dubai Supply Authority through the Dolphin Energy undersea pipeline, according to Dolphin's website.

There are concerns that Qatar may shut off the pipeline, requiring the use of diesel to run back-up power generation, though Qatar Petroleum's chief executive has said Qatar will not cut off gas to the UAE.

Additionally there are concerns about domestic diesel supply in the UAE.

Ruwais, which can process 800,000 barrels-per-day of crude, suffered a fire at a secondary unit in January that curtailed diesel output. The unit is not expected to be back up until at least late 2018 or early 2019.

This was also a factor in stalled diesel talks, the first source said.

ADNOC is expected to return to the table to discuss the contract in one to two weeks though this is still uncertain, the source added.

The diesel contract is for a one year period with an option for buyers to review prices towards the year-end, as oil price agency S&P Global Platts will be making changes to its benchmark diesel grade.

(Reporting by Jessica Jaganathan in SINGAPORE, additional reporting by Maha El Dahan in DUBAI; Editing by Christian Schmollinger)