Iran gas delay not for price reasons

The delay of gas supply from Iran to the UAE under a contract signed nearly 10 years ago was because of technical not pricing reasons, the head of the company which signed the deal was quoted on Sunday as saying.

Mohammed Hameed Jaafar, executive president of the Sharjah-based Crescent Petroleum, said an international arbitration over the delay is under way and a ruling is expected at the end of this year or by early 2012.

Quoted by the Sharjah-based Arabic language daily Alkhaleej, Jaafar said media reports that Iran delayed supplies to Danagas, which is partly owned by Crescent, because it wanted higher prices were not true.

He said supplies had been due to begin by the end of 2005 but they were delayed after technical reasons obstructed the construction of Iranian export and gas treatment installations for five years despite the completion of a 280-km underwater pipeline in mid 2006.

“This is the real reason for the delay in the supply of Iranian gas to Sharjah…it has nothing to do with pricing or politics as the media had speculated.”

He said the two sides held “serious” negotiations in 2010 to tackle those issues, adding that the National Iranian Petroleum Company (NIOC) began supply low-pressure gas in small quantities to test Danagas’s facilities in Sharjah.

“Unfortunately, when pressure was raised in the pipelines, NOIC discovered a leak in its pipes in the sea and this meant a delay of additional months,” he said.

“At the same time, in order to protect our rights and the rights of Danagas and its clients, we started international arbitration measures in the Hague in 2009 to force NOIC to meet its commitments and bear damages…we are going ahead with this matter and expect to receive a final ruling at the end of this year or by early 2012.”

In 2001, Crescent Petroleum signed a major supply agreement with NIOC to import gas from the offshore Khuff reservoir associated with the Salman oilfield.  But there have been repeated calls from Iranian officials to cancel the agreement and direct the contracted gas for domestic use.

The contract to send gas to the UAE was signed following long negotiations between NIOC subsidiary Petroiran Development Company (Pedco). the operator of Salman-Khuff, and Crescent, when oil and gas prices were relatively low. Iranian official sources have said the agreement calls for the supply of nearly 116 billion cubic metres of natural gas to the UAE over 25 years, with the initial sale of 330 million cubic feet a day rising to 600 million in Sharjah's Hamriyah Free Zone. Iran's gas sales were originally scheduled for January 2006.

Dana Gas’s initial customers include the UAE Federal Electricity and Water Authority, Sharjah Electricity and Water Authority, Dubai Gas (Dugas), and other official and private establishments.

The first major private sector gas company in the Middle East, Danagas has resorted to investment in upstream and downstream energy projects in Egypt, Iraq’s Kurdistan and other countries to make up for Iran’s supply delay.

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