Iran has ruled out supplying natural gas to Dana Gas unless the UAE company agrees to pay higher prices.
Iranian Oil Minister Gholamhossein Nozari said an alternative pipeline is under construction in Iran to divert gas destined for Sharjah-based Dana to the Iranian market if the two sides fail to reach a deal involving higher prices.
He said the National Iranian Oil Company (NIOC) had already carried out early engineering and design work on the alternative pipeline to supply the port of Assaluyehm, where it could be used for gas re-injection.
“Iran’s Supreme Economic Council has approved the plan to use the gas domestically. We are already working on the pipeline. If we do not reach an agreement... for a higher price, the gas will be sent to Assaluyehm,” Nozari told the Norwegian International oil and gas weekly, Upstream, in an interview to be published this week.
In 2001, Crescent Petroleum, which co-owns Dana, signed an 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 deal because of what they claim are giveaway prices negotiated with Crescent.
NIOC officials said the first supplies from Khuff should start in the second half of 2008, which leaves time to revise the price formula with Crescent, which is controlled by Sharjah. Except for a gas production platform and living quarters, all elements of the Salman-Khuff field development are complete.
It will take six months for the two platforms to be completed, according to NIOC officials.
Iranian official sources said the agreement calls for the supply of about 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 2005.
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 low.
Iranian gas supplies will be marketed in the UAE by Dana Gas. The company, the Middle East’s first private gas venture, has already invested billions of dirhams in sub-sea pipelines, gas treatment installations, supply networks and other facilities.
Gas demand in the UAE has witnessed rapid growth over the past decade and is projected to maintain that momentum as the country switches to the cleaner source of energy.