Akkas Link With The Euro-Arab Gas Export P/L.

The Damascus-based Euro-Arab Mashreq Gas Project - preparing a framework for a gas market for Egypt, Jordan, Syria, Iraq and Lebanon - is considering a link from the Akkas field (30 km east of the Syrian border) to the planned 10,000 MCM/year Arab Gas Pipeline (AGP) currently under construction in Syria. MEED on April 6 quoted a "senior project source" as saying: "Some of the options we are considering are to increase the current design capacity of the AGP and build a gas pipeline from the Akkas field". The AGP is eventually to link up with Europe through Turkey.

The plans also include a possible link from the AGP to the existing 26-km-long, 1.5 MCM/day Gasyle pipeline from Banias in southern Syria to Deir al-Ammar in northern Lebanon.

The project is split into three components. The first focuses on how to achieve a unified gas market in the four countries and forecasting gas demand for Iraq, Turkey, Bulgaria and Romania. The second is a legal and regulatory framework, with MEED quoting the source as saying: "Our aim in the short term is to develop a stable gas market to encourage investment from the private sector and international financial institutions". The third involves training personnel from operating companies and ministries from the four countries in the project's centre in Damascus.

The AGP runs from el-Arish in Egypt to Jordan's border with Syria. Stroytransgas of Russia is building an extension from there to al-Rayan, east of Homs. Egypt will supply 2,000-4,000 MCM/year of gas to Turkey and an additional 2,000-6,000 MCM/year to Europe. Akkas could enable the AGP to raise its final capacity beyond 10,000 MCM/year.

The Nabucco Option: Dow Jones Newswires on March 7 quoted OMV Chief Executive Wolfgang Ruttenstorfer as saying OMV, central Europe's biggest oil and gas company, could eventually rely on Iraqi gas to supply the giant Nabucco pipeline once foreign investment and infrastructure was injected into Iraq's dilapidated energy sector. The proposed pipeline will wheel gas from the relatively under-explored Caspian and Black Sea regions to Europe, which wants to reduce its reliance on Russian imports. Ruttenstorfer said: "Some years down the road [Iraq] could be a supplier to Nabucco".

Ruttenstorfer said the costs of Nabucco were "definitely substantially higher" from previous estimates of around $6 bn but said the project was still economic. He said rising prices for labour and raw materials like steel had driven up costs but declined to specify the new cost estimate for the project.

Nabucco is expected to have a capacity of 31 BCM/year by 2020, about 4-5% of total European gas demand by that date. The project is slated to start service by 2011-2012. Ruttenstorfer said the five-company, OMV-led Nabucco consortium had formally asked the European Commission for exemptions from EU rules which would require Nabucco to provide access to all gas parties at regulated prices. The operators want unregulated deals for an initial 10- to 20-year period so they can recoup the costs of building the pipeline and make a healthy profit.

Ruttenstorfer said he believed the drive by the EU Commission to increase competition in its energy markets by separating ownership of gas and power distribution networks from supply and generation should not include strategic pipelines like Nabucco. Each of OMV, Hungary's MOL, Turkey's state-run Botas, Bulgaria's Bulgargas and Romania's Transgaz SA Medias has a 20% stake in the Nabucco consortium.

French oil giant Total and state companies in Azerbaijan and Ukraine have recently expressed interest in joining the group. Russia and Iran, the world's number one and two gas reserve holders, respectively, are in negotiations with the group about supplying gas to the pipeline. Ruttenstorfer admitted the two countries' possible participation in Nabucco came at a politically sensitive time, with the Shi'ite theocracy in a long-running standoff with the US and EU over its nuclear programme and European concerns over the reliability of Russian gas supplies.

Ruttenstorfer rejected the notion that Iran and Russia should be excluded from the project and said OMV was also in discussions with the US about Nabucco's development. He said: "We do our business within Austrian, European, and United Nations laws...but we do consider the political implications...we have been in discussions with the US side".

Concerns in Europe about the region's reliance on Russian gas have been driven by Moscow decisions to briefly cut gas flows to Ukraine in early 2006 and to Belarus in early 2007 over contract disputes which resulted in lower gas shipments to the EU. Russian gas is expected to account for well over 50% of total EU imports in the decade ahead, from 44% now, if current consumption patterns continue. OMV has received gas from Russia's state-controlled gas monopoly Gazprom for nearly 40 years and the giant has oil and gas operations in Iran. OMV expects to begin commercialising a small amount of crude oil in Iran in the next two years.

Ruttenstorfer told Dow Jones OMV "started discussions about two months ago with the central [Iraqi] government and the Kurdish authorities". He said the talks were about exploring for oil and gas in the war-torn country but declined to elaborate on their progress. OMV, with annual income of 19 bn ($25 bn), is the first IOC in Europe or the US to acknowledge active negotiations with Iraqi officials about energy deals. The news came days after Kurdish Regional Government (IRG) Minister of Natural Resources Ashti Hawrami told Dow Jones he expected the KRG to sign energy deals this year with 10 mostly US and European firms.

Gas utilisation is a key issue in Iraq, not just for export, but for meeting spiralling domestic and power generation demands. A third of the 900 MCF/d of the country's gas output is wasted through flaring. There is only one non-associated gas producing field, at al-Ajial.

A number of projects aimed at building up a gas feeder network are underway or being tendered, and several IOCs are assisting the Oil Ministry in drawing up a gas masterplan. The Japanese, too, have drawn up a feasibility study to develop a gas network in which a consortium of Japanese firms will work in return for long-term offtake deals to involve crude oil and/or gas liquids.

The ministry wants to develop its six non-associated gas fields for export - Kormor (formerly called Anfal - with the potential to produce 240 MCF/d), Mansuriya (330 MCF/d), Abbas (300-400 MCF/d), Khashm al-Ahmar (175 MCF/d), Siba (125 MCF/d) and Jaria Pika (100 MCF/d). The first three of these fields can be developed to produce 870-970 MCF/d (9-10 BCM/y). The other three will be able to produce a further 400 MCF/d.

Under plans promoted in late 2004, about 10 BCM/year are to be exported to Turkey, or to Turkey and Greece. The output of the three smaller gas fields, 400 MCF/day, would be for power plants and industries to be built in Iraq.

The Electricity Ministry, however, has been strongly opposed to the idea of exporting any gas, insisting that all of Iraq's current and potential gas output should be reserved for power generation and industrial requirements within Iraq. Iraq has a lot of idle generation capacity because of a lack of gas feedstock. It says Baghdad can ill afford to waste any gas it produces, and the signs look ominous for a proposed Kuwait-Iraq gas supply deal.

E&P experts at the Oil Ministry say Baghdad should encourage integrated mega-ventures based on gas. They argue that through such projects major IOCs could eventually make huge discoveries of non-associated gas. But for big results to be achieved, the IOCs must have attractive terms for IPPs, IWPPs and/or export-oriented petrochemicals plants.