Iran-Crescent Deal.

Crescent Petroleum (CPC) in 2001 signed a 25-year deal with National Iranian Gas Export Co. (NIGEC) to buy 15 MCM/d (525 MCF/d) of Iranian gas from the offshore Salman field (an extension of Abu Dhabi's offshore Abu al-Bukhoosh). The Salman gas will be pumped to Sirri island and from there CPC will supply 350 MCF/d of this to Dubai and will take the rest to its Mubarak field for consumption in Sharjah. But while the pipeline has been built, no gas is being supplied from Iran because of a dispute over the price. Iranian Oil Minister Kazem Vaziri Hamaneh was on May 22 quoted as saying: "The provisions of the contract indicate that the price in it is not desirable, and we will not be exporting any gas until the price and contractual problems are corrected". He said there were other details in the contract which also needed to be addressed. The 25-year deal was to start in the summer and is based on a crude oil price of $18/b. Vaziri said the current export price of Iranian crude of around $64/b showed the price set out in the original contract needed to be renegotiated. Mohammad-Reza Rahimi, director of Iran's State Auditing Court, said Tehran would lose around $21 bn over the course of the deal because of the low price and described the contract as the most corrupt since the Islamic revolution in 1979. Government spokesman Qolam-Hussein Elham tried to distance the government from the deal, saying it was signed under former reformist President Mohammad Khatami. It was then alleged that bribes were involved in the 2001 contract with NIGEC.

The official Iranian news agency IRNA on May 24 quoted a UAE official as denying statements attributed to federal Energy Minister Muhammad bin Dha'en al-Hamili that he ever said Iran had paid a high cost to dealers to sign the gas contract with Crescent, saying this was not true. He stressed that the UAE energy minister made no remarks to that effect whatsoever. Iranian Oil Minister Vaziri, speaking to reporters on May 22, responded to a question over a statement alleged to have been made by the UAE energy minister saying Iran, in order to finalise the contract, paid large sums to middlemen. Vaziri said: "A contract has been signed pursuant to which Iran was supposed to export gas to the UAE, but it has not reached the implementation phase". He said he had no information to be able to comment on issues relating to any undisclosed aspects of the contract, adding that he believed the "price agreed to in the contract was not appropriate", adding: "We will not export gas if the stated price and unresolved issues are not corrected" (see background in Vol. 62, Gas Market Trends No. 21).

The growth in Dubai's demand for gas is owed to a rapid rise in the number of industries at Jebel Ali. This is one of the fastest growing industrial parks in the Middle East, as Dubai has become the leading centre for free trade. The main gas consumers at Jebel Ali are the following:

The Dubai Electricity & Water Authority (DEWA) uses both imported gas and Margham gas for its plants. The expanding aluminium smelter of Dubal, a key industry in Dubai, depends heavily on this. Dubal, DEWA and the other state-controlled enterprise, Dugas, have set up a joint concern, Dubai Supply Authority (Dusup), to procure gas. Dubal is to have its own power plant to fuel its major expansion.

The LPG/NGL plant of Dugas buys imported gas. The Dugas plant exports most of its liquids to Japan but also supplies LPG to a 500,000 t/y MTBE plant at Jebel Ali which went on stream in 1995. Dubai has a wide variety gas or power consuming industries, including chemical plants, set up at the free zone for export markets.

One possibility is to introduce city gas to cover Dubai's urban consumers, as Sharjah is now doing (see DT No. 21). If gas for this particular market becomes available, Dubai's demand would be far above the 2,300 MCF/d forecast for 2010, when dependence on oil will have been reduced considerably.

Dubai Gas Imports: Through Dusup, Dubai buys only 200 MCF/d from the neighbouring emirate of Sharjah, down from 450 MCF/d in recent years. Under an agreement between the emirates of Dubai and Sharjah signed in 1985, Dusup pays $1.25/m BTU for the gas produced by BP, but the gas is not treated so, in relative terms, the price is more than reasonable compared to treated gas being purchased from Abu Dhabi (GASCO) at $1/m BTU.

The deal with Amoco reached in May 1985 was part of a pact between the rulers of Dubai and Sharjah as they settled a long border dispute. This involved the purchase of 140 MCF/d from the Saja' field to Jebel Ali. A 24-inch pipeline, running 76 km from Hamriyah terminal to Jebel Ali was ready in January 1986. As the gas reached Jebel Ali demand rose beyond expectations. A second contract was signed in 1987 to raise Dubai's purchases to 250 MCF/d. The pipeline was expanded at top speed. The line was extended to 84 km to reach an expanding power station in Jebel Ali. Soon the pipeline's entire capacity was utilised.

In October 1991 Dusup signed a deal with CPC to buy 100 MCF/d of Mubarak gas. A 16-inch, 87-km marine pipeline was built from Mubarak's gas processing platform to Jebel Ali and supplies began in January 1993. Mubarak, east of Abu Musa, is shared between Iran and Sharjah and part of Sharjah's revenue from its oil and gas cuts go to UaQ and Ajman. The pipeline, run by Consolidated Transmissions, was expanded in 1999 as CPC's gas production increased and now its capacity is 150 MCF/d. But supplies to Dubai fell to a negligible volume because of high demand in Sharjah.