Kurds progress $3b Gas City amid rising Iraqi oil tensions

UAE-based Dana Gas and its partner and shareholder Crescent Petroleum announced on 29 July that a 462mn cu. ft. site has been allocated for its planned Kurdistan Gas City.

However, the success of the project, which will cost $3bn to build and generate planned foreign investment of over $40bn, like other Kurdistan Regional Government (KRG) energy initiatives, will likely depend on the resolution of the dispute over what powers the federal Ministry of Oil wields in regions such as the KRG.

Resolution of the issue – a conflict between competing visions of a strong central government in Baghdad and a loosely associated country with powerful autonomous regions – will largely determine what kind of Iraq emerges in the coming years. Kurdistan Gas City will be operated by Dana Gas/Crescent joint venture Gas Cities LLC and is aimed at attracting “private sector investment in a variety of gas-related industries to further benefit the country’s citizens through mass training, job creation in the many tens of thousands, and the promotion of general economic activity,” a Gas Cities press release said.

The city will have capacity to host “over 20 varieties of world scale petrochemical and heavy manufacturing plants, and hundreds of small and medium-sized enterprises (SMEs), served by state-of-the-art civic facilities.” Gas Cities will provide the feedstock and the basic infrastructure for the project, but could also partner foreign ventures, one source told MEES. The Chemchemal gas field will provide the main gas supply for the city.

Dana Gas and Crescent were awarded an appraisal contract for the field last April. Initial results should be ready by September. “I don’t want to give a figure before the study is in and we know for sure, but the initial results show much higher reserves than the assessments done by the oil ministry in Baghdad,” said the source.

Crescent and Dana are also developing the Khor Mor gas field, with the aim of providing gas for two plants in Erbil and Sulaimaniya. A first phase 150mn cfd should start flowing by end-August, rising to 300mn cfd in early 2009, the partners say. The power generated in the $650mn project – “the largest single private sector investment in Iraq for decades” – will provide savings to the federal budget of over $2bn per year and provide over 2,000 jobs, they add.

---Link to industrial clusters

The gas city concept will be of major significance, if Crescent and Dana get their way. It comprises an integrated upstream/downstream project to fuel what could develop into a series of industrial clusters, which the two partners are promoting as the best way for post-war Iraq to build its economy and create jobs.

In this it is similar to Saudi Arabia’s current economic city/industrial cluster master plan. Similar schemes are also being considered for western Iraq and the Basra region, with the two firms arguing that it makes much more sense to use Iraq’s gas for the domestic economy rather than export it, as has been proposed by a Shell initiative under consideration.

The federal oil ministry’s failure to provide reliable gas supply for electricity generation, coupled with what appears to be dramatic progress in the KRG, have gained Crescent’s argument a sympathetic hearing among many Iraqi politicians previously opposed to the KRG’s policy of unilateral oil development, MEES understands.

For the moment, federal Minister of Oil Husain al-Shahristani remains opposed to devolving significant decision making powers to the regions and has blacklisted firms, such as Crescent and Dana Gas, who have signed deals with the KRG.

Mr Shahristani has weathered considerable opposition to his policies and has proved to be the most durable oil minister since the 2003 US-led invasion. Even his critics concede that he is likely to see out his term. Yet provincial elections scheduled for October, should they take place, could see the beginning of a process to devolve some powers – more so in the gas and downstream sectors than in crude oil production – to the regions.

Just how much would be devolved “is the $64mn question,” notes an executive from one of the firms negotiating for a deal in the Iraqi upstream sector. “This goes right to the core of the debate… what their oil industry will look like.” For all concerned the future of Iraq’s oil development is clouded. There have been tensions in relations between the oil ministry on one hand and the unions and regional companies on the other.

On 31 July, Sabah Jawad, a UK-based activist, reported that eight oil union leaders removed from their posts earlier this year had been allowed to return to their jobs.

(Source: mees.com)

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