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Dana Gas signs northern Iraq deal
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Arabian Business - [4/16/2007]
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The UAE's Dana Gas has signed an agreement with Iraq's Kurdish regional government (KRG) to evaluate the development of the region's gas reserves, the company said in a statement on Sunday.
The deal may eventually lead to the semi-autonomous region in northern Iraq exporting gas to neighbouring countries.
Dana Gas also won a service contract from the regional authority for the rapid installation of processing and transmission facilities at the Khor Mor field to begin supplying gas for power generation by January 2008.
Dana Gas' initial investment commitment will be around $400 million. It marks the first entry of a Middle East company into the Iraqi energy sector since the U.S.-led invasion in March 2003.
Dana Gas and the government will draw up plans for a large gas-fed industrial complex, to be named Kurdistan Gas City, which may include petrochemical, metals and other heavy industry plants.
"This is a high level broad agreement whereby we work together with the regional government to develop the long-term plans for overall gas development and optimal utilisation," Dana Gas Business Development Director Majid Jafar told Reuters.
"There is an immediate need for power generation as a priority, there is also a strong desire to use this valuable resource to encourage industrial and broader economic development and job creation, and longer term there is also the possibility for potential exports, most likely by pipeline."
The Kurdish region has disagreed with some members of Iraq's central government over production sharing agreements (PSAs) it signed with oil companies such as Norway's DNO long before Iraq's cabinet endorsed a draft oil law in February.
The companies were exposed to the risk the contracts would be revised under the new law, which is still awaiting parliament's ratification.
Jafar said he was confident that the region was a sound investment prospect. Dana Gas' deal, as a service contract rather than a PSA, was unlikely to attract controversy, he said.
Dana Gas plans initial production of 150 million-200 million cubic feet per day (cfd) from the Khor Mor field, which was never fully developed and was shut after the first Gulf War in 1991. It will build about 180 km (111.8 miles) of pipelines for the gas with larger capacity to handle future increases in production and any additional discoveries.
The United Arab Emirates company aims to eventually double output from Khor Mor to 300 million cfd, depending on reserves that it finds in place. The UAE's largest publicly-traded energy company by market value will also make an appraisal study of the Chemchemal gas field.
An industry source estimated possible reserves at both fields of between 3 trillion to 4 trillion cubic feet, but said reserves could be much larger.
The gas will initially supply two power plants under construction near the cities of Arbil and Sulaimaniya.
"The Kurdistan region is in urgent need of natural gas as fuel for electricity generation projects that are long overdue and will benefit not only the people of the Kurdistan region but contribute to affordable electricity for the whole of Iraq," the prime minister of Iraq's Kurdistan region, Nechirvan Barzani, said in the statement.
Use of domestic gas for the region's power plants will save the region up to $1.5 billion as it substitutes the use of liquid fuels in generators currently used.
Dana Gas will be able to develop the project quickly as it will install a gas splitter it had already built and earmarked for another project.
That probably gave it an advantage over competitors for the service contract, who would have taken two years to build the infrastructure needed for gas production and processing, industry sources said.
Dana's investment could be the first of many by UAE companies in the Kurdish region.
"I know that other UAE companies from other economic sectors are looking at investing," Jafar said.
Dana Gas is the UAE's largest private-sector energy company by market value.
Dana's $1 billion acquisition of Centurion Energy in January made it one of Egypt's largest gas producers and was part of the UAE company's strategy to expand exploration and production of gas throughout the Middle East.
Dana will work with its affiliate Crescent Petroleum in the Kurdish region.
Crescent, which is a major shareholder in Dana, has other projects in Iraq.
Earlier in April, Crescent said it would work with Iraqi officials to study an oil exploration area in the country's south near the Kuwaiti border.
Crescent has also drawn up a development plan for Iraq's giant southern Ratawi field.
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