UAE seeks deal with Iran
With the Iranians indicating that the deadlock over a natural gas pipeline between the UAE and Iran might soon be solved, the UAE may be one step closer to bolstering its gas supplies and energy for industrial zones.
According to the UAE local press, Dana Gas, the Sharjah-based energy company, will go to Tehran next week to settle the apparent pricing dispute that has delayed the export of Iranian natural gas to the emirate.
Resolution needed
An Iranian oil ministry official said Dana would accept a revision to the gas price regime, which was agreed upon back in 2001, that the Iranian government claims is now below market value.
Amid Iranian threats to look elsewhere if it doesn’t get a higher price, the reality is that both Iran and the UAE have already invested too much in this project to let it disintegrate. Barring a catastrophic event, both sides appear committed to gas deliveries by the first quarter of 2007.
A resolution to the dispute would certainly be good news for the UAE. Even though the country sits on the fifth-largest gas reserves in the world, most of the gas is extremely sour and unsuitable for commercial use without expensive processing.
Consequently, usable energy supplies have been stretched by the country’s world-beating economic growth and large population expansion. Forecasts predict the UAE gas demand will be double its supply by 2010 if consumption and production levels continue to develop at the same pace.
With goals to double its GDP and population in the coming years, Ras al-Khaimah predicts it needs to almost triple its gas feedstock by 2007.
Sharjah, which is one of the few emirates that has significant gas reserves, is also growing rapidly and can no longer shoulder the needs of the northern emirates like it once did. Although it once exported large amounts of gas to Dubai, industry experts believe these deliveries have dwindled to a trickle or stopped altogether.
For most of these northern emirate companies, a reliable supply of natural gas has been elusive. Only Arc International has been receiving regular supplies of natural gas in 2006, while other industries have relied on liquefied petroleum gas (LPG) or heavy fuels to run their operations.
“Sometimes we have shortages and have to use diesel,” said one cement producer in Ras al-Khaimah, adding they get up to 60% of their energy needs from diesel, a commodity that almost doubled in price in the last two years.
Even gas-based products are cutting into companies’ profits. In 2005, RAK Ceramics says it ran its operations on three months of natural gas and nine months of LPG, which is 15% more expensive. In 2006, it has fared only slightly better, getting natural gas again for three months, with promises of renewed supplies after the summer.
Natural gas supply limited
But even the occasional supply of natural gas is better than most companies receive in the UAE. The Sharjah-based Hamriyah Free Zone (HFZ), a haven for more than 1,700 companies mainly involved in heavy industries, is still running on LPG.
HFZ looks to benefit the most from natural gas supplies from across the Gulf. The free zone will receive a direct pipeline from Sharjah’s offshore Mubarak field, the future distribution point for Dana Gas’s purchased Iranian gas.
More importantly, long-term gas flows are vital for encouraging more foreign investment, a cornerstone of the UAE’s diversification process. In a region flush with hydrocarbons, companies expect to find energy costs that are lower than in other parts of the world.
If Dana Gas continues to find resistance in Tehran, the UAE will need to push other options. The Dolphin Energy Project, which will import gas from Qatar to the UAE, is set to begin deliveries by the end of 2006, and there is more potential to get additional cubic feet from Doha, albeit at a higher price than the first agreement. Also possible are different cross-border deals with Iran and Oman, and further down the line, the development of Abu Dhabi’s vast—but extremely costly—gas reserves.
