Iran General NewsIran uses price power in $2 billion gas deal

Iran uses price power in $2 billion gas deal

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ImageWall Street Journal: Oil prices may be softening, but the price of natural gas is climbing sharply in the Persian Gulf, thanks to the booming economies of the Arab petro-states.

The Wall Street Journal

By ROSHANAK TAGHAVI

ImageTEHRAN, Iran — Oil prices may be softening, but the price of natural gas is climbing sharply in the Persian Gulf, thanks to the booming economies of the Arab petro-states.

Iran looks set to squeeze the region's highest wholesale gas prices from the United Arab Emirates as part of a 25-year, $2 billion natural-gas export deal between the two countries. Crescent Petroleum, based in the emirate of Sharjah, has offered to pay about $5 per million British thermal units for Iranian gas, according to a person familiar with the matter.

Unlike oil prices, gas prices vary widely from region to region. The price offered by Crescent is almost four times what the U.A.E. pays for gas from Qatar. And it is more than five times the average weighted regional gas price for the Middle East and North Africa.

Iran's new pricing power comes as its regime tries to kick-start stalled gas-development plans. It also comes amid a growing energy gap in the booming economies of the Arab petro-states.

A shortage of clean-burning natural gas to fuel economic expansion in the U.A.E. has the country scrambling for new sources.

Gulf countries experienced sharp economic growth as oil prices climbed. The U.A.E. in particular has developed into a real-estate and industrial powerhouse. The U.A.E. is the Organization of Petroleum Exporting Countries' fourth-largest oil producer. But it has become increasingly dependent on natural gas to fuel new power plants and desalination plants, and to provide feedstock for new industries. The country is struggling to secure new supplies, both domestic and overseas.

"Natural gas is a fuel of choice for clean and efficient power generation" in the U.A.E., said Majid Jafar, Crescent's executive director.

The U.A.E. isn't the only Gulf country looking for more gas. In a report released Tuesday, Moody's Investors Service said "fuel supply and resulting power shortages" were the biggest risks to long-term growth in the Persian Gulf region.

The price agreement would be a small victory for Iran's struggling oil and gas industry, hobbled for years by international sanctions. Iran has spent around $1.5 billion on the project, building a 174-mile undersea pipeline linking Iran's Salman offshore gas field to Crescent's gas-processing facilities in Sharjah. As part of the deal, another Sharjah-based company, Dana Gas PJSC, will transport and process the Iranian gas. A joint venture between the two Sharjah companies will market the gas. Iran sits atop the world's second-largest gas reserves, but ambitious plans for liquefied-natural-gas export facilities have faltered. Only a few big oil companies have the know-how to build such facilities.

Sanctions have halted any technology transfer.

At the same time, Iran hasn't developed its reserves efficiently enough to meet its own consumption. The country imports roughly 5% of its gas needs from Turkmenistan. Crescent, Dana and National Iranian Oil Co. signed the deal in April 2001. Original export plans were delayed because construction of offshore processing platforms for the deal weren't completed by Iranian contractors until earlier this year, Mr. Jafar said.

First exports could begin within months. But fresh corruption allegations from Iran's government threaten more delays.

Iranian President Mahmoud Ahmadinejad suggested in September that the deal was tainted by behind-the-scenes dealing, but he wasn't specific. Nevertheless, Mr. Ahmadinejad said he would endorse the deal as long as it was based on regional market prices. Crescent said it "categorically denies any wrongdoings or corruption."

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