Rakgas Looks to Iran

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The Ras Al Khaimah Gas Commission (Rakgas) announced recently its intention to continue negotiations with Iran to secure future concessions, despite strong political pressure against dealing with the state.

The new negotiations concern the West Bukha field, which is shared between Iran and Oman. According to Rakgas CEO Ruurd Abma, "It would be the easiest thing to drill on the Iranian side and pipe the gas through to Ras Al Khaimah".

Abma, speaking at the sidelines of an energy conference, said talks were still at an early stage. "There are political considerations and the terms of oil and gas deals with Iran are not so attractive," he said.

Iran, Ras Al Khaimah's northern neighbour, sits atop 15.5% of the world's proven reserves of natural gas - a phenomenal 993trn cubic feet. From Ras Al Khaimah's perspective, the recently attempted deal between Sharjah's Dana Gas and Iran to supply 600m cubic feet per day (cfpd) could have provided an ideal source. Unfortunately, the Dana project seems now to be on the back burner. The Iranian officials responsible for signing the agreement have recently been placed on trial, and price is also proving to be a stalling point: Iran is reported to want as much as $5 per million British thermal unit (pmbtu), while Dana is offering little over a dollar.

Another alternative could involve exploring Iran's Hinjam field, only a few hundred feet from the current platform above the West Bukha field.

There is currently strong political pressure against dealing with Iran. The US has been racketing up pressure against the government of President Ahmadinejad, in what many commentators see as a last-gasp effort to halt Iran's nuclear programme before the Bush administration leaves office. The United Arab Emirates (UAE) follows an independent foreign policy, and Prime Minister Sheikh Mohammed bin Rashid Al Maktoum recently visited Tehran on official business. Nevertheless, the UAE remains a major US ally in the region and will not want to provoke Washington unnecessarily.

In the meantime, an interim deal with neighbouring Umm Al Qaiwain will see the emirate receive 80m cfpd beginning in April. According to Abma, the government is spending $100m on the gas from Umm Al Qaiwain - "which is a lot of money for the emirate". Abma reported that a further 40m cfpd would come from Oman's west Bukha field at an additional cost, though it is unclear if this would be dependent on an upcoming deal with Iran.

Ras Al Khaimah is currently facing a chronic natural gas shortage following the expiration last year of its concession with Dolphin Energy of Qatar. The end of the two-year contract has resulted in the loss of around 40m cu ft of gas per day, and Ras Al Khaimah is now limited to its remaining contract with the Bukha field in Oman, which brings in as little as 25m cfpd. Demand in the emirate is estimated to be between 300m and 350m cfpd.

The shortfall has led to rationing in recent months. Major Ras Al Khaimah industries such as cement manufacturing require large quantities of gas and some industrialists have claimed growth in the emirate is being restricted due to short gas supply.

Some relief has been gained from a concession signed between RAK Cement, RAK Gas and RAK Petroleum, which has seen sour natural gas (high sulphur content) from the Bukha and west Bukha fields piped to RAK Cement without processing for a lower price. This deal goes some way toward mitigating the additional pressure created by electricity demand, which enjoys a 30% subsidy on market gas prices.

However, the emirate has been forced to seek alternatives to gas, with diesel and even coal being used. US-based financial advisor Taylor-DeJongh recently recommended that Ras Al Khaimah construct a coal-fired power station, which would rely on imports from South Africa. Continued difficulties in securing long-term gas supplies mean coal is another viable and economical alternative.

Rakgas's regional difficulties in securing supply have forced it to look further afield. Exploration is continuing within Ras Al Khaimah itself, but hopes are high for projects in Tanzania, while the company is contemplating building a liquid natural gas (LNG) plant to enable it to receive gas supplies from tankers.

With an anticipated $15bn of investment planned by 2009, including major projects in real estate and tourism, energy supply has the potential to be a major limiting factor, with supply unable to meet surging demand. Despite its location in a region renowned for its energy wealth, Ras Al Khaimah will need to secure long-term energy sources to meet its growth targets.

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