Second Movement

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On October 1, Dana Gas, the Sharjah-based energy company, announced it had taken a stake in a large Egyptian gas project in a move that has pleased many of its shareholders.



After launching an IPO with the promise of being a global oil and gas player, Dana Gas has added to its international portfolio. Dana Gas announced it bought a 66% share in similarly-named Danagaz, a Bahrain-based energy company established in 2002 to pursue natural gas projects around the region. Bahraini partners own the remaining 34% of the company.



"This is an important strategic step for Dana Gas from several perspectives," said Rashid Saif al-Jarwan, the general manager of Dana Gas, "Firstly, we join with highly reputable partners in Bahrain, where we plan to further projects.



Secondly, it leads to our first investment in Egypt, a country with over 70 trillion cubic feet of natural gas."



Under its new ownership structure, Danagaz will establish the Gulf of Suez Gas Liquids Plant in Egypt together with the Egyptian Natural Gas Holding Company (EGAS). Some reports indicated that the project was worth $100m, but officials at Dana Gas denied that the value of the project had been announced.



Danagaz will develop the Egyptian project, which is set to be implemented in 24 months, on a build, own, operate (BOO) basis. Located on the western coast of the Gulf of Suez, the plant will have the capability to process 150m cubic feet of natural gas per day and produce around 120,000 tonnes of propane and butane per year. The joint venture will also be in charge of marketing and exporting the products.



The Egyptian General Petroleum Corporation (EGPC) will provide the gas feedstock for a period of 15 years, with the option of extension, according to Dana Gas.



This is Dana Gas's second major international project since the company's inception less than a year ago. Last September, the company rolled out an IPO, which aimed to raise Dh2bn ($544.6m), the largest ever listing in the UAE.



But fevered interest from the Gulf Cooperation Council (GCC) countries' investors led to the stock listing being oversubscribed 200 times and raised $80bn - more than the GDP of Dubai and the northern emirates combined.



Despite being a new company with no track record, Dana Gas had investors enthusiastic over the prospect of getting a slice of the Gulf's first privately-held gas company.



Especially enticing were the company's plans to import cheap gas via pipeline from Iran. Estimated at 970.8 trillion cubic feet, Iran's reserves are the world's second largest - but also remain mostly underdeveloped. To date, Iran has never successfully sold its natural gas abroad.



Past deals to import Iranian gas have often ended in deadlock, but Dana Gas appeared to have the tools to succeed. After ten years of negotiations, Sharjah and the National Iran Oil Company (NIOC) reached an agreement in 2001: Iran would develop an offshore gas field and lay a pipeline to Sharjah's Mubarak field, while Sharjah would buy the gas and link Mubarak to its industrial zone and processing plant.



Iran has invested over $1bn in the project, an assurance, many observers felt, that the Iranians were completely committed to the deal. Sharjah, too, was in a good position to provide much-needed natural gas to industrial and residential customers - while also selling to the gas-poor northern emirates. On the surface the deal appeared to be in the interests of all parties.



Yet, one year since the IPO, the company's pipelines still haven't received Iranian gas. While there are conflicting accounts for the delay, most indicate that Iran is unhappy with the pricing regime, which was negotiated when the price of gas was lower. Other officials insist that the problems lay in a technical problem with the Iranian wells. Whatever the reason, few are able to give solid timetable for the first deliveries, although industry experts agree that the deal will go ahead eventually.



In the meantime, Dana Gas's stock prices have fallen in 2006, dropping from Dh5.5 ($1.49) in early January to Dh1.89 ($0.51) in September. Much of the slump can be attributed to the market-wide correction, which has halved the value of most UAE stocks from a year ago.



The gas liquids plant, which should be a straightforward project, will add a valuable asset to Dana Gas's portfolio. At the very least, shareholders can rest assured that Egypt will be considerably more investment-friendly than Iran.



More importantly, the success of the project will open more doors in Egypt and for broader international expansion. Al-Jarwan called Egypt "a promising business environment for further investments" and pointed out there is a particularly bright future in gas, "The Gulf of Suez Gas Liquids Plant enters Dana Gas into long-term joint-venture partnership with an important and esteemed organisation in the region's energy industry - the Egyptian Natural Gas Holding Company."



Dana Gas assures the Egyptian plant will be just one of a number of projects in the coming years. The company says it is investigating around 15 other tenders - some also in regional downstream projects - but they also have their eye on large upstream contracts, usually the exclusive domain of large oil majors.

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