Oman turns down the Iranian gas deal, starts negotiations with Qatar

It might seem that the cold winds of global ression are starting to bite in Muscat. Reuters story released today by oil and gas magazine Upstream that - surprise surprise - Oman will NOT be paying $12 bln to develop the Iranian Kish gas field right now because of "tight credit markets".

Actually, there are several reasons for this delay.

While Oman's credit is pretty good right now, and there is a load of cash around for the right projects, investing that sort of dosh in Iran is something Oman would prefer to do with someone else's money, with repayments tied to the gas arriving in Oman.

And of course Oman LLC is suffering a significantly reduced income right now, after last years all time record haul due to high oil price (and the solid production gain compared to 2007). So cash for new projects is obviously tighter.

But the real reason for this delay is probably that the Iranians were simply asking waaaay too high a price for the gas. My sources tell me the price being discussed could have worked out at more than US$14/Mscf.

Compare that to the prices being paid by the Sohar industry (rumoured to be about $0.80 to $1 per Mscf). It would have been cheaper for Oman to just re-import their own LNG exports than pay those sort of prices...

Hopefully the Iranians - whose economy is now even deeper in the shit than it was a year ago - will realise what an opportunity they have lost by being so greedy.

Oman are now taking the opportunity to try and get more from the Qataris - and also making sure the Iranians know it by having Oman Gas Company execs telling the wire services.

Oman Gas wants more from Dolphin

State-owned Oman Gas Company is seeking extra gas imports from the United Arab Emirates' Dolphin Energy to meet rising demand in the sultanate, a company official said today.

Dolphin exports 5.5 million cubic metres per day to non-Opec producer Oman, Nasser Rasbi, a technical director with the company told reporters on the sidelines of an industry conference.

"We are in talks with Dolphin to increase imports," Reuters quoted Rasbi as saying. "Oman needs more gas because of demand in power and industrial that are taking more gas...Oman needs additional gas this year or latest next year," he said.

Oman Gas handles about 40% of the country's dry gas distribution, mainly to commercial users, he said. Its suppliers include Petroleum Development Oman (PDO) which supplies the bulk of the gas, Occidental Petroleum and Dolphin.

Renegotiation anyone? After all, it is a buyers market... And a year 'delay' in the Iranian deal might be enough to get Qatar to try and sell a bit more and keep the Iranians out. The Americans I'm sure would be keen to help Oman get gas from Qatar rather than Iran too.

Perhaps Iran was just a stalking horse?

Kish delayed on credit crunch

Oman will delay by at least a year a joint venture with Iran to develop the Kish gas field due to tight finances, an Omani industry source involved in the project said today.

Oman is struggling to fund energy development projects after the financial crisis
made it hard to get credit.

The project to develop the Iranian gas field had a price tag of up to $12 billion that Oman had agreed to fund fully.

"The production from the Kish gas field will not happen in 2012 as planned," the
source told Reuters on condition of anonymity. "The uncertainty of the global financial crunch has forced Oman to put the project on hold for a year." Oman's oil and gas minister said last year the financial crisis would likely impact the country's energy projects and cause delays.

An Omani energy official said last year the Kish development was expected to be signed off in December 2008 and the project would be wholly funded by the Gulf Arab state. A 200 kilometre subsea pipeline from the field, would run from Musandam, near the strategic Strait of Hormuz, to Sohar in Oman. Phase one of the project would transport gas to Oman at a rate of 1 billion cubic feet per day, later rising to 3 Bcfd.

Iran has the world's second-biggest gas reserves but has been slow to develop gas exports and has no LNG facilities, which super cool gas so it can be exported by ship. The Islamic Republic has increasingly turned towards Asia and elsewhere to develop its oil and gas sector as sanctions and US pressure have prevented US and European companies from investing there. But long contract negotiations and poor terms have delayed many of the preliminary gas export deals Iran has signed.
Oman has struggled to keep up with rising domestic gas demand from industry and power generation.

Is Oman's Kish gas deal in jeopardy?

Kish Island: Site of an undeveloped 40 Tcf Iranian gas field


A strange little report passed by my Google search yesterday - from IranOilGas news . But its subscription only.

Iran will develop its Kish gas field without Oman
IranOilGas.com (subscription), Iran - Jan 20, 2009
It is not clear against what collateral, and under what terms & conditions, Oman will be financing such a project. PEDEC is in charge of developing Kish gas ...

and on their website:

Managing director of Iranian Offshore Oil Company (IOOC) Mahmoud Zirakchian Zadeh disclosed that developing Iran’s Kish gas field (initially planned to be undertaken jointly by Iran and Oman) ...

It might be that negotiations are getting a bit tense. (for those that don't know, Oman signed several MOUs with Iran to discuss a joint Iranian/Omani development of a part of the field last year. Negotiations have been on-going since). A previous 'indirect Google sample' of the report said the Iranians were proceeding with a Chinese company and without Oman. Hmmm.

Is this just negotiation tactics on the part of the Iranians? Maybe false? Or are the Chinese taking advantage of current low oil prices and diplomatic weight to snatch a deal by offering a better price and execution capability?

Loss of the Iranian gas would be a blow somewhat especially after around 2020 (depends on how screwed they were getting on cost and price though), but might redirect Oman's energies (and a lot less cash) to getting the gas through increased domestic commercial terms, because the Iranian gas was never going to be for less than a few dollars a MBTU. Or perhaps the Qatari's will help? Nope, they're frozen til 2010, and Bahrain is first in the queue. And don't even think of the Saudis, plus they need their gas themselves.

Question is - what would a Chinese company possibly do with a gas field in the Middle East? Either build an LNG plant, or, perhaps sell the gas to the Omani's via pipeline in exchange for liquified cargo ex-Sur(but obviously, for less gas once liquified, so the Omanis get a deal).. That way the Omanis are somewhat protected from dealing directly with the Iranians, and the Chinese pay all the upfront costs.


But, how can Oman sell Chinese/Iranian Gas back to the Chinese?

I'll speculate.

After around 2028 or so, the LNG plants will have lots of spare capacity as their Gas Sales agreements [GSA] expire, and 20% or so capacity is already currently available (as the LNG companies GSAs don't meet the newer and larger capacity at Sur). And the current capacity could be filled almost immediately with Omani gas (by borrowing gas already sold by the Omani Government to someone else in the far future). In that way, Oman could effectively sell the Chinese LNG right now from a gas field that hasn't been developed yet, if the Kish deal is solid enough to pay back the borrowed gas (at a steep premium, obviously).

Now that might be a winning deal...

Plus, because the sweetener would simply be the sale of borrowed gas and not cash, Oman would get cash now by accelerating production and some paper transactions. And the promise of a significant gas stream in the future, with someone else paying the bills.

Tempting....

Iran seems super-keen to progress Omani Kish Gas deal

More news from Iran yesterday, again talking up the idea of an imminent completion of the long delayed agreement on the Iran/Oman Kish gas field development deal.

In the current economic climate, and with Oman now getting almost 6 million m3/d from Qatar and lots of talk on Oman pressing on with the coal-fired options, it - surprisingly - seems more and more the pressure to do a deal rests with the Iranians. The Iranians also keep stressing the LNG angle too, and the article goes on with some boilerplate propaganda about how Iran is successfully doing deals despite the economic sanctions from the USA.

Hard for me to believe a development of that size could be completed by 2012.

Iran, Oman Plan LNG Cooperation
TEHRAN (FNA)- Iran and Oman said they intend to seal a major gas deal by the year end that would allow export of more than 1 billion cubic feet of gas per day via pipeline. This would not only supply Oman's needs, but also provide supply for liquefied natural gas that would belong to Iran.

A deal to develop the Kish field which may hold as much as 45 trillion cubic feet of recoverable gas was signed in April, but the final agreement had been delayed due to price wrangling. [UD: my emphasis] Yet, negotiations picked up after a recent visit to the Persian Gulf country by Iran's Oil Minister Gholam Hossein Nozari.

Nozari struck the deal with Oman during his recent visit. Both countries are eager to finalize the agreement so production can begin by the targeted launch date in 2012. Oman would get the gas it badly needs to meet its export commitments and its soaring local demand. Iran would not only open new export routes to gas hungry Arab Persian Gulf countries, but also market a portion of its exports as LNG, which is more profitable and can be sold on the global market.

Oman has just 24 Tcf of gas reserves, compared to Iran's 982 Tcf. It produces 2.3 bcf/d and demand is expected to increase by more than 25 percent by 2012.
...

Oman completes Iranian gas deal

Well, it looks like the chaps have finally signed a real deal on Iranian gas, something few countries have been able to do lately. Now, I know it's not often the Dragon says this (and possibly I make the mistake of focusing on the bad stuff too heavily), but it looks like HM's Government have done something pretty good this time. I was afraid for a moment – after reading the article today in the totally useless Times of Oman – that there was just yet another Memorandum of Understanding. But, according to The Tehran Times they also signed a commitment deal to actually jointly develop Kish.

Iran, Oman ink $7b gas deal
Tehran Times Political Desk
TEHRAN, Apr. 21 (MNA) – Iran and Oman on Monday signed a $7 billion joint investment agreement on development and exploitation of the Kish gas field in southern Iran.
“The document which was inked on joint investment for development and exploitation of (Kish) gas field is valued at $7 billion which can increase to $12 billion,” First Vice President Parviz Davudi told reporters in a press conference with Deputy Prime Minister of the Sultanate of Oman Fahd bin Mahmud al-Said.

Earlier in a meeting, Iranian and Omani officials signed memoranda of understanding on cooperation in tourism and gas export. The two countries’ foreign ministers also signed an agreement on Iran-Oman strategic cooperation.

The key question now is what the pricing structure will be, and volume.

The Kish field is big, with Iranian NIOC reports of in-place gas of around 50Tcf and recoverable gas of 36Tcf. The daily production volume I'd expect to be around the typical Iranian standard gas development phase which is around 2bcf/d, with half going to Iran and half to Oman. [for comparison, that would mean Oman would get around half Oman's total demand right now, and 5 times what they are getting from Qatar via Dolphin]. That would leave enough gas for a Kish Phase 2, possibly with someone else (like India and PetroPars perhaps?)

But at what price has Oman secured the gas? That was always the issue with Iran in previous negotiations, also in the Iranian's negotiations with India and Pakistan. To some extent, if the deal is well structured on investment recovery it almost doesn't matter. Oman needs the gas. Anything less than $5 per Mscf would be outstanding (and unlikely). It also depends on the condensate deal too. I'd love to read the contract...

But, carping aside, a signed gas deal is cause for celebration. We can worry about getting it done and the price to be paid later...

Other links
Kish Gas Field
Petropars
general Iran gas news

Oman and Iran finalise a gas deal?

It looks like Oman has finally cracked the Iranian gas deal problem. Several interesting pieces of information are coming together. I know, I know, there have been reports for years on Oman-Iran gas, and many Memoranda of Understanding on the various options signed between the 2 countries, but MOUs are always non-binding, and nothing was looking like progressing, with the Iranians playing Oman off against the UAE, especially Ras Al Khaimah.

At present, Oman is producing the West Buhka gas field offshore Musandam which sits on the border with Iranian waters (on the Iranian side its called the Hengam field and is undeveloped on the Iranian side). What complicated the issue is that the West Buhka field’s condensate and gas production are routed through RAK. ( for example see this article Ras al-Khaimah keen on Iran gas




This 3 way situation (combined with the Americans blocking at every opportunity) has significantly hindered a conclusion. But that looks like its changing.

1/ There have been recent reports from Iran that a deal was close on both the Hengam and Kish gas fields being developed by Oman. This article in The Tehran Times on Sunday was pretty explicit.

The Iranian Offshore Oil Company (IOOC) Managing Director Mahmud Zirakchianzadeh … said Iran and Oman would finalize talks on the development of Kish and Hengam gas fields and gas exports in the near future.

“Oman’s officials have offered good proposals on the development of Kish gas field and exports of Iran’s gas and we are studying them,” said the IOOC head, adding bilateral negotiations were expected to be finalized soon.

2/ Dr Rumhy, Minister of Oil and Gas, is accompanying His Highness Sayyid Fahd Bin Mahmoud Al Said, Deputy Prime Minister for the Council of Ministers who left for Iran today. It’s a pretty high powered delegation, also including HE Maqbool Bin Ali Bin Sultan, Minister of Commerce And Industry. Fahd begins four-day Iran visit today

Fahd will be accompanied by an official delegation comprising HH Sayyid Haitham Bin Tariq Al Said, Minister of Heritage and Culture; HE Yousuf Bin Alawi Bin Abdullah, Minister Responsible for Foreign Affairs; HE Maqbool Bin Ali Bin Sultan, Minister of Commerce And Industry; HE Dr. Mohammed Bin Hamad Al Rumhy, Minister of Oil and Gas; HE Hamed Bin Mohammed Al Rashdi, Minister of Information in addition to a number of government officials and OCCI chairman

OK. We’ve been here before you might say. But in addition…
3/ A reliable source at engineering consultancy McDermott tells me that they have been recently contracted by the Oman Government to do the pre-front end engineering and design [pre-FEED] feasibility for a new gas import facility in Musandam.

This is pretty important. Its fine to discuss gas, but if the engineering work is starting, a deal must be very, very close. There is only one place that gas will be coming from - The Iranian fields in the straights of Hormuz, ie Hengam and Kish.

Expect something official in the coming months. It would be great news for Oman, especially if the price is right.

Tomorrow, more on inflation and Omanhell.