DUBAI, (Reuters) – UAE-based Dana Gas will begin supplying gas to the Kurdish region from a field in northern Iraq by mid-year, six months later than first planned, Dana said on Sunday.
The start-up is later than initially scheduled because the power station that the gas will fuel has yet to be completed.
Dana has boosted investment in the project to push forward with a second phase of supply from the field which will double output to 300 million cubic feet per day (cfd) of gas by early 2009.
Dana’s estimate for total investment in the project has risen to $650 million including the second phase, up from the $400 million investment Dana said last year that the first phase of the project would require. Investments are split equally between Dana Gas and its affiliate Crescent Petroleum.
Iraq’s central government has criticised deals that international energy companies have struck with the semi-autonomous Kurdish regional government (KRG), calling them illegal. The KRG, which has clashed with Baghdad over draft oil legislation, has countered that the deals are legal and comply with Iraq’s constitution.
The deals that have come under most fire from Baghdad are production sharing agreements (PSAs) that give international companies a share of oil produced. Dana’s deal differs from those as it is a service contract carried out for a set fee.
Dana said that its investment was the largest single private sector investment in Iraq since 2003, when the U.S. led an invasion of the country.
Dana won a service contract from the regional authority in April 2007 for the rapid installation of processing and transmission facilities at the Khor Mor field to begin supplying gas for power generation by January 2008.
The project also required the construction of a 180 km (111 miles) of pipelines for the gas.
“The entire project is on track for first gas supply of 150 million cubic feet of gas per day by middle of this year, rising to 300 million cubic feet by early 2009,” Dana said. The project is 70 percent complete, it added.
The gas is to supply two power plants with capacity to generate 1,250 megawatts of power under construction near the cities of Arbil and Sulaimaniya. The gas project would save the KRG some $2 billion a year that would otherwise have to be spent to import liquid fuels for power generation, Dana said in a statement.
“We are very pleased with the rapid progress of this important project which will benefit not only the people of the Kurdistan region but contribute to affordable electricity for the whole of Iraq,” KRG Prime Minister Nechirvan Barzani, said in the statement.
The Khor Mor field was shut after the first Gulf War in 1991. Dana is also appraising the Chemchemal field.
When Dana won the service contract, it also signed an agreement with the KRG to evaluate development of the region’s gas reserves. That deal may eventually lead to the semi-autonomous region in northern Iraq exporting gas to neighbouring countries.
Dana and the government were also drawing up plans for a large gas-fed industrial complex, to be named Kurdistan Gas City, which may include petrochemical, metals and other heavy industry plants. The feasibility study for the project is complete and a site is being found, Dana said. Dana and Crescent aim to use the city as a model for more projects in the region.
“The gas city will be the first of its kind in the Middle East, and a unique concept that Dana Gas and Crescent Petroleum aim to bring to other locations in the region also, with a focus on gas utilisation to maximise inward investment and local job creation,” Thomas Watts, project director, said.