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The plan by two UAE-based companies, Dana Gas and Crescent Petroleum, to join forces with Austria’s OMV and Hungary’s MOL and pipe natural gas from the Kurdistan Region to Europe via the Nabucco pipeline has been rejected by the Iraqi Oil Ministry.
“The government rejects any deal that does not include Iraq’s federal Ministry of Oil,” government spokesman Ali al-Dabbagh is reported by Reuters as saying.
Baghdad’s scuppering of the deal is the latest move in an ongoing row with the Kurdistan Region Government (KRG). Iraq’s central government has long maintained that the area has not got the authority to negotiate its own oil and gas deals with companies from outside the country. In response Kurdistan has said that the deals do comply with Iraqi law.
“The Oil Ministry’s position has not changed regarding the contracts signed by the Kurdish regional government with the foreign oil companies. Approving the Kurds to export does not mean approving the contracts they have signed,” a government spokesman was recently quoted by Reuters as saying.
The news of Baghdad’s reaction was not greeted with much surprise by industry experts. Samuel Cisnuk, Middle East energy analyst for IHS Global Insight, believes that the geopolitic risks of working in the Kurdistan Region are too high for most companies.
“For Iraq, the deal is perhaps the largest single threat against its attempts to re-introduce the state’s sovereignty over the KRG’s oil and gas resources, as it threatens to involve European governments—and perhaps Turkey—in support for the KRG’s autonomy, tempting them to sacrifice their aim of Iraqi unity for the larger goal of diluting their own energy dependence on Russia,” Cisnuk said.
“Hence the Iraqi government is likely to become increasingly vocal about this deal, making it clear that it is illegitimate as long as it is not done under the auspices of the Oil Ministry, converted into a technical-service contract (TSC), and monetised through the State Oil Marketing Organisation (SOMO) or some similar Oil Ministry institution,” he added.
Cisnuk went on to warn the companies involved that any attempt to push the Nabucco project through could result in them being caught up in a political sandstorm.
“OMV, MOL, Crescent, and Dana are in these circumstances a group of relative lightweights, whose pushing of the Nabucco project increasingly forces them into more and more risky terrain,” Cisnuk said.
“Large-scale geopolitics aside, the Iraqi Kurdistan gas is secured under contracts disputed by the Iraqi government, forcing European buyers to effectively take a stand against the rebuilding of Iraqi government authority and perhaps even against its territorial integrity—a choice likely to be hard to stomach for most of Nabucco’s hoped-for European clients,” he added.
The Nabucco project involves pumping around 3 billion cubic feet per day (cfpd) of gas from the Middle East and Caspian regions into Europe via a pipeline through Turkey.
Dana Gas and Crescent Petroleum have spent $605 million fasttracking the development of the Khor Mor gas field and a local natural gas network, including construction of a 176km natural gas transmission pipeline in record time.
However, there has been some reports that there is insufficient gas in the Kurdistan Region to sustain an output 3 billion cubic feet per day (cfpd).
Europe states will be disappointed by this latest development as many believe they are overreliant on Russian gas and are keen to source alternative supplies. Meanwhile, Russia is constructing its own pipeline, South Stream, in direct competition with Nabucco.
