VZCZCXRO8332
RR RUEHBC RUEHDA RUEHDE RUEHDH RUEHIHL RUEHKUK
DE RUEHGB #1446/01 1531242
ZNR UUUUU ZZH
R 021242Z JUN 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 3303
INFO RUCNRAQ/IRAQ COLLECTIVE
RHEBAAA/USDOE WASHDC

UNCLAS SECTION 01 OF 03 BAGHDAD 001446 
 
SIPDIS 
 
DOE FOR GEORGE PERSON, STATE ALSO FOR NEA/I AND EEB 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV PGOV HU GM IR TU IZ
SUBJECT: RRT ERBIL: CONSORTIUM TO DEVELOP GAS FIELD IN 
KURDISTAN REGION TO FEED NABUCCO PIPELINE 
 
REF: BAGHDAD 1073 
 
This is an Erbil Regional Reconstruction Team (RRT) cable. 
 
¶1. (SBU) Summary: UAE's Crescent Petroleum and Dana Gas have 
entered into a consortium with two European energy companies 
to develop a natural gas field in the Kurdistan Region (KR) 
to supply the Nabucco pipeline.  Separately, Crescent/Dana's 
plans to develop Gas City, a massive gas utilization 
industrial complex, in Sulaimaniyah Province are in limbo due 
to foot dragging by the Kurdistan Regional Government (KRG). 
Meanwhile, Crescent and Dana are looking to build gas cities 
in Anbar and Basra provinces, although progress on these is 
being held up by what they describe as central government 
"blackballing" of energy companies with stakes in the KR. 
KRG Minister of Natural Resources informed RRT Team Leader 
that the KRG was not in negotiation with Crescent/Dana, 
stating "if and when gas becomes available, then the KRG or 
Iraq will need to come up with a commercial arrangement for 
selling/pricing the gas - which belongs to all the Iraqi 
people."  End Summary. 
 
¶2. (SBU) On May 17, Crescent Petroleum and Dana announced 
that they had entered a consortium with two European 
petroleum companies to supply gas to the Nabucco pipeline 
from fields in the KR.  The Nabucco pipeline will pump 
natural gas to Austria via Turkey from several possible 
sources, including Azerbaijan and Iran, thus reducing the 
dependence of European countries on natural gas from Russia. 
It is expected to be completed by 2014. 
 
The Consortium 
-------------- 
 
¶3. (SBU) Crescent Petroleum, based in the United Arab 
Emirates, is the first and largest privately-owned natural 
gas company in the Middle East, according to Shakir Shakir, 
Kurdistan Branch Manager for Dana Gas.  The company is led by 
a Cambridge University-educated Iraqi exile, Hamid Jafar, 
whose father had been Minister of Development in the cabinet 
of Iraq's last king.  In 2005, Crescent established Dana Gas 
as a publicly-traded natural gas company.  Although Crescent 
owns a controlling share of Dana (21 percent), Dana has over 
300,000 shareholders in over 100 countries.  The two 
companies established a local subsidiary, Pearl Petroleum, to 
handle their upstream interests in the KR. 
 
¶4. (SBU) The two European companies joining Crescent/Dana are 
OMV of Austria and MOL, the Hungarian Oil and Gas Company. 
Both companies are shareholders in the company developing the 
Nabucco pipeline.  Under the agreement with Crescent/Dana, 
OMV will purchase a 10% interest in Pearl for $350 million, 
which will be reinvested in the project.  In exchange for 
giving MOL a 10% interest in Pearl, Crescent and Dana will 
receive a 3% share in MOL.  (Note: The director of 
London-based think tank Iraq Energy, who has close ties to 
Crescent Petroleum, said the value of the stock swap was also 
roughly equivalent to $350 million.  End note.)  This gives 
Crescent/Dana an indirect interest in the Nabucco pipeline 
project as well as in MOL's operations in the KR. 
 
Chamchamal Natural Gas Field 
----------------------------- 
 
¶5. (SBU) All the natural gas that the Crescent/Dana 
consortium plans to supply to the Nabucco pipeline will come 
from the Chamchamal natural gas field, which is still under 
development.  None of the natural gas from Chamchamal will be 
needed to feed the KR's two BBO power plants in Pir Daoud and 
Chamchamal power plants.  The entire demand for natural gas 
for these two power plants will be fully met by 
Crescent/Dana's natural gas field in Khor Mor, where 
QCrescent/Dana's natural gas field in Khor Mor, where 
Crescent/Dana are expanding production with the drilling of a 
ninth well.  Both fields are in Sulaimaniyah Province. 
(Note: Chamchamal's production reserves are estimated to be 
2.2 trillion cubic feet, tcf.  The USAID Economic Development 
Assessment, however, states that the total potential reserves 
of both fields are 11.7 tcf, and Chamchamal is the larger of 
the two fields.  End note.) 
 
Technical Challenges Surmountable 
--------------------------------- 
 
¶6. (SBU) The consortium will need to build a pipeline to tie 
the Chamchamal field with the Nabucco pipeline.  The 
mountainous terrain between the two points will present 
technical challenges.  The consortium, however, is confident 
that it will be able to surmount them without problems, 
according to Shakir.  These challenges, he continued, are 
 
BAGHDAD 00001446  002 OF 003 
 
 
less daunting than those that Crescent/Dana faced when 
building the existing 180 km pipeline between the Khor Mor 
natural gas field and the electrical power plants in 
Chamchamal and Pir Daoud.  That pipeline not only had to pass 
through rugged terrain, but through minefields, as well. 
 
Political Risks Acceptable 
-------------------------- 
 
¶7. (SBU) All parties in the consortium have studied the 
political risks they face, and are confident that these will 
not impede the project's success, Shakir asserted.  All of 
the companies did due diligence, and the three publicly 
listed companies are answerable to stockholders, adding to 
the cautious approach they took.  The first consideration was 
the GoI.  According to Shakir, lawyers assured the consortium 
that the Iraqi constitution and all relevant laws supported 
their venture, even though the GoI has already expressed its 
disapproval.  Shakir discounted a press report quoting Iraqi 
government spokesman Ali Dabbagh, who said that the 
consortium's deal to export gas to the Nabucco pipeline was 
illegal.  Not only does the law favor the consortium , Shakir 
said, quoting the findings of the consortium's lawyers, but 
the fact that the GoI recently allowed oil to flow to the 
strategic pipeline from Tawke and Taq Taq shows that the 
government, in the end, is responsive to the need for higher 
export revenues a 
nd the facts on the ground. 
 
¶8. (SBU) The consortium must deal delicately with the issue 
of Iran for two reasons, according to Shakir.  First, Iran 
itself is a competitive source of natural gas.  Second, the 
success of the consortium in the KRG would strengthen Iraq at 
the expense of Iran; and Iran wants a weak Iraq.  Russia, 
also, stands to lose ground if the Nabucco pipeline succeeds. 
 On the other hand, Turkey is delighted with the prospect of 
receiving gas from Kurdistan, according to Shakir.  The 
success of the Nabucco pipeline is very much in Turkey's 
strategic interest, he observed.  The more possible sources 
of natural gas, the greater the advantage to Turkey. 
 
¶9. (SBU) Comment: OMV and MOL are already exploring for oil 
in the KR under production sharing agreements (PSAs), so both 
OMV and MOL already have an exposure in the KR that might 
have led them to conclude "in for a penny, in for a pound." 
OMV signed a PSC in November 2007 to develop two exploration 
blocks, while an MOL subsidiary partnered the same month with 
a UK Gulf Keystone subsidiary to develop another block.  End 
comment. 
 
Other Crescent/Dana Projects inside Iraq 
---------------------------------------- 
 
¶10. (SBU) Crescent Dana is negotiating with the United Cement 
Company to provide natural gas from the Khor Mor field to 
cement factories at Bazian and Tasluja, both located in 
Sulaimaniyah Province.  United Cement's major shareholder is 
the French building materials giant, Lafarge.  Currently, 
these factories rely on fuel oil trucked from the Bayji 
refinery.  Natural gas, besides being environmentally 
cleaner, will be a much cheaper source of energy.  Lower 
energy costs should enable United Cement to compete more 
effectively against cement imported from Iran, which 
currently undercuts the locally produced product (reftel). 
 
¶11. (SBU) Meanwhile, Crescent/Dana's ambitious plans to build 
Kurdistan Gas City, a gas utilization industrial complex near 
Chamchamal, remain on hold.  As envisioned, the project would 
cover 43 square miles, an area larger than the size of the 
city of Sulaimaniyah, and create up to 200,000 jobs in the 
Qcity of Sulaimaniyah, and create up to 200,000 jobs in the 
region.  The project will require active coordination by 
several ministries, as well as the participation of many 
investors.  But so far, Shakir said, the KRG has not focused 
on it, and has not even allocated any land. 
 
¶12. (SBU) On the other hand, Crescent/Dana has been actively 
studying plans to build a gas city in Anbar Province, using 
natural gas from the Akkas gas field.  According to Shakir, 
Anbar tribal chief Sheikh Ahmed Abu Risha enthusiastically 
supports the idea.  Sheikh Ahmed told Crescent/Dana he 
welcomes the jobs that the project would create, adding that 
right now the only possibilities open to young men in Anbar 
are either to join the police or Al Qaeda.  Shakir also 
mentioned plans to build another gas city in Basra Province. 
The problem with proceeding forward with either of these 
plans, Shakir explained, is that Oil Minister Shahristani has 
blackballed hydrocarbon companies doing business with the KRG 
from doing business in the rest of Iraq. 
 
 
BAGHDAD 00001446  003 OF 003 
 
 
Comment 
------- 
 
¶13. (SBU) This announcement was made by consortium itself, 
and not by the KRG.  But this project fits in well with the 
KRG's strategy to develop its hydrocarbon resources at all 
deliberate speed, consistent with regional legislation passed 
in 2007.  KRG Minister for Natural Resources Ashti Hawrami 
told the RRT Team Leader that the KRG supported the idea 
although it was not negotiating with the consortium at this 
time.  "If and when gas becomes available, then the KRG or 
Iraq will need to come up with a commercial arrangement for 
selling/pricing the gas - which belongs to all the Iraqi 
people," he stated. 
HILL