US embassy cable - 05DUBAI265

C O N F I D E N T I A L SECTION 01 OF 03 DUBAI 000265 
 
SIPDIS 
 
E.O. 12958: DECL:  1/17/2015 
TAGS: EPET, PREL, TC, IR 
SUBJECT: UAE-IRAN PIPELINE REPORTEDLY MOVING AHEAD 
 
REF: A) 04 DUBAI 67; B) 04 ABU DHABI 1701; C) 04 DUBAI 1897; D) 04 ABU 
 
ABI 1540 
 
 
CLASSIFIED BY: Jason Davis, Consul General, Dubai , UAE. 
REASON: 1.4 (b), (d) 
 
 
 
1. (C) Summary: Progress on Crescent Petroleum's project to pipe 
gas from Iran into the UAE, reported reftels, continues apace 
according to our contacts in the industry.  The project looks 
likely be completed in 2005 or 2006.  Contracts for the 
project's required new infrastructure -- an offshore platform, 
80 kilometers of pipeline, and a new desulfurization plant -- 
have all been awarded, and construction is underway. To be 
feasible, the project will likely require participation by BP 
Sharjah, whose lawyers are currently studying ILSA-related 
concerns.  A key Abu Dhabi official continues to say that Abu 
Dhabi has not approved this project and does not intend to pay 
for any gas purchase agreement from Iran.  End Summary. 
 
 
SajGas Project -- Gas from Iran 
------------------------------- 
 
2. (C) As reported reftels, Sharjah-based Crescent Petroleum is 
heavily involved in a project aimed at bringing gas from an 
offshore Iranian gas field into the UAE.  In early January, in 
order to assess the progress that was being made, PolEconoff 
spoke with three top executives involved with Crescent's 
project: Junichi Tsuji, Middle East CEO of Itochu Corporation; 
Abdulkarim Al Mamsi, GM of British Petroleum (BP) Sharjah; and 
Rashid Al Shamsi, GM of federally owned Emarat Petroleum. 
 
3. (U) According to the above interlocutors, Crescent Petroleum 
plans to connect Sharjah's already existing gas-handling plants 
and pipelines to new pipelines bringing gas from Iran's offshore 
Salman field.  Crescent and the government of Sharjah, along 
with investors from Saudi, Bahrain, Kuwait, Abu Dhabi, and 
Sharjah, formed a new joint venture in 2004 called Sajaa Gas 
Private Company (SajGas) to effect this project. Contacts tell 
us that almost all of the pieces of the SajGas project have 
already been tendered, awarded, and started construction. 
 
80 KM of New Pipeline 
--------------------- 
 
4. (C) Junichi Tsuji of Itochu Corp told PolEconoff that 
Crescent had already signed a deal with the National Iranian Gas 
Exporting Company (NIGEC), a subsidiary of the National Iranian 
Oil Company (NIOC). The deal stipulates that NIGEC will build a 
sub-sea pipeline connecting Iran's Salman field to Sharjah's 
offshore Mubarak platform. A USD ten million contract for 
engineering and modifying Mubarak platform to enable it to 
receive the Salman gas has already been awarded to Sharjah-based 
Maritime Industrial Services. 
 
5. (C) The existing pipeline from Mubarak to Sharjah is 
insufficient to handle the increased volume of gas, however, so 
-- according to Tsuji and media reports -- a new 30-inch sub-sea 
pipeline, 50 km in length, will be laid to connect Mubarak to 
Sharjah's Hamriyah Free Zone and port.  From there, a new 
30-inch land-based pipeline will stretch 30 km to connect 
Hamriyah to Sharjah's Sajaa gas field, with existing gas 
handling facilities and a pipeline network that supplies gas to 
Sharjah Electricity and Water Authority (SEWA) and Federal 
Electricity and Water Authority (FEWA) customers throughout the 
northern Emirates. The USD 109 million contract for building the 
Hamriyah to Sajaa pipeline has been awarded to Abu Dhabi-based 
National Petroleum Construction Company (NPCC), and Itochu has 
already delivered much of the pipeline material.  (Note: NPCC is 
70 percent owned by the General Holding Company, an Abu Dhabi 
government-owned company headed by Sheikh Hamed bin Zayed Al 
Nahyan, Chairman of the Abu Dhabi Department of Planning and 
Economy.) 
 
6. (C) The pipeline to Sajaa will terminate at a new USD 88 
million desulfurization plant, awarded by SajGas to 
Sharjah-based Petrofac International and already under 
construction.  This plant will eventually be able to sweeten 600 
million standard cubic feet per day (mmscfd), though Al Mamzi 
said it would initially have a capacity of 200-300 mmscfd and be 
ramped up from there.  This plant is being built adjacent to BP 
Sharjah's gas separation plant.  Tie-ins built by Petrofac will 
reportedly carry gas from the sweetening plant to BP's plant, 
where the Iranian gas will be processed, pressurized, and sent 
to FEWA, SEWA, and other potential customers through the 
pipelines emanating from BP's plant.  As reported Ref A, 
Crescent has already signed a deal with FEWA to supply the gas 
from this project; while the source of the gas is not specified, 
contacts tell us it is common knowledge that it will come mainly 
from Iran. Al Shamsi said the gas coming from Mubarak would be a 
mix of gas from Sharjah's existing Mubarak field and Iran's 
Salman field, but that whereas Mubarak only produces between 40 
and 60 mmscfd, the new 80 kilometers of pipeline from Mubarak to 
Sajaa will, like the new desulfurization plant, have a capacity 
of 600 mmscfd.  The numbers strongly suggest that the vast 
majority of the new gas FEWA will receive will be coming from 
the Iranian field. 
BP Sharjah President's Take 
--------------------------- 
 
7. (C) Asked by PolEconoff whether the SajGas project would go 
to completion, allowing Sharjah to begin importing Iranian gas, 
BP's Al Mamzi replied, "That depends on you."  He expected that 
without "a call from Washington," the project would be completed 
"perhaps not in 2005, but in 2006."  Al Mamzi also expressed 
surprise at how emboldened Crescent had become.  When SajGas was 
first bruited, Crescent kept it hushed up.  Now, Al Mamzi said, 
"the plan to bring in Iranian gas is being reported in the 
media, and oilmen talk openly about it in the corridors. 
Everything I've told you is common knowledge."  He said that 
Crescent had carefully locked in allies in Abu Dhabi and 
elsewhere, such as through the NPCC contract (see para 5).  "Now 
is a crucial time (for the US to intervene if intends to)," Al 
Mamzi concluded. 
 
8. (C) Al Mamzi said that as a US-registered company concerned 
about ILSA, BP Sharjah had a policy of not talking to Crescent. 
But Al Mamzi had heard secondhand that Crescent CEO Hamid Jaffar 
had been telling people that he had notified the US government 
of his plan to bring Iranian gas to Sharjah, and the USG had 
"done nothing."  (Note: In reality, as reported Refs B and C, we 
have repeatedly expressed USG concerns about this project both 
to the UAEG and to Jaffar at Crescent.) 
 
9. (C) The gas separation and pressurization plant run by BP 
Sharjah is actually owned by Sharjah LPG Company (Shalco), a 
joint venture among the government of Sharjah (60%), BP Sharjah 
(25%), and the Japan-based corporations of Itochu (7.5%) and 
Tokyo Boeki (7.5%).  Al Mamzi said it would be "vital" for the 
viability of SajGas for its Iranian gas to connect up to the BP 
Sharjah plant.  BP Sharjah (formerly Amoco Sharjah) has so far 
refused to agree to process SajGas gas because of ILSA concerns. 
Al Mamzi said he was in a difficult position, as BP's refusal to 
play ball had led to his receiving direct and strong pressure 
"from the (Sharjah) Ruler's Office."  Al Shamsi admitted that 
Crescent was in talks with UK-based BP International in Abu 
Dhabi, and that BP's lawyers were still reviewing their options, 
which include allowing SajGas to buy out BP's 25 percent share 
in Shalco or -- more likely in Al Mamzi's view -- finding a way 
to assuage the BP lawyers' ILSA concerns without actually 
selling BP's share.  (Note:  BP's Washington-based Director for 
International Affairs, Gregory Saunders, met Abu Dhabi A/DCM on 
January 16.  He said that BP was very concerned about this 
project and that it looked "far more serious" than they had 
thought a few months earlier.  He also assured A/DCM that BP was 
looking very closely at making sure that it did not violate ILSA 
and stressed that BP would "play it straight."  End Note.) 
 
Emarat GM's View 
---------------- 
 
10. (C) Rashid Al Shamsi, GM of Emarat petroleum, told 
PolEconoff that he and his colleagues in the industry used to 
bet against Crescent's Iranian pipeline coming to fruition.  Al 
Shamsi thought that the Dolphin project and its Abu Dhabi 
patrons would effectively "shut down" the project.  But Dolphin 
has still not signed an agreement with FEWA, SEWA, or Dubai, 
three of its planned major customers.  The reason, according to 
Al Shamsi, is that they all find Dolphin's price too high. 
Crescent's Iranian gas, however, would be significantly cheaper. 
 Al Shamsi said that he and his colleagues now calculated that 
the project probably would go forward.  "Crescent has invested 
too much to shut this project down," he added.  Entities that 
take delivery of gas using Emarat's pipelines regularly notify 
Emarat of how much gas they will require;  Al Shamsi said that 
FEWA had for the first time notified Emarat recently that it 
would be receiving gas from the SajGas project in September 2005. 
 
Abu Dhabi Perspective 
--------------------- 
 
11. (C) A/DCM Abu Dhabi met with Abu Dhabi Executive Council 
Member and COO of the Emirate of Abu Dhabi owned Mubadala 
Development Company Khaldoon Al-Mubarak to discuss the 
Crescent-Iran gas deal and the talks between the Emirate of Abu 
Dhabi and Iran about the supply of gas to the UAE.  Al-Mubarak 
was fully aware of Crescent's progress in putting together the 
infrastructure to supply Iranian gas to the UAE.  He emphasized, 
however, that Abu Dhabi has not approved the deal, nor has it 
agreed to purchase any Iranian gas on behalf of the UAE.  He 
noted that gas deals need purchasers as well as sellers, 
implying that the northern emirates of the UAE would be unable 
to afford Iranian gas without Abu Dhabi financial assistance, 
which was not forthcoming. 
 
12. (C) Al-Mubarak stated that the emirate of Abu Dhabi has 
undertaken to ensure that the UAE has sufficient energy to meet 
its needs.  The vehicle for meeting the UAE's energy needs, he 
added, was the multi-billion dollar Dolphin project to bring 
Qatari gas to the UAE.  (Note: Mubadala owns 51% of the Dolphin 
project.)  In response to A/DCM's question about sales 
agreements for Dolphin Gas, he stated that he expected a 
purchase agreement with Dubai and Oman shortly.  (Note: Oxy 
officials (protect) have told us that they believe that the -- 
long awaited -- Dubai agreement with Dolphin will be decided at 
the political rather than the commercial level.) 
 
13. (C) Al-Mubarak asserted that international gas deals and 
laying pipelines internationally needed government blessing and 
needed to be conducted in a transparent manner.  He contrasted 
the "public" process used by Dolphin with Crescent's more 
secretive style and asked, rhetorically, whether the emirate of 
 
SIPDIS 
Sharjah or Crescent had ever publicly admitted "for the record" 
that the gas would come from Iran.  A/DCM reiterated USG 
concerns about gas deals with Iran.  Al-Mubarak replied that the 
UAE was well aware of USG concerns and ILSA considerations.  He 
concluded by saying, "we'll take care of it," referring to the 
Crescent deal.  A/DCM also asked about Mubadala-Iranian 
negotiations about providing gas.  Al-Mubarak said that he could 
not go into details, but stressed that Abu Dhabi was "just 
talking" to Iran.  He gave the impression that, for the near 
term, Abu Dhabi would meet its energy needs from Qatari gas. 
(Note: As reported in Ref A, the UAE believes that its long-term 
energy needs are likely to surpass the gas that Dolphin can 
provide.) 
 
Comment 
------- 
 
14. (C) In mid-2004, Abu Dhabi and UAEG officials assured the 
Ambassador and other embassy officials that no company in the 
UAE could move forward on a gas deal with Iran without the 
explicit consent of Abu Dhabi.  According to Al-Mubarak, this 
consent has not been given, nor is Abu Dhabi prepared to pay for 
Iranian gas (at this time).  Nevertheless, Crescent appears to 
be moving forward aggressively to build the infrastructure 
necessary to bring in Iranian gas.  It would appear that, in 
Crescent's mind and in the mind of Sharjah authorities at least, 
a lack of consent no longer equates to an out and out 
prohibition.  It is unclear how aggressively Abu Dhabi will act 
to block a Crescent-Iran deal. 
 
15. (U) This Cable has been coordinated with Embassy Abu Dhabi. 
 
DAVIS