US embassy cable - 05ABUDHABI3440

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 003440 
 
SIPDIS 
 
DEPT FOR NEA/ARPI, EB/ESC/TFS, EB/ESC/IPC 
WHITEHOUSE FOR OVP - KEVIN O'DONOVAN 
 
E.O. 12958: DECL: 08/08/2015 
TAGS: EPET, ENRG, ECON, PREL, IR, TC 
SUBJECT: ABU DHABI AWARE OF SHARJAH AND IRANIAN GAS 
 
REF: ABU DHABI 3237 
 
Classified By: Ambassador Michele J. Sison for reasons 1.4 (b & d) 
 
1. (U) This is an action request.  Please see para 9. 
 
2. (C) Summary:  Abu Dhabi Executive Council member Khaldoon 
Al-Mubarak told Econchief that Abu Dhabi emirate leadership 
was aware of the planned Crescent petroleum project to pipe 
Iranian gas to the UAE and was trying to develop an 
appropriate solution.  Al-Mubarak noted the sensitive nature 
of the UAE's relations with Iran, which occupies three 
islands claimed by the UAE, including one claimed by the 
Emirate of Sharjah.  Crescent Petroleum, which allegedly 
signed the deal with Iran, announced the formation of a new 
company Dana Gas (and a planned IPO) to handle the gas 
imports.  Although the press has widely reported that the 
source of the gas is Iran, Crescent has never publicly 
confirmed the source of the gas.  The project would involve 
piping gas from Iran's Salman field to an offshore facility 
in Sharjah.  The gas would be brought into the UAE for use in 
the country's northern emirates.  Al-Mubarak stressed that 
there was no Abu Dhabi emirate government investment in the 
project.  Local press reporting provides more detail on the 
creation of Dana Gas and its planned IPO.  End Summary. 
 
3. (C) On July 26, Econchief raised the Dana Gas IPO with Abu 
Dhabi Executive Council member and Mubadala CEO Khaldoon 
Al-Mubarak.  Al-Mubarak clearly expected the conversation, 
noting that it was clear that there was a relationship 
between Crescent Petroleum and Iran.  Al-Mubarak said that 
senior Abu Dhabi emirate officials were "aware of the 
situation" and trying to come up with an appropriate 
solution.  Econchief stressed U.S. concerns about investments 
in the Iranian oil and gas sector.  Al-Mubarak admitted that 
he had thought that they had successfully shut down the 
project but that it "was still very much alive." 
 
4. (C) Al-Mubarak explained that the Crescent deal with the 
Iranian National Oil Company would involve piping gas from 
Iran's Salman field (shared with the Emirate of Abu Dhabi) to 
Crescent's offshore Mubarak platform.  The gas would be used 
in the northern emirates.  Al-Mubarak stressed that no gas 
was flowing and that there was no Abu Dhabi government 
investment in the project. 
 
5. (C) Al-Mubarak reiterated that the position of Abu Dhabi 
emirate leaders was that any decision to sign an 
international oil or gas deal is a federal decision.  He 
emphasized, however, that the emirate of Abu Dhabi had a 
"complicated" and "sensitive" relationship with both Iran and 
the emirate of Sharjah: A relationship that needed to be 
managed carefully.  (Note:  The emirate of Sharjah claims the 
-- Iranian occupied -- Abu Musa Island.  Sharjah's ruler is 
also known for his -- relatively -- conservative Islamic 
beliefs and ties to Saudi Arabia.  End Note.) 
 
6. (U) The UAE press has provided a number of details 
regarding Crescent Petroleum and the Emirate of Sharjah,s 
planned initial public offering (IPO) of Dana Gas in 
September.  The new company, Dana Gas, will undertake the 
Sajaa Gas Ltd. (Sajgas) project to pipe gas to the UAE. 
(Note:  Although the press has reported that this will be 
Iranian gas, Crescent has not publicly confirmed the source 
of the gas.)  Dana Gas will be capitalized at 6 billion 
dirhams ($1.63 billion).  Dana Gas will also be the region,s 
first private sector gas resource company to have a public 
listing, when trading begins on the Abu Dhabi Stock Market 
following the IPO. 
 
7.  (U) The IPO will be for 35 percent of the new business, 
or $572 million.  Of the remaining 65 percent, the original 
founders will hold 32.7 percent ($534 million).  These 
original founders include Crescent Petroleum, the government 
of Sharjah, Bank of Sharjah and individuals from the Gulf 
region.  The other 32.3 percent ($528 million) will go to new 
founding investors, &comprising reputable institutions, 
companies and individuals from all over the Gulf, building 
upon the growing spirit of private sector cooperation and the 
increasing trend for cross-investment across the region,8 
according to a press statement.  The Memorandum and Articles 
of Dana Gas stipulate that at least 51 percent of the company 
must be owned by GCC citizens, allowing foreign ownership of 
up to 49 percent. 
 
8.  (U) Dana Gas will fully merge Sajgas and the United Gas 
Transmissions Company, both currently held by Crescent 
Petroleum, the Sharjah government and other founding 
investors.  Dana Gas will also take a 35 percent share of 
Crescent Natural Gas Company, of which Crescent Petroleum 
will hold onto a 65 percent share.  Dana Gas expects its 
initial customers to include federal, Sharjah, and Dubai 
utilities providers, Dubai Gas Company (Dugas) and the Dubai 
Supply Authority.  Dana forecasts first-year 2006 profits to 
be $73 million for its gas supply business, according to news 
sources. 
 
9. (C) Action Request: Embassy and ConGen Dubai would welcome 
cleared language from the Department for use with the UAEG 
and the ruler of Sharjah as we attempt to convince them to 
stop this unwelcome project.  Given the September timeline 
for the Dana IPO, the window of opportunity appears limited. 
SISON