Gas Contract With Oman in Final Stage

Gas Contract With Oman in Final StageGas Contract With Oman in Final Stage

Iran and Oman took what would likely be the final step in sealing a long-in-the-works gas export deal worth $60 billion in a meeting between Iran's Oil Minister Bijan Namdar Zanganeh and his Omani counterpart, Mohammed bin Hamad al Rumhy, in Muscat on Thursday.

The two sides discussed the financing terms of laying an approximately 260-kilometer subsea pipeline to supply 28 million cubic meters a day of natural gas (10 billion cubic meters a year) from Iran to Oman under a 25-year contract that is expected to begin in 2019.

"With sanctions lifted, the National Iranian Gas Export Company and the Omani side will hold talks over the unexploited capacity [of Oman's LNG production] over the next 10 days," Zanganeh said after returning from his one-day trip to Muscat, Shana reported.

The small Arab country wants Iran's gas to meet the demand of its 3.6 million population, while a portion of supplies is planned to be used as feedstock to produce liquefied natural gas.

According to the latest developments concerning Tehran and Muscat's gas deal, a 48-inch pipeline will be laid up from Jask Port in southern Iran to deliver gas to Oman in the Arabian Peninsula.

Tehran and Muscat reached a preliminary agreement in early 2014 on laying the underwater pipeline at an estimated cost of $1 billion.

Iran has been pushing for the gas contract to capitalize on Oman's untapped LNG production capacity of 1.5 million to 2 million tons a year, but the deal was thwarted time and again due to financial and trade embargoes and price disagreements.

Zanganeh added that given the current level of oil prices, the deal would bring in $1.5 billion to $2 billion annually, which would fall short of the initial $60-billion target that Tehran is counting on to compensate for its huge budget deficit due to falling oil revenues.

Crude oil traded at $115 per barrel in mid-2014, but has since tumbled by more than 70% and is now struggling at below $30-per-barrel range.

--- Oman Optimistic

Oman's energy minister expressed optimism that the lifting of sanctions against Iran would fast track the gas pipeline project.

"We were facing lots of difficulties. Now we can order compressors, we can order pipes, seek consultancy help, we can talk to banks about financing. Things have changed," Rumhy told Reuters in a phone interview.

The official speculated that the front-end engineering design phase of the deal would be carried out in five months.

"So we are giving ourselves by the end of Q2 to finish the FEED and hopefully by the end of the year or Q1 next year to start the EPC (engineering, procurement and construction) work, which will take us two years, (to) 2017-18," he said, adding that Oman hopes to start receiving Iranian gas in three years.

"I think this will help us to make Muscat a gas hub for Persian Gulf countries. We can export and import gas and supply it to whoever wants to buy across the region. We would like to start thinking along those lines," he said.

"With the gas pipeline from Iran ... this will be a major milestone toward our goal of making Oman a center for gas trading in the region."

--- Roadmap for Exports

Iran wants to become a key player in the global energy market as it plans to boost gas production capacity from 420 mcm/d to 1 billion cubic meters a day in two years and to 1.2 bcm/d by 2020.

It sits on the world’s largest oil and natural gas reserves, holding 158 billion barrels of proven oil reserves and 34 trillion cubic meters of gas reserves.

But the country is planning to first expand a foothold in the Middle East's promising energy markets in the post-sanctions era, including Kuwait, the UAE and Saudi Arabia.

Nearly all of Iran's gas exports go to Turkey, Armenia and Azerbaijan; Ankara receives more than 90% of Iran's supplies while Yerevan and Baku import around 6% and 3% of Iran’s natural gas exports, respectively, under swap agreements.