UAE's Crecent Petroleum seeks arbitration in Iran gas dispute

Crescent Petroleum, the Sharjah-based oil and gas company, will take its dispute with Iran's national oil company to international arbitration after it said the Islamic republic failed to fulfil its side of a contract for gas imports. Eight years ago, the privately held company signed a 25-year agreement with the National Iranian Oil Company (NIOC) for supplies of 600 million cubic feet a day of Iranian gas that were supposed to start in 2005. But no gas has been delivered through Crescent's undersea pipeline, which has been sitting empty for more than three years. At the heart of the dispute is -NIOC's failure to complete production facilities for the Salman gasfield in the Gulf, and its demand to be paid more than originally agreed. The two companies have held protracted discussions to renegotiate the gas price amid repeated threats by Iranian officials to cancel the deal. "NIOC contractors have announced that they finally expect to achieve technical readiness later this summer, but we have still not had official notification of a date of readiness to deliver gas from NIOC," Crescent said yesterday in a statement. "We did not want to take this step," the company said, "but with entering the fourth summer with still no contractual gas supplies, some of our customers have lost patience and are demanding performance." Crescent said it would seek a determination on NIOC's legal obligation to deliver gas, and indemnity from NIOC over customer claims. Delays to the US$1 billion (Dh3.67bn) project in which Crescent's affiliate, Dana Gas, is also a partner, have caused Crescent and its UAE customers "large and ongoing losses", Hamid Zaheri, the company's representative in -Tehran, told Reuters on Sunday. The Iranian oil ministry's official news agency, Shana, reported on July 4 that NIOC was nearly ready to start gas production from the Salman field, and would inaugurate the first phase of the project next month. The gas would be sent to the Iranian coastal city of -Assaluyeh through a new pipeline, it said. "Iranian experts and technicians are working on the project around the clock to get the project completed as soon as possible," Shana quoted Ali-Reza Nazari, the Salman project manager, as saying. The field was to have been the source of gas exports to the UAE, which would have been Iran's first to a Gulf country. Shana acknowledged that deliveries to Crescent were contracted to start in 2005. "But because of some differences on terms of contract like fair price for the exported gas and the proper formula for price revision, its execution has been procrastinated," it said. On Sunday, Reza Kasaeizadeh, the managing director of NIOC, reiterated previous warnings that Iran would use Salman's output for its domestic market if a new agreement was not reached. "We cannot make a distinction between Crescent and other gas buyers, and Crescent will have to accept the conditions if it is interested in buying Iran's gas," he said. Mr Zaheri said the two sides had previously agreed on a new higher price for the gas, but NIOC still had not completed the construction of gas export facilities. The UAE already buys gas from Qatar to help meet growing domestic demand for the fuel for electricity generation and heavy industry. It is seeking to expand its gas imports as it also pursues projects to increase output from its existing gasfields and develop new fields. In spite of sitting on the world's second-largest gas reserves, Iran has failed to develop sufficient production capacity to meet its domestic requirements. Recent negotiations over potential gas exports to Bahrain and Oman have also fallen by the wayside. tcarlisle@thenational.ae