Dana Gas: Favourable ruling in Iran and Crescent Petroleum Tribunal

UAE-based energy firm Dana Gas has released a statement that an international tribunal has issued a favourable ruling in the dispute over a natural gas supply contract between Iran and Dana’s largest private shareholder, Crescent Petroleum.

The tribunal ruled that a 25-year contract for National Iranian Oil Co (NIOC) to supply gas to Crescent was valid and legally binding, and that NIOC had been obligated to deliver gas since December 2005, Dana said on 9 August.

NIOC and Crescent signed the 25-year contract in 2001, with the price tied to oil. Deliveries were delayed, however, as oil prices rose and some Iranian officials and politicians called for a revision to the gas pricing formula.

Crescent Petroleum initiated arbitration proceedings in July 2009; a three-person arbitration tribunal was formed under the terms of the 2001 contract.

According to Dana, NIOC first introduced gas into its transmission network and Dana’s UAE processing facilities for commissioning purposes in July 2010. The system had to be shut down again, however, when leaks were discovered in the transmission system.

Dana did not state when it expected gas supplies to start flowing again, but a source familiar with the matter said that supplies would not begin in the near term as subsidiary agreements needed to be reached and infrastructure work completed.

The contract provides for the UAE to import some 600 million cubic feet of Iranian gas per day, although the actual amount will depend on many factors and may only become clear in coming months. The UAE is eager to obtain additional natural gas supplies to support its rapid economic growth.

In the last few years, international financial sanctions imposed by the US and Europe over Tehran’s disputed nuclear programme have restricted trade between the UAE and Iran. Dana did not say whether the sanctions might complicate efforts to implement the gas supply contract.

For more news and expert analysis about Iran, please see Iran Strategic Focus.

© 2014 Menas Associates

Iraq: IOCs in Kurdistan region see shares retreat as non-essential staff evacuated

The apparent stability and growing prosperity of Iraq’s more liberal and pro-business Kurdistan region has been undermined in recent weeks as Islamic State insurgents make significant advances into the Kurdish-controlled region. IOCs that were previously unaffected by the growing violence elsewhere in Iraq, are now seeing their share prices retreat in a manner reflecting those of the Kurdish forces.

Genel Energy, one of the IOC’s reaping the benefit of the export pipeline to Ceyhan in Turkey, has seen its shares shed 17% since the start of the month. London-listed Gulf Keystone Petroleum put out a statement on 7 August confirming that its production and trucking operations at its giant Shaikan field “remain safe and secure”, but this did little to prevent its shares falling by more than 11%. Norway’s DNO - , which has exploration, development and production interests in Kurdistan - was also hit, with its shares sliding 9.5%.

Following the lead of Chevron, ExxonMobil, Afren and Taqa, these companies, as well as Hess and its partner Petroceltic, have suspended operations in the  Kurdistan region and started to evacuate non-essential staff amid spreading violence in the region.

Last week Kurdish forces lost several  towns to Islamic State displacing 150,000 people largely from the Yazidi religious minority to according to a UN estimate. 

Considered to be ‘devil worshippers’ by the Islamic State, the Yazidis pray five times a day to the Malek Taus, the Peacock Angel also known as Shaytoun in the Kurdish language. Unfortunately, Shaytoun also means ‘devil’ in Arabic. The Islamic State has been accused of issuing an ultimatum to the Yazidi community to convert to Islam or face death, and reports from refugees state that these threats have been enacted through beheadings. 

The Kurdistan Regional Government has sent its Peshmerga forces to tackle the threat and the US has started air strikes, however, resulting in the recapture of two towns from Sunni militants on 10 August, one of the first victories for a military force that until now has been in retreat.

In a statement released 11 August, Petroceltic said “In conjunction with Hess Middle East New Ventures, our partner and the operator of our exploration activities in the Kurdistan Region of Iraq, we have been closely monitoring recent events in the region. While these developments have not directly impacted our exploration activities to date, in line with other operators in the region, it has been decided, as a precautionary measure, to temporarily secure and suspend operations (including the drilling of Shireen-1 exploration well in the Dinarta licence) and to evacuate non-essential personnel”.

Hess operates Iraqi Kurdistan's Dinarta and Shakrok fields, in which Petroceltic and the Kurdistan Regional Government have stakes of 16% and 20% respectively. The partners started drilling their first well, Shireen-1, on the Dinarta block in June and had expected exploration work to last five months. However, they decided to plug and abandon the Shakrok-1 well after disappointing exploration results.

Oryx Petroleum announced on 8 August that it had implemented a number of precautionary measures to protect its employees from the security developments in the region.  In the western portion of the Hawler license area the drilling operations at the Ain Al Safra and Banan sites have been temporarily suspended, both sites secured, and non-essential personnel relocated to Erbil given the proximity of such locations to recently reported hostilities in northern Iraq. 

In the central portion of the Hawler license area, drilling operations and facilities construction at the Demir Dagh field remain secure and operational but continue at reduced levels primarily due to the departure of certain third-party service company personnel from the site. Production from the Demir Dagh field has also been shut-in. 

The situation is moving fast in Iraq and with no sign of any easy solution to the advance of the Islamic State, which now controls parts of Syria and Iraq, including key oilfields that are funding the militants, investors should stay wary.

For more news and expert analysis about Iraq, please see Iraq Focus.

© 2014 Menas Associates

Libya: NTC finds running of the state an expensive operation

The National Transitional Council (NTC) is finding that the running of the state is an acrimonious and expensive operation. For example, as not in previous issues of Libya Politics & Security, the costs of providing overseas health care to both those wounded fighters and the wider Libyan population has caused major recriminations. In recent weeks a bitter atmosphere has arisen from the decision of the NTC chairman, Mustafa Abel Jalil, to maintain his own power base by keeping the government representatives unchanged. It now seems that there will be no definitive alteration in the formation of the government until in the end of the year – i.e. six months after the June 2012 election. In this situation of uncertainty Abel Jalil is attempting to keep the NTC going as a functioning entity in the face of severe criticism of both his own conduct and the policies espoused by his ministers.

The political implications of the unexciting short term prospects for the Libyan economy are important because it means that there will be very limited available cash to pay for the inevitable crises that will arise during the rest of the year in the health service, the provision of schools, and repair of war damage. The NTC will therefore be under great strain to maintain itself in power sufficiently well in order to guide the country into an era of relative democracy following the elections in June. That said - they are succeeding in making some progress.

During its first year in power and, if the wide-ranging expertise of the Libyan private sector is mobilised in peaceful conditions and foreign interest in the potential market that Libya represents is sustained, a modest rate of growth of 3%-5% in real terms may be achieved in the near future, It is also possible that a number of state and private sector companies will survive alongside the well organised oil sector which is currently defying its sceptics return to pre-war levels of oil production much quicker than most analysts thought possible. If, however, the IOCs decide that their Libya operations are likely to remain far less profitable than other exploration hotspots then Libya would be in a tight corner. Without the IOCs assistance Libyan oil production probably could not be maintained at current levels and the country would once again become a peripheral marginal producer.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2012 Menas Associates

Caspian: Shootout in northern city raises terror fea

A rare clash between security forces and Islamist militants in the northern city of Ganja this month has raised concerns about the threat of terrorism in Azerbaijan. Although much recent attention has focused on Iranian-backed cells, the militants killed and captured in the April operations were referred to as 'Wahabbis', the catch-all term for hardline conservative Sunnis. The government claimed that the group was linked with Al Qa'ida, had trained in Iran, Syria and Pakistan, and had engaged in combat against NATO forces in Afghanistan.

In the Ganja incident, two people – one militant and one member of the security services – were killed when police stormed a house being used by the groups. Some reports suggested that the two died when the militant set off a suicide vest – if true, this would be the first case of a suicide attacker in Azerbaijan (other accounts reported that the militant set off a grenade which killed the two).

Subsequent operations across the country, mainly in the north but also in Baku and Sumgait, rounded up 17 suspects and netted a large cache of explosives and weapons, including assault rifles and a machine gun. The authorities accused them of planning “provocative acts and terrorist attacks with the view of violating socio-political stability”. The dead militant, allegedly the leader of the group, was identified as Vugar Padarov from Zagatala in the north-west, near the border with Russia.

The arms involved, the location, and the purportedly 'Wahabbi' identity of the suspects suggests that the group may be linked to Russia's volatile North Caucasus. Dagestan, just to the north, has steadily become the focal point of the Islamist insurgency there. In August 2008 Azeri and Dagestani security forces fought a group of militants, including Azerbaijani citizens along the border region. The leader of the dead rebels was the 'Emir' of Dagestan, Ilgar Mollachiyev, who was born in Zagatala.

The details of the latest incident suggests that the threat was fairly serious. There is no information on the planned target but state security structures, foreign embassies, and IOC headquarters are all plausible targets. The timing of the sweep, so close to the Eurovision Song Contest in May, has also sparked alarm that the militants were planning a large-scale attack on the contest. Nonetheless the overall scale of the militant threat remains insignificant and the country's security services are fairly well-equipped to cope with it.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

© 2012 Menas Associates