BAGHDAD, Oct 4, (Agencies): Two United Arab Emirates-based energy companies announced Saturday that they have begun producing natural gas in Iraq’s self-ruled Kurdish area. Crescent Petroleum and its partner Dana Gas DANA.AD said initial gas production stood at 75 million cubic feet per day after completing the first phase of the $650-million project. Within the first half of 2009, production will rise to 300 million cubic feet per day, the companies said in an e-mailed statement to The Associated Press. “We are very proud of this historical milestone, as the first companies from the Middle East to invest in Iraq’s oil and gas sector,” Dana Gas upstream executive director, Ahmed al-Arbeed, said in the statement. “This is the first project of its kind in Iraq, and it will provide important economic and social benefits for the Kurdistan region and all of Iraq,” added Majid Jafar, executive director of Crescent Petroleum. Kurdish officials were not available to comment. In April 2007, Iraq’s Kurds and the two companies signed the service deal to develop the Khor More gas field and to appraise the Chemchemal field.

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The gas will be used to supply new power plants in Irbil and Sulaimaniyah provinces, two of three provinces that make up the regional government. The two plants are to provide a total of 1,250 megawatts of electricity. According to Iraqi Oil Ministry figures, the Khor More field was discovered in the 1950s and has estimated gas reserves of 1.4 trillion cubic feet. But it has never been fully developed and was shut down after the first Gulf War in 1991 The Chemchemal gas field, which has never been appraised or developed, has estimated reserves of 2.2 trillion cubic feet. The statement said initial production will supply the power plant in Irbil, the capital of the semiautonomous Kurdish region. Later production will go to the plant in Sulaimaniyah. The companies praised the project, saying it would help supply electricity to 4 million Iraqis in the region and save some US$2.5 billion the Kurds pay each year to import diesel for power plants. It would also provide more than 2,000 jobs for local people, it said. The project also includes the construction of a 180 kms (112 miles) pipeline to transport the gas to the two power plants. The pipeline will have spare capacity to accommodate additional production from nearby fields.

Both companies are also working with the Kurdish regional government on plans to set up Kurdistan Gas City, which will include petrochemical, steel and other heavy industry plants. The Iraqi government has criticized the more than 20 oil and gas contracts the Kurds have signed, saying they are illegal since the parliament has not yet passed a national hydrocarbon law. The law has been held up over disagreements between Kurdish and Arab leaders about who has the final say in managing oil and gas fields. The Iraqi government has threatened to blacklist companies that sign deals with the Kurds to prevent them from participating in opportunities in other parts of Iraq. The UAE’s Crescent Petroleum and affiliate Dana Gas have begun supplying gas in Iraq’s Kurdistan region after completing the first stage of a $650 million project, the companies said in a statement on Saturday.

Gas was flowing at 75 million cubic feet per day (cfd) from the revamped Khor Mor field and supply will rise to 300 million cfd in the first half of 2009, the companies said. The first gas will supply a power plant in Arbil, the capital of the semi-autonomous Kurdistan region. Supplies coming on stream later will go to another power plant in Sulaimaniya. The two plants will have total electricity generation capacity of 1,250 megawatts. Supply was initially planned to begin in mid-2008, but was held up as construction of the power plants took longer than expected. Dana and Crescent signed the service contract in April 2007 with the Kurdistan regional government (KRG) to redevelop the Khor Mor and Chemchemal fields. The Khor Mor field was shut after the first Gulf War in 1991.

Energy
The KRG has angered Baghdad by moving ahead with plans to develop its energy sector while political wrangling has delayed a federal oil and gas law from going before parliament. The deal with Dana and Crescent is a service contract, rather than a production sharing agreement (PSA). The Kurdistan government’s PSAs have attracted criticism from some politicians in Baghdad, including the oil minister. The KRG says its deals are in line with the constitution. Crescent says it has no doubts over the legality of its deal and that other regions of Iraq have shown interest in contracting the companies for similar projects.

“We are absolutely certain of the moral, legal and economic correctness of our contract with the KRG and the work we are doing,” Majid Jafar, Crescent executive director, told Reuters. “This benefits the Kurdistan Region and all of Iraq... we have already been asked by local officials to replicate similar projects in other regions of Iraq.” The plants will save Iraq over $2 billion annually in fuel costs — cash the government currently spends on oil products for small power generators. The project was the largest private-sector investment in Iraq since the US-led invasion of 2003, the companies said. Aside from redeveloping Khor Mor, appraising Chemchemal and building gas processing facilities, the companies constructed a 180 kilometre pipeline that required clearance of some minefields.

Crescent and Dana each have a 50 percent stake in the project. Crescent is based in the emirate of Sharjah in the United Arab Emirates. The two companies also signed up last year to evaluate the region’s gas reserves and to build a large gas-fed industrial complex called Kurdistan Gas City. Initial investment in the basic infrastructure for the complex would be $3 billion. Dana and Crescent are leading the development and looking to attract partner companies. Eventually, they hope the complex will attract more than $40 billion in foreign direct investment and will house at least 20 large petrochemical and heavy manufacturing plants with output that will mostly be consumed in Iraq. Iraq needs billions in investment to rebuild its economy after years of sanctions and war. The Kurdistan region largely escaped the sectarian violence suffered in the rest of Iraq after the US-led invasion of March 2003 and is already undergoing rapid economic development.