Iraq Kurdistan gas plan may cut Russian sway on EU

SHARJAH, United Arab Emirates (Reuters) - A new bloc of European and Arab energy firms unveiled an $8 billion plan on Sunday to pump enough gas from Iraq's Kurdistan to kickstart the Nabucco pipeline project and reduce Europe's reliance on Russia.

Until now, the $10 billion Nabucco pipeline scheme had plenty of willing gas buyers in Europe, but little to sell. Europe imports a quarter of its gas from Russia and has backed Nabucco to help cut that dependence.

Gas from the semi-autonomous northern region of Iraq could help solve the Nabucco supply conundrum.

The United Arab Emirates' Crescent Petroleum and affiliate Dana Gas DANA.AD believe there is enough gas in the fields they operate in the Kurdistan region to supply the pipeline after meeting local demand in northern Iraq and Turkey.

Austria's OMV (OMVV.VI) and Hungary's MOL (MOLB.BU), two of Nabucco's initial shareholders, have bought into the $8 billion scheme. They have joined forces with Crescent and Dana to take on the gas development plan, the companies first told Reuters in interviews and a joint statement on Sunday.

"We are confident that our assets in the region have the potential to produce over 3 billion cubic feet per day (cfd) by 2014," Badr Jafar, executive director for Crescent Petroleum, told Reuters.

Jafar declined to estimate how much would be available for the Nabucco project. An industry source told Reuters that around 1.5 billion cfd could go to the pipeline, sufficient to fill Nabucco's first phase.

"That quantity would certainly be enough to start Nabucco," said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies.

But questions remained over whether the size of the gas reserves quoted would be sufficient to supply those volumes of gas, over the speed at which they could be delivered to transit country Turkey and the position of Iraq's central government on the legality of the project, Stern added.

OMV was confident there was enough gas to meet domestic, Turkish and Nabucco demand.

"Besides satisfying local demand, we expect there will be enough gas for the Turkish markets as well as Europe via the planned Nabucco pipeline," Helmut Langanger, OMV executive vice president of exploration and production, told Reuters.

OMV will pay $350 million to Crescent and Dana for a 10 percent stake in their regional operating unit Pearl Petroleum. The UAE firms said they would reinvest the money in the project. Before the deal, Crescent and Dana each held 50 percent in Pearl.

MOL will give 3 percent of its shares each to Crescent and Dana. In return, MOL will also take 10 percent in Pearl.

"The project strengthens the realization of the Nabucco pipeline aimed to increase European gas supply security," MOL Executive Vice President for Exploration and Production Zoltan Aldott told Reuters.

CLASHED WITH BAGHDAD

Iraq's oil ministry declined to comment on the plan on Sunday and said it had received no notification from the Kurdish Regional Government (KRG). The Kurdish government also gave no comment, and said the matter was for the companies involved to discuss.

The Iraqi oil ministry has criticized oil and gas contracts that the KRG has signed with international oil companies, calling them illegal. The KRG, which has clashed with Baghdad over draft oil legislation, has countered that the deals are legal and comply with Iraq's constitution.

"We are absolutely convinced of the legal, moral and technical correctness of our investments and projects in Iraq's Kurdistan region," Jafar told Reuters, when asked if potential opposition from Baghdad worried him.

The project would prioritize meeting local demand ahead of exports, Jafar added. Local demand was unlikely to surpass 500 million cfd, the industry source said. Around 1 billion cfd of the project's output could go to Turkey, he added.

Crescent and Dana signed a deal with the KRG in 2007 to develop the Khor Mor field quickly to supply local power plants already under construction. The UAE companies also signed up to appraise and develop the Chemchemal field. Crescent and Dana have yet to disclose what their latest appraisal has found.

The two fields have gas reserves of 3.6 trillion cubic feet, just over 3 percent of Iraq's 112 trillion cubic feet of reserves, according to U.S. government data. Iraq has the world's tenth-largest gas reserves.

The 3,300 km Nabucco pipeline was initially planned to carry Caspian gas via Turkey, Bulgaria, Romania and Hungary to Austria. The first phase of the pipeline was to have capacity of around 1.5 billion cfd, with the second phase double that.

OMV and MOL each have a 16.67 percent stake in Nabucco. Other stakeholders are Bulgaria's Bulgargaz, Romania's Transgaz TGNM.BX, Turkey's Botas and Germany's RWE (RWEG.DE).

(Additional reporting by Shamal Aqrawi in Arbil and Ahmed Rasheed in Baghdad; Editing by David Fox/Will Waterman)