Dana Gas and Crescent Petroleum announced Saturday they began sending gas from their Kor Mor field in Sulaimaniya, through a new 112-mile pipeline, to a new power plant in Erbil. Iraqis both within and outside the Kurdistan Regional Government's three northern provinces suffer steady shortfalls of electricity.

"The aim is to replicate some similar projects to make sure that in the end we will end shortages and hopefully export to the rest of Iraq," KRG Minister of Natural Resources Ashti Hawrami told United Press International.

Last month Iraq's Oil Ministry and Shell took steps toward establishing a joint-venture company to capture natural gas being wasted in Basra province in southern Iraq. And next week the ministry will begin offering gas fields for development to international oil industry bidders. The Iraqi ministries of Electricity and Oil have long-term strategies to not only produce enough fuels and electricity to meet the needs of Iraqi citizens and industry, but also to export.

Baghdad and the KRG have been at odds over the rights to sign oil and gas contracts in Iraqi Kurdistan. While the Dana-Crescent (Dana is partly owned by Crescent) deal is a service contract, the KRG has signed two dozen controversial production-sharing contracts with international oil firms exploring for and developing oil and gas, which the national oil minister has called illegal. The dispute has delayed passage of a new oil law and legislation governing revenue, the Oil Ministry and the state oil company said.

In the KRG, Hawrami is optimistic that the early gas success is just the beginning. Currently 75 million cubic feet per day of gas is flowing to the new Erbil power plant, with the goal of 300 million by mid-2009, as it and a new plant in Sulaimaniya together reach 1,250 megawatts generating capacity.

"We have a number of companies exploring for oil and gas," he said. "When new gas is found, which we are hopeful and expecting that, then we utilize that gas. That will be the gas from those operators."

Most of the companies that signed in the KRG are still in the exploration phase, and Hawrami said more will be known about the KRG's gas reserves within the coming year.

"Of course, it has to be commercially viable for the companies to recover their cost," he said, adding the government owns a share of the contract, "so we have to reflect fairly on the value of that gas."

He's reviewing a feasibility study of an industrial park named Kurdistan Gas City, which is billed as a future destination point for natural gas not needed in electricity generation.

"Looking ahead, when we have surplus gas from exploration and discovering new gas, some of it we will need for power generation," Hawrami said. "We will discover substantially more than that."

Gas City was billed in a July news release as having "industrial, residential and commercial components in an integrated city, with an expected initial investment in the basic infrastructure estimated at $3 billion, preparing the land for possession by prospective residents."

"The Gas City is being structured to hold over 20 varieties of world-scale petrochemical and heavy manufacturing plants, and hundreds of small and medium-sized enterprises."

The news release also named a Dana-Crescent joint venture, Gas Cities LLC, recipient of a 17-square-mile slice of land on which to develop Gas City. A Sept. 21 groundbreaking ceremony featuring KRG Prime Minister Nechirvan Barzani was "postponed until further notice," according to a recent KRG statement. "A new date will be announced, once all the contractual matters and plans are finalized in an agreed form with all the parties that might become involved in this important project. This also will require the approval of the Regional Oil and Gas Council."

Hawrami said work continues and the next phase for Gas City is to give the project a final approval, contract a consortium of international, Iraqi-wide and local companies and investors, and conduct a "more detailed study to identify what industries, downstream facilities are required."

(e-mail: [email protected])

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