Gas deal with Iran is in court

Some of Sharjah's generators are designed to burn natural gas to power their turbines, but can switch to diesel fuel if gas is unavailable. Sharjah Electricity Water Authority (Sewa) is also unique among government-owned utilities in supplying gas as well as electricity and water to its customers. To augment scarce domestic supplies, Sewa had planned to start buying Iranian gas four years ago under an agreement with Sharjah's Dana Gas. However, the deal fell through when the anticipated imports, to be delivered through an undersea pipeline, failed to materialise.

Crescent Petroleum, Dana's major shareholder and its partner in the gas project, completed the pipeline in early 2006. The Sharjah-based oil and gas group had signed a contract five years earlier with the state-owned National Iranian Oil Co (NIOC) for a long-term supply of 600 million cubic feet per day of gas from the Salman field in the Gulf. Deliveries of up to 219 billion cu ft a year of gas were supposed to start four years ago.

NIOC, however, delayed the completion of production facilities while it sought to negotiate a higher price. Crescent is presently seeking a ruling from an international arbitration court after protracted discussions failed to resolve the dispute and repeated threats by Iranian officials to divert the gas to its domestic market. It would have been easier for the parties to reach agreement, however, had Sewa raised the prices it charged customers for gas and electricity from levels that most analysts regarded as unrealistically low. Fuel subsidies have contributed to gas shortages throughout the Emirates, experts say, while discouraging energy conservation.

Sharjah's reliance on diesel for power generation is problematic since the oil-based fuel can be more expensive than natural gas and is more polluting. While buying diesel is costly for Sewa, at the moment the utility has little alternative. Though the emirate's population has boomed as its government has sought to establish it as a national manufacturing centre, Sharjah has insufficient natural gas reserves to meet the growing fuel requirements of its power sector as well as direct demand from factories and residences.

Still, the emirate is hoping to find more gas. Its government recently awarded an exploration and production concession covering the whole of its onshore territory to a new joint venture between Crescent and Rosneft, the Russian state-controlled oil producer. The companies expect to find gas at a site near Al Madam in Sharjah, where they started drilling in June. In addition, Dana and Crescent are developing the small offshore Zora gas field, which Sharjah shares with Ajman. They expect to start producing as much as 60 million cu ft of gas from the field next year. The gas will be brought ashore through a 30km pipeline to a processing plant to be located in Sharjah's Hamriyah Free Zone. Dana has said the partnership has identified further gas prospects in their offshore concessions.

In the meantime, the emirate is reliant upon diesel fuel to power several of its generating stations, and shortages of that fuel lead to power cuts. That load could be lightened by the development of alternative energy sources such as solar and wind power, which would help it fill the gap, Robert Byrniak, the chief executive of Golden Sands Management Consulting, a Dubai energy consultancy, said.