August 19, 2016
Oman and Iran have agreed to change the route and design of a planned undersea natural gas pipeline to avoid waters controlled by the United Arab Emirates, Omani Oil and Gas Minister Mohammed bin Hamad al-Rumhy said last Wednesday.
But that doesn’t mean Oman is ready to start work on the pipeline. In fact, Rumhy said flatly that the pipeline couldn’t be profitable in today’s depressed market.
The planned pipeline would connect Iran’s gas reserves to Omani consumers as well as liquefied natural gas (LNG) plants in Oman that would liquefy and re-export much of the gas. The plan is recognition that Iran is many years away from being able to produce LNG for export. It does not yet have even a single plant for liquefying gas. To be moved, natural gas must either be piped or liquefied to be carried by tankers.
After international sanctions on Tehran were lifted in January, the two countries renewed efforts to implement the project, but it has also been delayed by disagreements over price and US pressure on Muscat to find other gas suppliers.
In an interview, Rumhy said Oman and Iran were at an advanced stage of designing the pipeline and had agreed on a deeper option than originally envisaged to avoid crossing any third country’s borders.
“Instead of the shallower option at around 300 meters (985 feet) deep, the pipeline is to plunge close to 1,000 meters below the sea’s surface. And it will be slightly shorter,” he said.
Rumhy did not say why the pipeline should avoid UAE waters. Omani and UAE officials have discussed the project, but it is not clear if the UAE has given its blessing to the project or has objected to a route that would pass through its waters.
UAE officials have not discussed the matter publicly.
Oman still expects to invite companies before the end of 2016 to bid for the engineering, procurement and construction part of the project, Rumhy said without giving an estimate for the cost. The pipeline would be financed on a 50-50 basis by Oman and Iran.
“Oman has started talking to Japanese, Korean and Chinese parties to raise finance. And this option has been received very well. We are looking to receive finance for LNG as per the initial understanding.
“So finance will not be an issue, but we won’t have to go to the ministry of finance. We are looking at it as a self-funding project,” Rumhy said.
The minister predicted the pipeline would be commissioned two years after the award of contracts, but conceded that the level of gas prices might delay the project, adding that the pipeline would not be profitable in today’s market environment.
“I am not optimistic about the future of oil and gas prices, and we have an understanding with our partners that the market is not very encouraging.”
In 2013, the two countries signed an agreement for supplying gas to Oman through the pipeline over 25 years.