Cablegate: Bahrain Pursues Gas Supplies From Qatar, Iran And

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P 181254Z AUG 09 ZDK
FM AMEMBASSY MANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 8869
INFO RUCNIRA/IRAN COLLECTIVE PRIORITY
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C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000483

SIPDIS

NSC FOR DENNIS ROSS

E.O. 12958: DECL: 08/18/2019
TAGS: EPET PREL IR QA RS SA BA
SUBJECT: BAHRAIN PURSUES GAS SUPPLIES FROM QATAR, IRAN AND
RUSSIA

REF: A. 08 MANAMA 702 B. 08 MANAMA 715 C. MANAMA 58 D. MANAMA 162 MANAMA 00000483 001.2 OF 002 Classified By: Ambassador Adam Ereli for reasons 1.4 (b) and (d)

1.(C) Summary: Bahrain is pursuing a multi-pronged strategy to extend its limited gas reserves and become a regional gas hub. This strategy includes negotiating with Qatar, Iran and Russia to supply gas directly, exploring the feasibility of developing an LNG facility to allow for acquiring gas on the spot market, and developing new domestic supplies. End Summary.

2.(C) During an August 12 meeting, Bahrain's Minister of Oil and Gas Affairs, Dr. Abdul Hussain bin Ali Mirza told Ambassador that Bahrain's goal is to acquire at least one billion standard cubic feet per day (SCFD) of gas beyond current production, and is pursuing a multi-pronged approach toward this end. (Note: Bahrain produces approximately 1.4 billion SCFD, all of which is consumed domestically--mostly for power generation. The GOB has previously complained that their power needs will exceed their gas production within 10 years. End Note.) The strategies currently being pursued are: onshore exploration in the Awali field (eight wells are already in process); offshore exploration (ref A); enhancement of the existing Bahrain field (ref D); purchasing gas from Qatar (ref A); acquiring gas directly from Iran (refs A, B, C); and acquiring Iranian gas through a three-way deal with Russia's GAZPROM. In a related initiative, Bahrain signed an MOU with American energy company Hess Corp. in October 2008 to study the feasibility of building an LNG import/export terminal. Mirza stated that Bahrain's end goal is to acquire enough surplus gas to build and sustain an export-oriented gas/petrochemical industry. Looking Everywhere: in Bahrain. . . ------------------------------------

3.(C) Dr. Mirza said that his ministry hopes the onshore exploration and enhancement efforts will yield an additional 500,000 SCFD within the next five years, adding that early offshore studies show promise. According to Oxy's local general manager for offshore operations, Joel Scott, when Bahrain awarded Oxy its offshore blocks 3 and 4 in March 2007, and block 1 in 2008, there was no commitment to drill, but studies of blocks 3 and 4 are complete, and based on the results, Oxy has decided to move forward with plans to begin drilling. Qatar and Saudi Arabia. . . ---------------------------

4.(C) There has been no movement in gas negotiations with either Qatar or Saudi Arabia. According to Mirza, the Qataris insist that they cannot, or will not, commit any further development of their North Dome field until a field sustainability study there is finished. Originally scheduled for completion in 2008, Mirza said that his counterpart in Qatar told him that the study will not be completed until at least 2012.

5.(C) Talks with Saudi Arabia remain stalled as the Saudis have repeatedly said that their gas production is fully committed, and since it is almost all associated gas, the only way to increase gas production would be to increase oil production. Mirza said that while Bahrain would welcome gas from Saudi Arabia, they are focusing their discussions with the Saudis on oil and the Abu Sa'afah field. Iran. . . --------

6.(C) Mirza said his talks with Iran center on concessions for two blocks in the South Pars field, which would be developed independently by a third party, likely not American. No significant progress has been made on this front since the signing of the framework agreement in October 2008 (ref B). and now Russia . . . --------------------

7.(C) In December 2008, Mirza met GAZPROM chairman Alexei Miller in Moscow and signed a letter of intent for GAZPROM to MANAMA 00000483 002 OF 002 explore business opportunities in Bahrain. GAZPROM has long stated that they would like to have a Middle East outlet. Mirza said that he discussed with Miller an agreement under which GAZPROM would supply gas to Iran's north in return for concessions in Iran's South Pars field in the Gulf, which in turn GAZPROM could develop to sell gas to/from Bahrain. Mirza stated that he would prefer to deal with Russia rather than with Iran, and ultimately doesn't care what the arrangements are between Russia and Iran "as long as we get the gas." He added that one big advantage for purchasing the gas from GAZPROM and not directly from Iran is that all previous negotiations with Iran have precluded the inclusion of "rich" or "wet" gas--a deal that the Russians are open to and which would support the development of a petrochemical complex. Further negotiations with Bahrain cannot move forward until GAZPROM secures a deal with Iran.

8.(C) According to Mirza, the GOB has a larger strategic goal than just meeting the growing demand for gas, and would like to develop Bahrain as a regional gas hub along with a petrochemical industrial complex similar to the one in Jubail, Saudi Arabia. To further this end, Bahrain is exploring the development of an LNG import/export terminal, which would also allow for the purchase of LNG (either on contract or the spot market) during times of low demand such as summertime in Europe. Bahrain has contracted with Hess Corp. to examine the feasibility of building and operating such a terminal. The enormous infrastructure cost of such a venture would only make sense if LNG became a significant and sustained import or export. Mirza said he is looking at importing LNG strictly as a back-up strategy. Comment: If Bahrain were able to conclude deals with either GAZPROM or Iran, such a facility would allow Bahrain to become an export terminal for South Pars gas. End comment. ERELI

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