BAHRAIN MAY SIGN BIG IRAN GAS DEAL AT YEAR'S END

C O N F I D E N T I A L MANAMA 000725

SIPDIS

NOFORN

E.O. 12958: DECL: 05/17/2024
TAGS: EPET ENRG ETTC PREL IR QA BA
SUBJECT: BAHRAIN MAY SIGN BIG IRAN GAS DEAL AT YEAR'S END

Classified By: CDA Robert S. Ford, reason 1.5 (b) and (d)


1. (C/NF) Bahraini CP Sheikh Salman bin Hamed told CDA on
May 15 that Bahrain may conclude a major agreement to buy
Iranian gas by the end of CY 2004. Bahraini demand for
natural gas is increasing with projects such as the expansion
of the aluminum smelter go forward. These projects are vital
to Bahrain's economic development. Salman noted that he is
chairing the government committee negotiating a new,
long-term supply deal with a foreign supplier.


2. (C/NF) Bahrain has been exploring separately with Saudi
Arabia, Qatar and Iran long-term supply agreements, the Crown
Prince said. Saudi Arabia has informed Bahrain that it is no
longer interested in a supply agreement for Bahrain. Thus,
Bahrain is negotiating seriously with Qatar and Iran. Price
will be the essential issue, he said. Commercial feasibility
studies have concluded that the Bahraini industrial
development projects using the natural gas will be
commercially viable if Bahrain can secure a price below USD 1
per metric ton.


3. (C/NF) The Crown Prince cautioned that so far in the
negotiations, the Iranians are offering a far superior deal.
Monetizing their share of the North Dome gas field, they are
offering the GoB a price of approximately USD 0.70-0.85 per
metric ton. By contrast, the Qataris have linked the natural
gas price to a crude oil benchmark price. At USD 18 per
barrel, the Qatari gas will cost $1.10 per metric ton; at
nearly USD 40 per barrel, the gas will cost upwards of $2.40.
Thus, the Crown Prince concluded, the Iranians are offering
a dramatically cheaper price.


4. (C/NF) CDA reminded the Crown Prince of U.S. Government
views concerning Iran. The Crown Prince said that even in
Bahrain there are great sensitivities about inking a deal
with Iran that would involve 400-600 million cubic feet per
day - nearly fifty percent of Bahrain's consumption. The
price offered from Iran, however, was too good for Bahrain to
ignore, he concluded. He said the negotiations are not yet
finished with Qatar, but the GoB needs to make a decision in
December 2004. He wanted the U.S. to understand Bahraini
concerns ahead of time.


5. (C) Comment: It would be hard to overstate GoB
sensitivities about Iran; senior Bahraini officials all view
Iran as the single greatest threat to Bahraini security. The
Crown Prince underlined the importance of price in the
decision, and certainly much of Bahrain's industrial exports
depend on cheap gas. It is possible he initiated this
conversation to sensitize Washington early on to the
potential Iranian deal. It is also possible the GoB is
hoping we will weigh in with Doha to secure a cheaper offer
from the Qataris.

FORD