Baghdad may block renewed efforts by the Kurdistan Regional Government (KRG) to negotiate gas allocations for the planned Nabucco pipeline, a senior source in Erbil tells MEED.

The KRG is currently in talks with Austria’s OMV and Hungary’s MOL to supply gas to the proposed Nabucco pipeline, the source says. The 3,300 kilometre pipeline would connect Iran and other Caspian states to Austria through Iraq and Turkey, bypassing Russia.

Baghdad has previously opposed Kurdish plans to export gas directly to Europe without its approval and the stance is likely to continue, the source says.

“This has happened three or four times,” says a source close to the government. “The talks have been on and off since [previous Iraqi Prime Minister] Nouri al Maliki was in government.”

The KRG is ready to move ahead with the project but will not be able to implement it until its issues with Baghdad are resolved, the source adds.

In May 2009, OMV agreed to make an initial investment of $350m for a 10 per cent share in the Pearl Petroleum joint venture developing the field. MOL also acquired a 10 per cent stake in Pearl by exchanging 3 per cent of its own shares with Crescent and Dana.

“This is a strategic move. Not just for Kurdistan, but for the whole of Iraq”, the source adds.

The UAE’s Crescent Petroleum and Dana Gas signed a $8bn deal on 17 May with OMV MOL to fast-track the development of the Khor Mor gas field in Kurdistan. The region holds as much as 200 trillion cubic feet of gas reserves.

OMV says production from the Khor Mor field and a second potential field, Chemchemal, could reach 3 billion cubic feet a day (cf/d) by 2015, enough for local requirements and to also provide “substantial quantities” for export using the Nabucco pipeline. (MEED 18:05:09)

The Iraqi government, however criticized the deal, saying it contravenes Baghdad’s existing export rules.

Jointly promoted by the governments of Turkey, Bulgaria, Romania, Hungary and Austria, the $12bn plus Nabucco pipeline will have the capacity to transport 3 billion cubic feet a day of natural gas.

The EU which relies on Russia for around a quarter of its gas has been keen to diversify its suppliers. Moscow has cut supplies to the continent in recent years after pricing disputes with transit countries such as the Ukraine.

Construction of the first phase of the pipeline covering the 2,000 kilometres from Ankara in Turkey to Austria is slated to begin in 2011. The second phase, consisting of the construction of the remaining section from the Turkish border to Georgia, and from Iran to Ankara is expected to begin in 2014.

Iran’s participation in the project remains uncertain, despite assurances from its state-owned gas producer. National Iranian Gas Company has said the country aims to supply more than half of the gas proposed for the project.

Analysts, however, have been sceptical about the amount of gas Iran will be able to contribute, given the competing demands for gas for reinjection into its oil fields and for its domestic industrial users.