A planned subsea natural gas pipeline between Iran and Oman is expected to have a higher estimated cost after the two countries had to change the project's route and design to avoid waters controlled by the UAE, an industry source said on Thursday.

Iran sits on one of the world's largest gas reserves, which Oman has been eyeing as it hopes to feed energy-intensive industries and liquefied natural gas (LNG) export plants.

The planned pipeline would allow Oman to use Iranian gas for domestic needs as well as to export it to global markets as LNG.

"We expect slight upward budget adjustment because of this change," the industry source familiar with the matter said, adding the cost of the pipeline could be $1-1.5 billion after the change in the design.

"But we have not finished the deep route survey yet," the source adding, stressing the project was not shelved because of the changes.

The pipeline will be shorter than originally planned but it will go deeper.

"The shallow route had a maximum depth of 500 meters, the deeper (option) will go to 1000 meters," the source said.

The pipeline will have the capacity to carry 1 billion cubic feet of gas per day (bcfd) but that might be raised to up to 2 bcfd because of high demand for gas in the region.

Omani and UAE officials have discussed the project but industry sources say the United Arab Emirates (UAE) has not given its blessing to the project with a route that would pass through its waters.

UAE officials have not discussed the matter publicly.

In 2013, the two countries signed an agreement supplying gas to Oman through the pipeline in a deal valued at $60 billion over 25 years.

Price disagreements, Western sanctions that have stunted Iranian energy projects and U.S. pressure on Oman to find other suppliers have hampered progress on the project. Western sanctions on Iran were lifted in January.

By Reuters