OPEC’s second-largest oil producer has suffered many false dawns. Hopes of energy security and economic prosperity have ended in disappointment for some international investors and a local population that lacks access to a secure, stable supply of power. But, with a greater commitment to learning from past mistakes and a focus on tapping the country’s vast gas reserves, a sleeping electricity giant may finally be waking up.
The Middle East producer’s mature oil industry continues to make progress. Crescent Petroleum CEO Majid Jafar puts it like this: “Iraq has gone from producing a couple of million barrels a day of oil to 5m b/d currently, and it should be double that—and more—potentially,” noting there are still huge fields that are undeveloped and huge prospects that are unexplored.
There are now credible, albeit long term, ambitions for Iraq to become an energy hub and key regional player, with the start of two major projects: the Grand Faw Port and the Development Road. Grand Faw includes extensive container cargo, dry bulk cargo and oil terminals, along with a dry dock and naval base, while the Development Road would link the port to Turkey via road and rail and would incorporate a corridor for oil and gas pipelines.
At the heart of Grand Faw is a major 300,000b/d refinery project that aims to boost production of domestic petroleum products and eventually a petrochemical plant in the second phase.
Even gas, often in oil’s long shadow, is moving into the limelight with a clear aim of ridding Iraq of its dependency on imports from its neighbours and providing the energy for its electricity generation. Indeed, it’s the top priority if Iraq is going to be a major growing economy, reduce onerous costs, meet the demands of its future prosperity and lay the foundations for its wider regional ambitions. The government has set itself the target of achieving gas self-sufficiency and entering the world gas market as an exporter by 2030.
Over the past couple of years, gas processing plants have come online, such as the Basrah Gas Company rehabilitation of existing NGL plants, adding up to 1bcf/d as well as 200mcf/d incremental capacity. There is a lot more to come as well.
Capturing more gas
Even the missed opportunity of capturing growing associated gas production—until recently simply flared as oil production grew—is being addressed. The government has set ambitious plans to develop both associated and free gas across Iraq’s vast resources, and many projects are already underway to process flared gas.
Other plans are also afoot. Just look at the example of the Shell-led Basrah Gas Company joint venture that owns and operates midstream infrastructure to process and transport associated gas from the Rumaila, West Qurna 1 and Zubair oilfields as well as small volumes from the Tuba and Luhais oilfields in southern Iraq. It has one of the world’s largest flare reduction projects.
The Sudani government has been on a roll in striking new deals to process flared gas, such as investment in processing 300mcf/d of gas at the Bin Umar oilfield. Meanwhile, TotalEnergies’ $27b Gas Growth Integrated Project is another example of how investment is helping recover flared gas for power generation.
Let’s not overlook the schemes to develop the country’s substantial non-associated gas fields, including Akkas, Mansuriyah, Siba and Khashim Ahmer-Injana. Crescent Petroleum is part of the Pearl Consortium that is producing from the 500mcf/d Khor Mor field in the Kurdistan Region of Iraq, the country’s largest non-associated gas project, which has been operational for more than 15 years.
Like never before, the narrative is clear in that both free and associated gas need developing, not one or the other. If the energy trilemma is the question, then gas is the answer: it can supply cheap, affordable and accessible energy, create energy independence and help meet Iraq’s sustainability goals.
Investment environment
There are still plenty of challenges to overcome. International investors from the West have had a complicated relationship status in recent years, unsure whether to stick or twist given that political stability has ebbed and flowed, and business contracts and regulatory frameworks have not always proved to be favourable.
Chinese and regional investors have seized on that hesitation in recent oil licensing rounds, betting they can deliver a better outcome. Crescent Petroleum has also set an example here. The contracts it secured in the country’s fifth bid round, including two blocks in Diyala governorate and one in Basrah governorate, promise to eventually produce up to 620mcf/d of gas, to be used to supply the local electricity grid and ensure that Iraq’s ambition to capture and make use of its nascent resources is realised.
Across the country, much depends on how the investment environment evolves. There is good reason for initial optimism, and the door is open for IOCs to seize the initiative given efforts to institute reforms to tackle corruption and look again at the way contracts work and remove obstacles to doing business.
The government is prepared to think global and meet international investors halfway on their needs to maximise profits if there is a willingness to think local and help Iraq’s need to provide reliable electricity.
Genuine international partnerships will start to accelerate, with a focus on improved transparency and providing incentives to bring in capital. Investors should see Iraq with fresh eyes rather than glance fleetingly and conclude wrongly that it is the same old story. It’s time to think again.
This article formed the introduction to our recent Energising Iraq report, produced in conjunction with Crescent Petroleum. Click here to download your free copy.
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