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Iraq Announces String Of Deals To Boost Oil And Gas Output

Iraq has been saying it wants to produce more oil and gas for a while now but turning stated ambitions into reality has taken a while.

This week, the country took a big step towards that reality when it signed a slew of deals with foreign companies as part of plans to boost both crude oil and natural gas production considerably.

Gas production growth appears to be especially important because right now, Iraq is heavily reliant on neighbor Iran for its gas needs, which puts it into a vulnerable position.

The government in Baghdad inked deals with one Emirati company and two Chinese ones, aiming for oil production growth of a quarter of a million barrels daily and additional natural gas output of 800 million cu ft daily.

Iraq is OPEC's second-largest oil producer, pumping 4.5 million barrels every day. In previous years government officials have said production capacity could grow to 5 million bpd and even 6 million bpd but little has been done to advance these plans.

The reasons for that slow progress include the politically unstable situation in the country, the dynamics of the oil industry that has seen companies prioritize low-cost, fast-return projects after the last two downturns, and predictions of peak oil demand.

Several oil majors, including Exxon, left Iraq altogether in the past few years, citing the uncertain outlook for its oil industry. Yet successive governments did not give up their plans for greater oil production despite the OPEC+ output quotas, and significantly higher natural gas production.

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One of the companies that will be helping Iraq advance these plans is UAE-based Crescent Petroleum. The firm signed three long-term contracts for the exploration and development of three oil and gas fields.

Two of these fields-Gilabat-Qumar and Khashim, in the province of Dyala-are expected to begin producing natural gas within 18 months at a rate of 250 million cu ft daily, Crescent Petroleum said. The third field that Crescent Petroleum will explore is in the province of Basra.

The second of Baghdad's new oil and gas development partners, Chinese United Energy Group inked a deal with the government to develop the Sindbad oil field, also in Basra.

The third company that signed a deal with the Iraqi government was also Chinese, Geo-Jade Petroleum Co. It will develop the Huwaiza oil field and the Naft Khana field, both near the Iranian border, Reuters noted in a report on the news.

All the contracts signed this week have a duration of 20 years and should help boost Iraq's energy security in the natural gas department, reducing its bill for gas imports from Iran at a time when its economy is struggling to remain operational.

As a result of the deals signed this week, Iraq could suspend natural gas imports in three years, according to Prime Minister Mohammed Al-Sudani. Commenting on the deals, Al-Sudani said gas imports from Iran are costing the Baghdad budget between $5.5 and $6.8 billion a year, Zawya reported.

"We have decided to enter the global gas market and we will push ahead with projects to develop our gas resources and stop gas flaring because shortages in domestic gas supply are the main cause of our electricity supply problems," Al-Sudani said.

To further these plans, Iraq will also launch tenders for exploration blocks in the northern, western and central parts of the country in the near future, Oil Minister Hayan Abdel-Ghani said this week.

Oil output should also grow. According to the IMF, this year, Iraq could produce 4.6 million bpd, up from 4.4 million bpd last year, The National reported. By 2027, oil production could reach 5 million bpd, the IMF also forecast. Perhaps Iraq's oil and gas ambitions finally have a chance of panning out.

By Charles Kennedy for Oilprice.com

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Charles Kennedy

Charles is a writer for Oilprice.com More