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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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How France Secured Major Oil And Gas Projects In Iraq

Even more so than Iran, Iraq remains the greatest relatively underdeveloped oil (and gas) frontier in the Middle East. It is little wonder, then, that it has been and remains the focus of an ongoing power struggle between the U.S. and its allies on the one side and China and Russia (via Iran) on the other. In all of these central Middle Eastern tussles, especially involving Iraq and Iran, France has liked to see itself in the role of the ‘honest broker’, not especially aligned to either side, as was notably demonstrated by its attempts to stop the U.S. invasion of Iraq in 2003 and then to stop the U.S. from unilaterally withdrawing from the Joint Comprehensive Plan of Action (‘nuclear deal’) with Iran in 2018. Given this, it is not surprising that France’s flagship energy company, TotalEnergies, has secured a massive deal with Iraq to advance four major projects across the country, all linked to its huge oil and gas resources.  

In broad terms, the prize for France is exceptional. Officially, Iraq holds a very conservatively estimated 145 billion barrels of proved crude oil reserves (17 percent of the Middle East’s total, around 8 percent of the globe’s, and the fifth-biggest on the planet), plus nearly 132 trillion cubic feet of natural gas (the 12th largest in the world), according to figures from the Energy Information Administration (EIA). Unofficially, the figures are likely to be much higher.

Iraq’s Oil Ministry has stated a number of times that the country’s undiscovered resources amount to around 215 billion barrels and this was also a figure that had been arrived at in a 1997 detailed study by respected oil and gas firm, Petrolog. Even this figure, though, did not include the parts of northern Iraq in the semi-autonomous region of Kurdistan, administered by the KRG. Prior to the recent rise in exploration activity in the KRG area, more than half of the exploratory wells in Iraq had been drilled prior to 1962, a time when technical limits and a low oil price gave a much tighter definition of a commercially successful well than would be the case today. Based on the previous limited exploration and development of oil fields in the KRG area, the proven oil reserves figure was first put at around 4 billion barrels. This has been subsequently upgraded by the KRG to around 45 billion barrels but, again, this may well be a very conservative estimate.

The key logistical problem in the south of Iraq that has precluded an advance in crude oil production to its 7 million barrels per day short-term target or to the longer-range targets of 9 million bpd and even 12 million bpd is the completion of the Common Seawater Supply Project (CSSP), and this is one of the four projects now taken over by TotalEnergies. The project involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities for the purposes of maintaining pressure in oil reservoirs to optimize the longevity and output of fields. The long-delayed plan for the CSSP is that it is used initially to supply around 6 million bpd of water to at least five southern Basra fields and one in Maysan Province, and then built out for use in further fields. 

Both the longstanding stalwart fields of Kirkuk and Rumaila – the former beginning production in the 1920s and the latter in the 1950s, with both having produced around 80 percent of Iraq’s cumulative oil production – require major ongoing water injection, with reservoir pressure at the former having dropped significantly after output of only around 5 percent of the oil in place (OIP). Rumaila, in the meantime, had produced more than 25 percent of its OIP before water injection was required because its main reservoir formation (at least its southern part) connects to a very large natural aquifer which has helped to push the oil out of the reservoir.

Although the water requirements for most of Iraq’s oilfields fall between these two cases, the needs for oilfield injection are highest in southern Iraq, in which water resources are also the least available. To reach and then sustain Iraq’s future crude oil production targets over any meaningful period, the country will have total water injection needs equating to around 2 percent of the combined average flows of the Tigris and Euphrates rivers, or 6% of their combined flow during the low season. While withdrawals at these levels might appear to be manageable, these water sources will also have to continue to satisfy other, much larger, end-use sectors, including agriculture.

Before the latest ward of this contract to TotalEnergies, there were always only two companies with a realistic chance of taking on the giant CSSP work: U.S. supermajor ExxonMobil, and its China equivalent, the China National Petroleum Corporation (CNPC). However, it was understood by all involved that only the U.S. company had all the technology, equipment, and expertise required to complete the entirety of the CSSP on its own, with CNPC involved for various geopolitical reasons and for funding. Early in 2018, though, negotiations between Iraq’s Oil Ministry and ExxonMobil over the CSSP broke down, leaving the road open for CNPC but its progress since that point has been unclear, to say the least. As with so many major oil and gas projects in Iraq, it seems that the real reason why ExxonMobil was unable to proceed with the CSSP plan was that the risk/reward matrix was too skewed towards the risk side, specifically risks arising from the endemic corruption in the country, highlighted repeatedly as the prime cause of project failures in Iraq by Oilprice.com.

Related: Merger Mania Paves The Way For A New Era In U.S. Shale

The prospects for TotalEnergies’ second major project of the four – collecting and refining associated natural gas at the five southern Iraq oilfields of West Qurna 2, Majnoon, Tuba, Luhais, and Ratawi,- appear to be better than for its involvement in any stage of the CSSP, though. Another separate project to further develop the Ratawi is the third of the four major projects to be given to TotalEnergies.

To begin with, there is a clear economic imperative for Iraq in that currently this vast resource of associated gas is simply burnt off, akin to burning cash. It could instead be easily monetized into gas exports or used to generate power in Iraq’s chronically underpowered grid. This would also mean that precious crude oil would not have to be used to generate power and instead could be exported, which would additionally go some way to alleviating the severity of the cash crunches that Prime Minister Mustafa al-Kadhimi has faced since taking office. As it stands, Iraq still ranks as one of the worst offenders for flaring associated gas in the world, after Russia, burning off around 16 billion cubic meters last year, despite it joining in 2017 the United Nations and World Bank ‘Zero Routine Flaring’ initiative aimed at ending this type of routine gas flaring by 2030.

The associated gas project is expected to produce at least 300 million standard cubic feet of gas per day and double that after the second phase of development. The agreement between Iraq and TotalEnergies follows the signing of a memorandum of understanding on 27 January to develop various large-scale projects, including associated gas developments in Ratawi in the south, Diyala in the east, and Anbar in the northeast. TotalEnergies already has ongoing experience of working across Iraq, holding a 22.5 percent stake in the Halfaya oil field in Missan province in the south and an 18 percent stake in the Sarsang exploration block in the semi-autonomous region of Kurdistan in the north.

Successfully capturing associated gas rather than flaring it will also allow Iraq to revive the also long-stalled US$11-billion Nebras petrochemicals project with Shell, which if it went ahead in a correct linear fashion could be completed within five years and would generate estimated profits of up to US$100 billion for Iraq within its 35-year initial contract period. This theoretically greener approach to its energy resources is also seen in the last of the four projects to be undertaken by the French company, which will be the construction and operation of a 1,000-megawatt solar energy plant.


By Simon Watkins for Oilprice.com

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  • Kenneth Paxton on August 04 2021 said:
    The whole world is converging on Iraq. United States, European Union, Russia and China. Add the WTO, NATO and even the Pope. Iraq is filthy rich with resources. Supposedly, the tenth largest port in the world is being built which will allow Iraq to be the mega center of world trade covering the east to the west.

    As infrastructure development progresses and matures, so will tourism. Perhaps Babylon will be rebuilt with buildings reaching into the clouds. Think of a revived Babylon. Thousands of years of history brought to life. Read about the Ephah and the land of Shinar. Fantasy or reality?

    The initial cause of Iraqi's revival? Fossil Fuels!

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