The US$27 billion four-project deal agreed last year between French energy supermajor, TotalEnergies, and Iraq’s Oil Ministry is set to move into its ‘execution phase’ this quarter, according to s statement last week from the Ministry. The first of these projects to be driven forward by TotalEnergies – and crucial in enabling Iraq to reach its longer-term crude oil production targets of 7 million barrels per day (bpd), and then even 9 million bpd and perhaps 12 million bpd - as analyzed in-depth in my new book on the global oil markets – will be the completion of the Common Seawater Supply Project (CSSP). The project, which will see an initial investment of US$3 billion in its first phase, involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities to maintain pressure in oil reservoirs to optimise 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 other fields.
In broad terms, the prize for TotalEnergies being at the center of this project 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), according to figures from the Energy Information Administration (EIA). Unofficially, the figures are likely to be much higher. Iraq’s Oil Ministry has stated 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. However, 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. Reservoir pressure at the former 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 need for the CSSP’s high-volume, sustained water injection to maintain pressure in aging wells is the highest in southern Iraq. To reach and then hold 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 percent of their combined flow during the low season, according to previous projections from the International Energy Agency (IEA). 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, as well.
The second of the projects is also a matter of high importance and urgent necessity: to collect and refine associated natural gas that is currently burned off at the five southern Iraq oilfields of West Qurna 2, Majnoon, Tuba, Luhais, and Artawi. TotalEnergies is to provide US$2 billion in the first phase of the project for the building of the processing plant to do this, with initial comments from Iraq’s Oil Ministry last year highlighting that the plant is expected to produce 300 million cubic feet of gas per day (mcf/d) and double that after the second phase of development. Iraqi Oil Minister, Ihsan Abdul Jabbar, stated last year that the gas produced from this second TotalEnergies project in the south will help Iraq to cut its gas imports from Iran, with the domestically produced gas also cheaper than the Iranian gas. This said, Iraq has perennially promised a reduction in imports of gas and electricity from Iran – usually in the run-up to the yearly visit to Washington to ask for money – and has then done nothing to make good on the promises. Indeed, in 2020, just prior to Prime Minister Mustafa al-Kadhimi’s fund-raising visit to Washington in August, he told U.S. government officials that he would be reducing his country’s energy reliance on Iran but within a month of receiving new funding from Washington, Iraq signed a two-year contract – the longest deal to that point ever - for the import of gas and electricity from Iran.
However, there are other reasons why Iraq might follow through with this latest deal on reducing the volume of its natural gas present at oil fields that it just burns off. Capturing and processing this gas, as is intended with the TotalEnergies’ project, means that it would reduce the costs of domestically-consumed power in Iraq. According to the figures from Iraq’s Oil Ministry last year – and although absolute pricing has changed slightly the differential is the same, and is correct – the cost of the gas imported from Iran was around US$8 per million British thermal units (Btus), whilst the cost of the gas to come from the TotalEnergies’ project would be US $1.50 per million Btu cheaper. Additionally, Iraq may find itself able or wanting to export some of this gas – particularly given current high gas prices - 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. Moreover, Iraq has an obligation after joining in 2017 the United Nations and World Bank ‘Zero Routine Flaring’ initiative aimed at ending this type of routine gas flaring by 2030 – currently, the country still ranks as one of the worst offenders for flaring associated gas in the world, after Russia.
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. This gives it the very specific operational experience of working on the ground in Iraq to push through on the associated gas capture and processing project and also allowing it to concomitantly increase crude oil output from the Artawi oil field, which is the third of the four projects to which it is now committed. According to comments from Iraq’s Oil Ministry, TotalEnergies will help to boost output from the Artawi oilfield to 210,000 bpd of crude oil, up from the current circa-85,000 bpd.
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 Royal Dutch 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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