• 5 minutes 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 8 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 12 minutes Will Uncle Sam Step Up and Cut Production
  • 1 hour OPEC will consider all options. What options do they have ?
  • 2 hours Danish Royal Palace ‘Surprised’ By Trump Canceling Trip
  • 3 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 10 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 1 hour A legitimate Request: France Wants Progress In Ukraine Before Russia Returns To G7
  • 5 hours What to tell my students
  • 3 hours China Threatens to Withhold Rare Earth Metals
  • 9 hours Recession Jitters Are Rising. Is There Reason To Worry?
  • 5 hours With Global Warming Greenland is Prime Real Estate
  • 18 hours TRUMP'S FORMER 'CHRISTIAN LIAISON' SAYS DEEPWATER HORIZON DISASTER WAS GOD'S PUNISHMENT FOR OBAMA ISRAEL DIVISION
  • 17 hours Maybe 8 to 10 "good" years left in oil industry * UAE model for Economic Deversification * Others spent oil billions on funding terrorism, wars, suppressing dissidents, building nukes * Too late now
  • 14 hours CLIMATE PANIC! ELEVENTY!!! "250,000 people die a year due to the climate crisis"
  • 19 hours Flaring is at Record Highs in Texas
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…

More Info

Premium Content

Kurdistan’s Massive Gas Reserves No One Knows About

Barely a month goes past without another indication of the vast gas potential still largely untapped in the semi-autonomous Kurdistan Region of Iraq (KRI). Last week, regional private sector natural gas company Dana Gas announced that its share of the proved plus probable (2P) hydrocarbon reserves at the Pearl Petroleum Company-run Khor Mor and Chemchemal fields in the KRI have increased by 10%, following the recent certification of reserves by Gaffney Clien Associates.

This new independently audited report stated that Dana Gas’s 35% share of the Khor Mor and Chemchemal 2P reserves was 4.4 trillion cubic feet gas (Tcf), 136 million barrels of condensate, 13.3 million metric tonnes liquefied petroleum gas, and 18 million barrels of oil. This followed the signing in March of a 20-year gas sales deal between Pearl Petroleum and the Kurdistan Regional Government (KRG) that will facilitate the production and sale of an additional 250 million standard cubic feet per day (MMscf/d) of gas. Pearl Petroleum’s expansion plan will see output increase to 650 MMscf/day in 2022, and then to 900 MMscf/day by 2023, compared to the current 400 MMscf/day.

This highlights two factors: first, that these two fields could be the largest non-associated gas fields in Iraq as a whole, and second that Kurdistan’s gas potential remains huge for those well-placed in the KRI to exploit it, such as Russia. As it stands, Kurdistan’s Ministry of Natural Resources (MNR) estimates that the KRI holds around 25 Tcf of absolutely proved gas reserves and up to 198 Tcf of largely unproved gas resources, which is around 3% of the world’s total deposits. The figures look realistic, given that the US Geological Survey (USGS) believes that undiscovered resources in just the Zagros fold belt of Iraq, a large part of which falls in the KRI, amounts to around 54 Tcf of gas. The bulk of KRI gas resources currently are of the non-associated variety located in the Region’s central and southern areas, especially those in the Bina Bawi, Khor Mor, Khurmala, Miran, and Chemchemal fields.

Propitiously for all potential gas developers, judging from the 60% success rate of drilling activity in oil operations in the KRI, analysts believe that a high degree of prospectivity in gas operations is also likely. Before a dispute between the KRG and the consortium led by Pearl put a temporary brake on development, especially of the Khor Mor field, independent analyst expectations had been that gas production to around 1,300 mmcf/d analyst forecasts by the end of 2025, and by that time a fully-functioning gas export route to Europe, via Turkey, would have been in place for some time. Related: Oil Price Correction Triggers Shale Meltdown

Based on an agreement made between the KRG and the Turkish government in 2013 for gas sales, this export route would have allowed the KRG to monetise this resource into hard foreign currency earnings to augment budget disbursements from the Federal Government of Iraq (FGI) in the south as a key source of revenue. Although KRI gas is still used domestically only, this agreement remains in place in theory and the KRG has in recent months sought to solidify plans to put this into practice.

The initial export figure agreed upon for deliveries beginning in 2017 was 4 bcm per year based on the gradual build-out of the required infrastructure. At that time, aside from a gas pipeline that ran from Khor Mor via the Chemchemal field and the Bazian power plant, to the Erbil power plant, and a short pipeline that linked the Summail field with the Dohuk power plant, facilities for processing plants and pipelines for domestic gas transmission to power plants - and exports to Turkey - still needed to be constructed. This lack of internal and external infrastructure also tended to deter investment, leaving a number of fields – most notably Miran and Bina Bawi, which together hold 12 Tcf of recoverable gas - effectively stranded.

This left operators such as Genel little value for gas exposure in the market, prompting its recent announcement that it is to put the Bina Bawi development on hold, although earlier this week Genel said that talks with the KRG to resuscitate the project are making progress. At that time, given the lack of export opportunities due to sketchy infrastructure, such was the scepticism of the global financial markets about the value of such assets that Heritage Oil saw a 30% drop in its market value when it announced that the Miran West 2 well had found gas rather than oil.

Prior to the political tumult that followed the 2017 referendum vote in Kurdistan, Genel had been a driving force behind such an infrastructure build-out in a project that was to be run by it and TEC, a joint venture that includes the international arm of state-owned Turkish Petroleum. The Genel-TEC deal would not only have properly linked Miran and Bina Bawi but also would have constructed a pipeline to connect them to Turkey.

Under the terms of the deal, Genel would have supplied raw gas at a price of around US$0.78 per one million British Thermal Units to Kurdistan’s MNR, which, in turn, would arrange for processing and transport to Turkey. The plan was for the KRG to start with the exporting of 4 bcm per year of natural gas to Turkey, rising to 10 bcm per year, and then 20 bcm per year by the end of 2020. Related: Oil Could Plunge By $30 If China Restores Iranian Oil Imports

This negative view was compounded by the deleterious practical effects of the KRG’s previous efforts to reduce the profit-sharing starting point for international operators as the potential of key gas fields became clearer. Particularly damaging in this context was the judgment from a U.K. court in a seven-year dispute between Dana Gas and the UAE’s Crescent Petroleum (later joined by Austria’s OMV and Hungary’s MOL) over a 25-year deal to develop the Khor Mor and Chemchemal gas fields, which saw the KRG ordered to pay US$1.98 billion to the consortium in back-payments for condensate and liquefied petroleum gas products supplied from Khor Mor.

With the referendum out of the way but the KRG still wanting to optimise revenues independent of the FGI in Baghdad, Rosneft is likely to move forward on its stalled gas strategy, OilPrice.com understands from Iraqi and Russian sources. Rosneft is Russia’s chief political proxy in the KRI, having already effectively sewn up control of its oil industry through a deal done in November 2017, so making the horizontal integration move into gas is a logical extension of this.

In addition, Rosneft needs to position itself more squarely in the gas space, given expectations that Gazprom’s monopoly on exporting Russian gas through pipelines is to end in 2020, and with it Gazprom’s status as the only Russian oil and gas firm with multi-level gas sector capabilities. Given its already entrenched position in the KRI, the Kremlin also regards Rosneft as being the best-placed corporate vehicle through which to control gas exports from Iraq into Europe, via Turkey.

By Simon Watkins for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play