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Will Iraq Finally Increase Natural Gas And LNG Production?

  • One of the reasons to be optimistic is the ongoing US$27 billion four-pronged deal involving France’s TotalEnergies.
  • It is conceivable that other Western firms might be persuaded to strike similar deals involving the utilisation of Iraq’s gas supplies, rather than its being flared.
  • Iraq will be under intense pressure from Iran, China, and Russia, to keep the new awards away from Doha and with firms from the Global South instead.
Iraq Nassiriyah

Seasoned watchers of Iraq’s oil and gas sector have come to regard its perennial calls for new measures to increase its gas production with the fondness of the familiar – a old record still often played, perhaps, or the call of the first cuckoo of Spring. This year’s pledge by the latest in its fast-revolving-door of governments certainly has the same basic melody, but there is a new phrasing there too – this time, it is looking to develop its liquefied natural gas (LNG) capabilities as well. So, with the stakes even higher now that LNG has become the world’s emergency energy source, will Iraq actually make some serious progress this time around?

In theory, there is no real reason why the country cannot become a major global gas producer, as analysed in full in my new book on the new global oil market order. Official estimates are that Iraq’s proven reserves of conventional natural gas amount to 3.5 trillion cubic metres (tcm) or about 1.5% of the world total, placing Iraq 12th among global reserve-holders. By comparison, total proven gas reserves for Russia stand at nearly 48 tcm, for Iran at nearly 34 tcm, and for Qatar at nearly 24 tcm. This said, around three-quarters of Iraq’s proven reserves consist of ‘associated gas’ – a by-product of oilfield development. However, Iraq did not revise its figure for proven gas reserves in 2010 at the time of the upwards revision of proven oil reserves. Logical figures for non-associated gas were not provided at the time – or since – from the Iraqi oil and gas authorities either. The International Energy Agency (IEA), though, estimates that ultimately recoverable resources will be much larger than the official estimates of 3.5 tcm – its estimate is 8.0 tcm, of which around 30 percent is thought to be non-associated gas. Related: Shadow Fleet Tanker Destined To Carry Sanctioned Russian Oil Causes Collision

Moreover, there are five very good reasons why it is in Iraq’s best interests to develop as much of this gas as it can, as quickly as possible. First, it signed up to the ‘Zero Routine Flaring initiative’ back in 2017 to stop burning associated gas off while drilling oil. At the time – and still – Iraq was second only to Russia in the amount of gas it wasted in this way, and last year it burned off 16 billion cubic metres. Second, not using its own gas for power generation or to monetise by exporting it means it ends up paying Iran for gas imports. Third, this reliance on Iran has caused the U.S. to withhold direct financial flows to the country and has caused several U.S. companies to cancel planned projects there. Fourth, shortfalls in its own resources to generate power has meant frequent power outages across the country through the years, which have been the spark for popular protests and violence. And fifth, a major increase in gas supplies in Iraq would enable it to finally roll-out long-delayed petrochemicals plans that would generate it tens of billions of dollars in revenue from these value-added products.

Various announcements in recent years have provided some reason for vague optimism that this deleterious situation may change at some point, as also analysed in full in my new book on the new global oil market order. One notable example was in 2020 when Iraq’s Oil Ministry signed a natural gas capture deal with oil services provider Baker Hughes to harness 200 million cubic feet per day (mmcf/d) from the Gharraf oil field (and neighbouring ThiQar site, Nassiriya), plus other oil fields north of Basra. According to the Oil Ministry at the time, the first stage would involve the advanced modular gas processing solution being deployed at the Integrated Natural Gas Complex in Nassiriya to dehydrate and compress flare gas to generate over 100 mmcf/d of gas. The second stage would involve the Nassiriya plant being expanded to become a complete natural gas liquid (NGL) facility that would recover 200 million standard cubic feet per day of dry gas, liquefied gas and condensate. All this output would go to the domestic power generation sector, with Baker Hughes stating that addressing the flared gas from these two fields would allow for the provision of 400 megawatts of power to the Iraqi grid. According to an accompanying statement from then-Oil Minister, Jabbar Al-Luaibi, Iraq was also negotiating a similar gas capture deal for the state-run Nahr Bin Umar field with Houston-based Orion Gas Processors. Additionally, according to later comments from Iraq’s South Oil Company, gas-processing facilities were to be constructed in the Missan and Halfaya fields that would have a combined capacity of 600 mmcf/d of gas when completed, and the construction of gas-processing facilities in the West Qurna, Majnoon and Badra fields would also move ahead, with respective overall capacities 1,650 mmcf/d, 725 mmcf/d and 85 mmcf/d. The same announcements have been made twice since then, with little progress being made overall.

Perhaps some grounds for greater optimism this time comes from two developments. The first is the ongoing US$27 billion four-pronged deal involving France’s TotalEnergies. One of these four prongs is the collection and refining of associated natural gas that is being burned off at the five southern Iraq oilfields of West Qurna 2, Majnoon, Tuba, Luhais, and Artawi. With this deal still in place, it is conceivable that other Western firms might be persuaded to strike similar deals involving the utilisation of Iraq’s gas supplies, rather than its being flared. They may also be persuaded to explore and develop non-associated gas fields as well, particularly if there is government support for a roll-out of a genuine LNG capability across the country. According to recent comments from Iraq’s President, Abdul Latif Rashid, new gas projects will be supported by a new LNG platform to be built in Al-Faw Port near Basra and will be part of an extended fifth and sixth round of licensing. Chinese and Russian companies have dominated recent oil and gas awards in Iraq, as covered by OilPrice.com, but Qatar – the U.S.’s “key non-NATO ally”, according to President Joe Biden – has also expressed an interest in these new licensing rounds. Given the importance of Qatar for the ongoing energy security of the European part of the NATO security alliance, as detailed in my new book on the new global oil market order, Iraq will be under intense pressure from Iran, China, and Russia, to keep the new awards away from Doha and with firms from the Global South instead.

By Simon Watkins for Oilprice.com

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