Iraq Opens Door to Nabucco
Developments following the recent formation of a new Iraqi government have put the German energy company RWE in an interesting situation. Last August, RWE signed a gas cooperation contract (which is not a binding agreement) with the KRG, which the then-Baghdad government denounced (Read more HERE).
Industry observers believe that the Nabucco partners are targeting Iraq's Khor Mor and Chemchemal gas fields, not far from Kirkuk, as sources for export into the Nabucco pipeline. This belief arises from the fact that in May 2009 two Nabucco participating companies, OMV and MOL, each acquired a one-tenth share in Pearl Petroleum and its license to explore and develop those two fields, which together have estimated recoverable reserves of 100 billion cubic meters (bcm), with a speculative upper-bound estimate of 150 bcm.
RWE is one of the principal driving forces behind the Nabucco pipeline project, which is planned to take natural gas from southwest Asia (including the South Caucasus) through Turkey and southeast Europe to the Austrian gas hub at Baumgarten. The pipeline's construction company, comprising all major partners (the others are Turkey's BOTAS, Romania's Transgaz, Bulgaria's Bulgargaz, Hungary's MOL, and Austria's OMV) had planned to take its final investment decision late last year but has now postponed that to the end of the first quarter of 2011, or if necessary the second quarter. Nabucco's projected final-stage volume is 31 billion cubic meters per year (bcm/y), but its consortium has long said that the first stage would require only half of that.
Current plans are to finish the Nabucco pipeline construction by the end of 2015, in time for entry into service in 2016, so long as gas supplies are committed in the first half of 2011, permitting construction to begin in 2012.
However, while the once-anticipated source from Azerbaijan, the offshore second-phase development of the Shah Deniz deposit, was expected to come online by then, delays in Azerbaijan-Turkey negotiations over the whole portfolio of their bilateral energy relations have pushed that date back to 2016/17, even though all those issues are now all resolved. (See Azerbaijan wants Nabucco's cards on the table, Asia Times Online, November 18, 2010.)
The Malaysian company Petronas has been developing one of Turkmenistan's offshore blocks in the Caspian Sea and will have 5-10 bcm/y by later this year, with nowhere to send it. One possibility had been the Caspian Coastal Pipeline (CCP, also "Prikaspiiskii" or sometimes "Pre-Caspian"), but the trilateral Turkmenistan-Kazakhstan-Russia agreement in 2007 to refurbish and rebuild this Soviet-era natural gas pipeline was never implemented on all three sides. (See Turkmenistan signals Nabucco intentions, September 24, 2010.)
The only destination left for the Petronas offshore gas would appear to be the western shore of the Caspian Sea, that is, Azerbaijan (whence possibly Turkey and then through Nabucco to Austria). Indeed, over a year ago, a Turkmenistan government official who asked to remain anonymous was quoted by Reuters to this exact effect. Many demarches from Ashgabad since then, including some attributed by Turkmenistan's media to the country's president, Gurbanguly Berdymukhammedov, have underlined this point. (See Summit ripples on the Caspian, Asia Times Online, November 25, 2010.)
That is where Iraq comes in. According to a recent statement by Iraq's new oil minister, Abdul Karim al-Luaibi, the central government in Baghdad will recognize the contracts signed with foreign oil companies by the Kurdish Regional Government (KRG) in the north of the country. There are, however, those who doubt Luaibi's ability to make good on his promise, apparently including some Kurds. Some background here is necessary, even if the Nabucco project is concerned with gas rather than oil.
Luaibi's statement seemed to have been motivated by a walkout of Kurdish lawmakers from the Iraqi parliament in response to a proposal that the KRG's share of the next national budget be diminished if it does not deliver crude oil for export. In 2009, the disagreement between the KRG and the central government over the validity of the contracts signed by the former led to a stoppage of exports from Iraqi Kurdistan. Approximately 100,000 barrels per day (bpd) were exported from KRG territory before the halt. The new deputy prime minister for energy, Hussain al-Shahristani, gave the appearance of setting a quota of 150,000 bpd for Iraqi Kurdistan to escape the budgetary aforementioned punishment.
Shahristani was promoted to his current post from being minister for oil, the function now occupied by his former assistant Luaibi. Industry and political observers believe that a condition of his accepting the appointment was that he maintains control over the question of oil exploration, development, and export contracts. This is the reason for skepticism over the conciliatory Luaibi's remarks.
Yet the new statement from Baghdad also includes a vow to repay costs of the international oil companies involved, the refusal to do which has contributed to the halt of oil exports. This constellation of forces opens the way for a quid pro quo: Baghdad cedes ground on the oil issues in return for the KRG's agreement to allow Iraqi producers outside Kurdish territory to gain access to the network of gas export pipelines that the KRG intends to cooperate with foreign firms in constructing.
Two-thirds of Iraq's proven natural gas reserves of over three trillion cubic meters lie in the south of the country in Basra province, where otherwise expensive gas liquefaction facilities would need to be built for shipment overseas to as yet undetermined destinations. The country's probable reserves of natural gas are estimated at between two and three times that figure.
Dr. Robert M. Cutler is Senior Research Fellow, Institute of European, Russian & Eurasian Studies, Carleton University, Ottawa.