Iraq Worries About Iranian Gas After US Waiver
A day after the US embassy website released a video saying that Washington has given Iraq a waiver of just 45 days to continue gas import from Iran, Iraq's president Barham Salih announced that US should recognise Iraq’s situation and not burden it with Iran-related sanctions. The US also imposed a condition that the gas payments to Iran should not be made in US dollars.
Iran started selling 7mn m3/d (2.55bn m3/yr) to Baghdad June 22, 2017. This rose gradually to 12mn-14mn m3/d by the end of the year; BP estimated the average volume to be about 8.7mn m3/d.
Iran has two agreements with Iraq, to export gas to Baghdad and Basra, each at 25mn m3/d. However, it is obliged to send 70% of this volume in hot seasons and the rest in autumn and winter. Iran also exports 27mn m3/d gas to Turkey, split 60/40 in favour of summer.
There is no information about Washington’s waiver for Turkey, but Ankara reduced Iranian gas imports by 27% year-on-year to just over 5bn m3 in January-August 2018 and in August its Iranian gas intake almost halved year-on-year. There are no official statistics as yet from September onward.
An Iranian industrial source told NGW that Washington’s 45-day waiver for Iraq came just as the Iran-to-Basra pipeline was completed, and the two sides had been working hardly together to resolve the letter of credit (LC) issue to start gas flow to Southern Iraq.
For gas exports to Baghdad the Trade Bank of Iraq had opened a LC in early June 2017 and ensured payments would be made in the Iraqi dinar. Iran then immediately started gas flows.
Exporting gas to Iraq has a unique advantage for Iran, because Iraq uses gas in its power sector, which has very high gas demand in spring and summer, when Iran’s household demand is very low.
Iraq relies on Iranian gas, power and goods
As the US waiver announcement was made, Saudi Arabian oil minister Khalid al-Falih met with his Iraqi counterpart to discuss power export issues.
Saudi Arabia has offered to construct renewable power plants with 3 GW capacity for Iraq in the north of its territory, close to its border with Iraq, and to export electricity at $21/MWh; which is just one fourth of Iran’s current power export price to Iraq.
Iran exported 7.8 TWh of electricity last year, of which 84% went to Iraq. However, last summer Iran stopped power exports to Iraq for two months due to its own deficit, which led to power outages and massive protests in Iraq.
Iraq says it faces a power deficit of at least 5 GW, or five times the level of Iran’s power exports to Iraq, while its demand has grown 7%/yr. The country has launched several power plants in recent years, which were expected to be operated using Iranian gas. Iran participated to some extent in the construction of these thermal power plants, plus the gas pipelines to Baghdad and Basra.
Iran also increased its goods exports to Iraq during the first half of the current fiscal year, which started March 21, by 45% year-on-year to $4.5bn, according to customs data. Iraq shares about 20% of Iran’s total non-oil (excluding gas, power, oil products) exports.