Iraq’s squandering of gas wealth [Gas in Transition]
The Iraqi government of Shia’ al-Sudani has paid to Iran a long-running, outstanding debt worth $2.8bn that covers the cost of several years’ worth of gas and electricity imports. After receiving a sanctions waiver from the US – needed by Iraq to proceed with the transfer of funds to Iran – Baghdad deposited funds into the Trade Bank of Iraq, from where it was transferred to the Central Bank of Iran. Both Iraqi and Iranian officials confirm that the payment has been made.
But the irony is that this arrangement should not be necessary at all. Iraq has huge gas resources in the formed of associated gas, but rather than capture that gas released during oil production, the country has allowed it to be burned off, flared. If one looks at the course of Iraq’s hydrocarbon history, the country could be a regional energy hub, providing large amounts of gas for its own electricity needs, and gas and power spare to export to neighbours.
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Unfortunately for the Iraqi people, a natural resource that has been so vital to 20th century development has been squandered, and only now, when the 21st century is well underway, are the Iraqis taking steps with efforts to end flaring and searching for gas resources to develop in economically viable ways.
Reliance on Iranian energy
The removal of Saddam Hussein and the rise of the majority Shiite population within the Iraqi political system brought a new relationship with Iran. The transformation was not a smooth one, but it led to Iran supplying gas to Iraqi power stations and electricity to the country’s power grid.
Because of Washington’s hard stance against Iran, Baghdad must obtain periodic waivers from the US government to import Iranian gas and electricity due to US sanctions levied against Tehran. The US lifted some sanctions against Iran in 2015 after agreement on the Joint Comprehensive Plan of Action (JCPOA) that addressed Iran’s nuclear energy programme, but it reimposed sanctions in 2018 after Washington withdrew from the accord.
Iraq is reported to be importing 40-45mn m3/day of gas from Iran, which would amount to approximately 16bn m3 annually. According to the BP Statistical Review 2022, Iraq produced 9.4bn m3 in 2021 and consumed 17.1bn m3. Gas resources are estimated at 3.5 trillion m3. Since the debt payment, Iran is reported to have offered to increase its gas exports to Iraq. Since Iraq is unable to supply enough domestic gas to meet demand, this arrangement will continue for some time yet.
Decades of waste
According to recent satellite data, Iraq flares more than 16bn m3/yr of associated gas, second only behind Russia, and it emits 30mn tonnes of CO2 annually in the process. Putting a stop to flaring would make a huge difference for Iraq’s economy. Flaring is something that should have been addressed decades ago, but through its travails, just getting oil out of the ground and to market was challenge enough to Iraq’s energy sector.
The US, which provides Baghdad with billions of dollars in assistance each year for the last 20 years, is frustrated with this and has repeatedly demanded that Iraq take measures to end its energy imports from Iran by putting a stop to the flaring. Baghdad has taken a few steps in that direction and has made repeated promises to bring flaring to an end by 2030. It claims (but these claims are questioned) that more than 60% of gas flaring has been captured and it has developed a roadmap with a goal to end flaring. It has also signed up to the Global Methane Pledge, introduced at COP26 in November 2021.
In 2021, the Iraq oil ministry entered an agreement with US firm Baker Hughes for a project designed to capture and process up to 200mn ft3/d of gas that would overwise be flared from the Nasiriyah and al-Gharaf oilfields in the southern province of Dhi Qar. The project is to finish in 2024. Iraq is also working with the World Bank through the Global Gas Flaring Reduction Partnership to bring flaring to an end by 2030. The Basrah Gas Company has received funding from the World Bank to gather and process some 400mn ft3/d from fields in southern Iraq, which would cut CO2 emission by 10mn tonnes annually.
Efforts on exploration
Iraq is the second-largest oil producer in OPEC and oil sales account for almost all of the country’s foreign exchange earnings and for nearly all of its export revenues. Oil earnings account for at least 85% of the government budget. Iraq has a capacity to produce around 4.6mn b/d of crude oil and under OPEC+ guidelines it exports around 3.3mn b/d.
In 2018, Iraq launched its fifth licensing round for oil and gas exploration putting 11 blocks up for bidding. The blocks were located along the borders with Iran and Kuwait and in the Gulf. The round suffered a five-year delay and was not closed until February this year when several contracts regarding six fields were signed with Crescent Petroleum of the UAE and two Chinese companies. Baghdad has since extended the round five to cover those blocks that failed to find contractors.
In June, Iraq launched its sixth licensing round, opening 11 oil and gas fields for bidding along the Syrian and Saudi Arabian borders. The tendered blocks are located in areas where there may be large deposits of natural gas, with development potentially helping the country build out its gas sector. Iraq’s proven reserves of conventional natural gas is estimated at 3.5 trillion m3, but some 70% of that is assessed to be associated gas. Some agencies have estimated that Iraq’s gas reserves could actually be much higher. Any future drilling must be prepared to capture the associated gas and process it.
GGIP
A big difference in Iraq’s gas sector could be made through an agreement signed between the Iraqi government and TotalEnergies of France in April this year for the Gas Growth Integrated Project (GGIP). Partners in the project consist of TotalEnergies (45%), Basrah Oil Company (30%) and QatarEnergy (25%).
With gas majors like TotalEnergies and QatarEnergy involved in the plan, the project should be off on the right track. In a statement issued in April, the French partner said negotiations with Iraq had taken place over the course of months, and that the terms of the development and production contract had been signed in 2021. TotalEnergies said the contract “is a strong and positive signal for foreign investment in the country.”
TotalEnergies also said the main purpose of the GGIP is “to enhance the development of Iraq’s natural resources to improve the country’s electricity supply.” To that extent, $10bn will be invested in the GGIP, which is a 25-year project.
The scope of work is to recover flared gas from three oil fields in order to supply gas to power generation plants; and to build a seawater treatment plant to provide water injection for pressure maintenance to increase regional oil production, as an alternative to the use of fresh water from rivers and aquifiers. The French companies did not give specifics about volumes and operation targets.
Along with that, TotalEnergies will develop a 1-GW solar power plant to provide electricity to the Basrah regional power grid. Iraq has agreed with TotalEnergies to invite Saudi Arabia’s ACWA Power to join the solar project.