CONFLICT-HIT IRAQ boasts the world’s largest endowed oil reserves, according to London-based Petrolog & Associates.
Its proven reserves are 145.5 billion barrels – one-quarter higher than published BP data of 115 billion barrels – whilst probable reserves exceed 234 billion barrels. The latter are referred to as ‘technical’ reserves that have a 50 per cent probability of extraction under given economic
and technological conditions of some 80 Iraqi oilfields (including supergiants with over five billion barrels), 58 fields are not yet appraised or delineated.
Thus far, only seven fields have been fully developed, with the majority of crude production deriving from just three supergiant fields: North and South Rumaila and Kirkuk. Longer-term, Iraq offers exceptional potential for reserves and output growth, coupled with low development cost. Petrolog & Associates reckons that Iraq could develop a production capacity of 10mn barrels per day (bpd), which can be sustained for a decade without the need for additional new reserves. However, reaching the 10mn bpd milestone (on a par with Saudi Arabia) – contingent on massive foreign investment and technical support of oil majors – could take at least a generation.
Iraq’s 2008-2017 strategic plan seeks to boost sustained productive capacity to six million bpd within 10 years. It would take Iraq 90 years and 180 years to deplete its reserves at the production rate of five million and 10mn bpd, respectively, according to Petrolog & Associates. What is equally revealing is Iraq’s hidden natural gas resource that makes it a significant regional gas producer and exporter.
The Baathist regime never bothered to capture and commercialise natural gas, though the country sits on huge quantities of ‘stranded gas’ (i.e. gas reserves that have been discovered but remain undeveloped because of physical or economic factors). Proven reserves of 111.9 trillion cubic feet (Tcf) represent the world’s tenth largest and two-thirds of which are associated with oilfields including Kirkuk, the southern Nahr (Bin) Umr, Majnoon, Halfaya, Nassiriyah, the Rumaila fields, West Qurna, and Zubair. Almost three-quarters of gas reserves lie in the Basra region. Just under one-fifth of known reserves are non-associated (located in predominantly Kurdish northern Iraq) and one-tenth is salt 'dome' gas. Unlocking capacity The US Energy Information Administration (EIA)
exceeding published data by 145-168 per cent. Presently, exploration work is underway by international oil companies (IOCs) and some independents to accurately update reserve numbers. Statistics for proved hydrocarbons resources are mainly based on 2-D seismic data from three decades ago. Plentiful reserves offer scope for downstream activities, such as iron-steel, aluminium smelting and the expansion of the petrochemicals sector, as well as reinjection for enhanced oil recovery (EOR) programmes.
The Ministry of Oil (MoO) reported that as much as three-fifths of associated natural gas output is simply flared, reflecting the lack of sufficient infrastructure to utilise it for consumption and export. Last year, Iraq flared seven billion cubic metres (cu/m) of gas, compared with 10.3 billion cu/m in Iran. Gasser Hanter, Dubai-based Iraq country head for Royal Dutch Shell, said, “If you have ever flown over Basra at night, you will see the whole sky literally lit up with flares.”
Moreover, gas flaring is equivalent to about 300,000 bottles of Liquefied Petroleum Gas (LPG) daily and 20mn tons of carbon dioxide per annum. Besides the environmental impact of pollution, flaring (based on current oil output) costs Iraq revenue losses of US$1.8 billion per year, assuming an average price of US$5 a million British thermal units (BTU), according to Shell.
It estimated that 60 per cent of the country’s energy consumption could be easily met from existing natural gas production. In mid-2009, Iraq had about 6,000 megawatts (MW) of installed generating capacity, which fell short of nationwide demand estimated at between 8,500 MW and 9,000 MW.
Ambitious goals Iraq boasts the means to export ‘piped-gas’ through Turkey, including connecting to the Azeri-Turkish Baku-Tbilisi-Erzerum (BTE) line, the planned Nabucco (Iran-Europe) pipeline, and the Arab Gas Pipeline (AGP) network that links Egypt, Jordan and Syria. The extension of the latter could deliver gas from Akkas field in the western province of Anbar to Syria and then onto Lebanon and the Turkish border, and then eventually to continental Europe. Nuri Al-Maliki, the Prime Minister, recently indicated Iraq could supply about 15 billion cu/m of natural gas to the European Union (EU) through as yet unbuilt Nabucco pipeline.
The US-based IHS Global Insight, however, said, “We see very confident projections from the EIA and others on Iraqi exports to Europe, but there is such a long way to go before we can start to be confident about seeing Iraqi gas in Europe.” Any future plans for gas exports are controversial because of substantial idle and sub-optimally-fired electricity generation capacity across Iraq (the size of France), caused by paltry gas feedstock over many decades. The MoO has set quite ambitious targets of expanding gas production to 70 billion cu/m per year, with exports starting after 2012 and ending flaring, thereby injecting more natural gas to feed power plants as well as petrochemicals and fertiliser factories. The non-associated gasfields reportedly slated for fast-track development are Al-Mansuriyah, Khashm Al-Ahmar, Akkas, Chemchemal and Siba, among others. There are also plans for monetising associated-gas at Rumaila and Az- Zubair oilfields within five to ten years.
Domestic usage Shell is moving forward, albeit steadily, with a joint venture with state-owned South Gas Co. to capture flared gas within Basra area and channel it for domestic usage, with any surplus left for an export-oriented liquefied natural gas (LNG) facility. The heads of agreement (HOA) – approved by the Iraqi cabinet in September 2008 – seeks to create the first-ever mid-stream project (estimated value: US$3-4 billion), which entails the gathering, treatment and processing of raw gas.
Under the terms, South Gas, Shell and Japan’s Mitsubishi Corp will hold 51 per cent, 44 per cent and five per cent stakes, respectively, in a 25-year scheme to develop both mid-stream and downstream capacities in southern Iraq. The shareholders will be allowed to sell processed natural gas and its by-products (LPG and condensate) locally, but at below international prices. However, LNG exports are unlikely for the foreseeable future, due to heavy demand on gas feedstock from local power generation. Last December, the US’ GE Energy and Germany’s Siemens received contracts worth US$3 billion for the delivery of gas turbines with a combined generating capacity of 10,150 MW.
Iraq plans to replace dilapidated plants with modern gas-fired power stations. Meanwhile, OMV (Austria), MOL (Hungary) and the UAE’s Crescent Oil have joined forces with northern Iraqi-based Pearl Petroleum Co. to explore and develop two fields (Chemchemal and Khor Mor) and pipe it across the Turkish border. The Pearl partners reckon these giant fields – requiring US$8 billion of new investments – could supply three billion cubic feet per day to Central Europe, via Turkey, equivalent to about one-third of Britain’s daily gas demand. The MoO in Baghdad is yet to approve mega deals in the autonomous Kurdish region.
Ambitious plans The Sharjah-based Crescent Oil and its affiliate Dana Gas have unveiled rather ambitious plans for building a gas city in Anbar, which they hope might attract US$60 billion in investment. An unnamed South Korean firm is interested in developing the city’s model.
UAE energy groups estimate that development of the 2.1 Tcf Akkas field could cost US$8 billion and have submitted a formal proposal. Oil Minister Hussein Al-Shahristani said the hydrocarbons industry needs US$50 billion capital or even higher over the medium-term. The UK-based energy consultants Wood Mackenzie agreed by saying, “Everything’s still at the very early stages, but there’s a huge need for investment in the sector, first and foremost to meet domestic gas requirements.”
Natural gas production has risen since 2004, and has returned to the levels reached during the mid-1990s, though capacity (like crude oil) lags far behind Iraq’s optimal potential. In sum, the hidden gasfields badly need vast capital injections, sophisticated technologies and most importantly, civil order for luring multinationals back to Iraq in order to rehabilitate oil-gas industry, the economy’s life-blood. The passage of the proposed Hydrocarbons Law, which would provide a legal framework for foreign direct investment, remains a key policy objective.
The law outlines revenues sharing, restructures MoO and creates an Iraqi National Oil Co., but dispute between central and Kurdish regional government has hindered its progress in the National Assembly. Future oil exploration projects will directly impact upon the upstream gas segment since the bulk of reserves are associated with crude petroleum. That highlights the need for building an efficient infrastructure to monetise untapped reserves.