Gas And Power Development Go Hand And Hand In Iraq

Iraq’s Oil and Electricity Ministries are launching a joint plan to develop Iraq’s natural gas fields to provide fuel for the country’s power plants. In April 2010 the Oil Ministry announced that it was holding auctions for three natural gas fields as well as sending the long delayed Shell-Mitsubishi deal for capturing gas in Basra to the cabinet for approval.

The three fields that are going to be put up for bid are Akkas, Mansouriya, and Siba. Akkas is in Anbar province and holds 5.6 trillion cubic feet of gas reserves. Mansouriya is in Diyala and has up to 4.5 trillion cubic feet of reserves, and Siba is in Basra with 1.1 trillion cubic feet in reserves. The Akkas and Mansouriya fields were put up for auction in 2009, but only Akkas received a bid, and that was rejected by the Oil Ministry. 45 companies that were involved in that 2009 bidding round will be allowed to make offers on the three fields, and the winners will be given 20 year technical service agreements similar to the oil deals that were recently signed. The businesses need to reach a set production level before they start being compensated. The auction for the fields will occur on September 1, 2010.

The Oil Ministry has also sent the Shell-Mitsubishi gas deal to the cabinet for ratification. If approved the deal will be worth between $10-$20 billion to collect the natural gas produced from Basra’s oil fields. That contract has been delayed since February 2008 because of opposition within the government and parliament, and Baghdad’s inability to come up with the money to pay the companies. It still faces many hurtles, not the least of which is the fact that the Oil Ministry has not worked out how Shell and Mitsubishi will cooperate with the companies extracting oil in Basra, and how those businesses will be compensated. 

Iraq currently produces around 1.64 billion cubic feet of gas a day, but 70% of that is burned off and wasted. It’s estimated that Iraq loses $4-$12 million a day as a result. Overall the country is believed to have up to 112 trillion cubic feet of natural gas reserves. The Oil Ministry wants to boost gas production by five times within five years through these deals.

That extra gas will largely go to fuel Iraq’s power plants. Iraq’s Electricity Ministry wants to increase its output to 27,000 megawatts in four years based upon these gas deals. In 2008 it signed a $2.03 billion contract with Siemens for 16 turbines, and $3 billion with General Electric for 56 turbines. In May 2010 the Ministry will offer up bids to start installing some of these turbines. If the auctions for the 3 gas fields fail or the Shell deal is not approved however, the Electricity Ministry will have to scrap all of its plans.

This is quite an ambitious development program by Iraq’s Oil and Electricity ministries. With improved security the government is beginning to develop its energy industries with the help of foreign investors after decades of neglect due to wars and sanctions. Currently, oil is not up to pre-war levels, energy output does not meet demand, and natural gas is being wasted. All three need to be boosted at the same time to reach the government’s goals. That is a very complicated and intricate process that is fraught with problems. The oil companies that recently won deals for Basra’s fields for example, have not agreed to supply gas that will be produced in the extraction process to Shell and Mitsubishi. Whatever contracts that are signed now may also be scrutinized and changed by the new Iraqi government, whenever it is seated. If successful, Iraq will go a long way to reaching its potential, if not it will remain an underdeveloped state despite its rich resources.

SOURCES

Ajrash, Kadhim and Razzouk, Nayla, “Iraq Invites Bids for Akkas, Mansouriya Gas Fields (Update 1),” Bloomberg, 5/6/10

Associated Press, “Iraq Puts 3 Natural Gas Fields Up for Bid,” 5/6/10

Daood, Mayada, “iraq burns 70 billion dollars a year,” Niqash, 5/5/10

Hafidh, Hassan, “UPDATE: Iraq Sends Draft Of Shell Gas Deal To Cabinet For Approval,” Dow Jones Newswires, 5/6/10
- “UPDATE: Iraq To Hold New Bid Round For 3 Gas Fields – Official,” Dow Jones Newspapers, 4/14/10

Iraq Business Report, “Iraqi Oil Ministry Sets 2014-15 Targets for Crude and Gas Output,” 5/8/10

Reuters, “Iraq plans power boost after gas fields auction,” 5/10/10

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 4/30/10