Natural Gas Deals Still Under Consideration In Iraq

Iraq has two outstanding natural gas deals with foreign companies. One is for the Akkas field in Anbar, which was auctioned off to South Korea’s Kogas and Kazakhstan’s KazMunaiGas in 2010, and the other is for Basra’s oil fields with Shell and Mitsubishi, which have had on-going talks with Baghdad since 2008. Anbar’s politicians held up the Akkas contract over who would be able to use the gas produced. That dispute appears to have been resolved, even though the two sides have not yet inked an agreement. The talks over Basra have been going nowhere for years now, and seems no closer to resolution despite what Iraqi officials say.

In October 2010, Iraq’s Oil Ministry successfully auctioned off three natural gas fields. One of those was Anbar’s Akkas. The day of the auction, local officials in Anbar protested the central government’s action. They complained that Akkas should be under local control, that Anbar’s energy needs should be met before any gas was exported, and that Baghdad had ignored their attempts to develop the field themselves. They went as far as to threaten not to provide security unless their concerns were addressed. That scared the two winning companies, who put off signing until Anbar’s issues were addressed. In mid-January 2011, the Oil Ministry claimed that it had worked out its differences with Anbar and was moving forward. The Ministry told the press that the two companies agreed to build a pipeline to link Akkas with a power station in Hit, Anbar. A new power plant is also supposed to be constructed next to the field. Anbar sent a letter to Baghdad on January 22, agreeing to these terms, and the Ministry announced that the final deal could be signed in early March.

The Basra negotiations are far more complicated. Shell and Mitsubishi are supposed to extract gas from oil fields that are currently being operated by other companies. That means the Oil Ministry has to work out terms with multiple parties. There is also no gas infrastructure in Basra, so pipelines, storage facilities, etc. all have to be constructed from scratch while other corporations are also moving in heavy equipment into the exact same places as part of oil deals they signed in 2009. The Deputy Oil Minister told Platts that the most difficult part of talks over Basra had passed, but this is the third year that Shell has been going through this, and nothing has happened. It’s hard to believe that a breakthrough will occur anytime soon given that history.

Natural gas is a huge untapped resource in Iraq. The country has approximately 112 trillion cubic feet of reserves, the 10th largest in the world. It wasn’t until last year that Iraq took the first step to begin exploiting it. The Oil Ministry has two deals on the books, and will hopefully come to a final agreement with Akkas in the coming months. Basra has the greatest potential however, since it has the most oil fields that also produce gas. Baghdad has just not been able to successfully finish negotiations with Shell. Every couple months Iraq claims it’s getting closer and closer to wrapping up talks, but that has come to naught. Until then, the gas industry is unlikely to reach its potential.

SOURCES

Ebel, Robert, “Geopolitics and Energy in Iraq,” Center for Strategic and International Studies, August 2010

Hafidh, Hassan, “UPDATE: Iraq Akkas Deal Includes Provincial Demands –Governor,” Dow Jones, 1/25/11

Kumagai, Takeo, “Iraq says still negotiating final details of gas deal with Shell,” Platts, 1/27/11

Rasheed, Ahmed, “Iraqi province wants more say over energy riches,” Reuters, 10/18/10