Iraq Finalizes Three Natural Gas Deals As Its First Step To Developing The Industry

In October 2010, Iraq’s Oil Ministry held its third international energy bidding round for three natural gas fields. All three were successfully auctioned off, but then protests by local officials held up finalizing one of them in Anbar province. For some unexplained reason, the other two never moved forward either. Eight months later, the foreign companies signed their contracts within four days of each other, which hopefully means that Iraq can finally begin to develop its second most important natural resource.

In October 2010, foreign energy companies successfully won the rights to three of Iraq’s natural gas fields. South Korea’s Korean Gas Company (KOGAS) and Kazakhstan’s KazMunaiGas successfully bid on the Akkas field in Anbar with 5.6 trillion cubic feet of reserves. Turkey’s Turkiye Petrolleri (TPAO), Kuwait Energy, and KOGAS got the Mansuriyah field in Diyala with 4.5 trillion cubic feet of reserves. Finally, TPAO and Kuwait Energy won the Siba field in Basra with 1.5 trillion cubic feet of reserves. This marked the first time the country had auctioned off any of its gas resources. Iraq has the fifth largest gas reserves in the Middle East, but the industry is largely underdeveloped, and the gas is desperately needed to fuel the country’s electricity plants. Baghdad also hopes to eventually export as well, especially to Europe.

Before the bidding even began however, the provincial government in Anbar began objecting. The governor and the head of the provincial council demanded that Akkas be under local control, complained that the Oil Ministry had ignored their resources before, and that they would not provide security if their issues were not addressed. The day of the auction, protests were held in the governorate to press the matter. That scared KOGAS and KazMunaiGas who asked the central government to negotiate with Anbar over Akkas. This was the first time the Oil Ministry had ever listened to a provincial government over energy resources, and Anbar played it for all they could. They demanded that any gas produced be used for local use, that infrastructure be improved, that jobs be provided, a pipeline be built, and that it get a share of the profits. For a time, it seemed like Anbar was adding new demands every month. The situation got so bad that the oil and gas committee in parliament suggested canceling the bid, and KazMunaiGas withdrew from the deal in May. Things did not look good for the Akkas field, and at the same time, nothing was heard about the Siba or Mansuriya contracts either.

Then, without warning, everything suddenly changed at the end of May. On May 26 it was reported that KOGAS was going to take the full responsibility for developing Akkas, and invest around $2.66 billion into it. Then on June 1, KOGAS finalized the deal with the Oil Ministry after eight months of delays. It signed a 20-year deal, and promised to produce 400 million cubic feet of gas. Then four days later, KOGAS, TPAO, and Kuwait Energy signed their contracts. TPAO, Kuwait Energy, and KOGAS are to raise production to 320 million cubic feet of gas per day at Mansuriyah, and Kuwait Energy and TPAO are to produce 100 million cubic feet at Siba. No reason was give for the sudden turn around, but it follows the pattern set with all too many important decisions in Iraq. Things rarely go as planned, and deadlines are often broken, yet in the end, many things work out.

Iraq’s economy is built upon oil, but it is also hoping to develop into a major natural gas producer. Most of what it produces currently comes from its oil fields, and is burnt off, and never used. Many of its power plants should be running off of gas, but because the industry is hardly developed, they are powered by heavy oil, which wears down the equipment faster than usual. Baghdad also wants to become an exporter when its domestic needs are met, and enter into the European market. All of these goals are still a long way off, as pipelines, storage tanks, and the other necessary infrastructure do not currently exist. Signing these three deals, and bringing in foreign capital and know how is the first important step to this process, and for Iraq to realize its dreams.

SOURCES

Ajrash, Kadhim and Razzouk, Nayla, “Iraq Says Signed Contract With Kogas to Develop Akkas Field,” Bloomberg, 6/1/11
- “Iraq Signs Accord With Kogas, Turkiye, Kuwait Energy to Develop Gas Fields,” Bloomberg, 6/5/11

Lee, Min-Jeong, “Korea’s Kogas Doubles Down on Iraq,” Wall Street Journal, 5/26/11