Iraq Finally Inks Natural Gas Deal With South Korean Company

It took almost exactly one year, but Iraq’s Oil Ministry finally signed a deal with South Korea’s KOGAS company for the Akkas natural gas field in Anbar province. After local protests, threats to cancel the contract, and KOGAS’ partner withdrawing, the two sides have come to terms. This is the second step in finally beginning to expand the country’s natural gas industry, which is greatly underdeveloped.

Akkas field in Anbar (Reuters)

In October 20, 2010, Iraq’s Oil Ministry auctioned off three natural gas fields. That included Mansuriyah field in Diyala, Siba in Basra, and Akkas in Anbar. South Korea’s KOGAS and Kazakhstan’s KazMunai Gas put in the winning bid for Akkas. The partnership offered $5.50 per barrel equivalent in gas production after it reached 400 million cubic feet of production. Akkas has 5.6 trillion cubic feet of reserves. This was the first successful offering for natural gas in Iraq. Iraq has 112 trillion cubic feet of gas reserves, but only produces around 1.5 billion cubic feet per day. Around 700 million cubic feet is simply flared and wasted each day as part of oil drilling. In 2010, it was estimated that Iraq lost around $70 billion a year during this process. Carrying out this auction was an important step in finally exploiting this natural resource. Many of the country’s power plants could be fueled by this natural gas, and exported for a profit as well. Either way, it would be used instead of mostly wasted, as is the current state of affairs.

The Oil Ministry’s grand plans were put on hold however, because of local protests in Anbar. The day of the gas auction, politicians in Anbar held a demonstration. Their complaints were many, ranging from demanding that Akkas be under provincial control, that companies hire local workers, that any gas produced would be used for neighboring power plants, and that Baghdad had ignored its earlier attempts to develop gas in the governorate. To back up their demands, they threatened to not provide security to the field, start a civil revolt, and sue the Oil Ministry. Scared by these measures, KOGAS and KazMunai Gas refused to sign any deal until these outstanding issues were resolved. That led to several announced delays in the following months. By March 2011, things had dragged on for so long that parliamentarians even considered annulling the auction, and finding new investors. Things went from bad to worse, when in May KazMunai Gas withdrew because of all the delays. Finally, all sides seemed satisfied when the Oil Ministry and KOGAS finalized their deal in June. Still, the final agreement was not signed until October 13, almost exactly one year after the original auction. To accomplish this goal, Baghdad promised to build a new electricity plant near Akkas, a gas pipeline to supply several power stations in Anbar, and a processing plan. This was a major victory for all parties involved. The Oil Ministry and KOGAS were finally able to put the protests by Anbar’s politicians behind them. Provincial officials also successfully pushed their demands with Baghdad, the first time this has happened in the energy field in the new Iraq. Hopefully this means that all three sides will now cooperate and the Akkas field will finally be explored and developed.

If natural gas was ever exploited it could become the second most important resource in the country, and lesson Iraq’s dependence upon oil. Not only that, but gas has important trickle down affects such as fueling power stations and providing more electricity. Unfortunately, Iraq has huge reserves of gas, but wastes and burns off most of what it produces. The first three gas deals have finally been completed, and hopefully that means this important task of development will move ahead.

For more on Akkas deal see:

Iraq Finalizes Three Natural Gas Deals As Its First Step To Developing The Industry
First International Energy Company Pulls Out Of Iraq
Iraq's Parliament May Cancel Akkas Natural Gas Deal
Natural Gas Deals Still Under Consideration In Iraq
Anbar Protests Stop Natural Gas Deal Being Signed
Iraq Successfully Auctions Off Three Natural Gas Fields
Anbar Holds Protests Over Akkas Gas Auction
Iraq To Hold Natural Gas Auction Today
Anbar Objects To Iraq's October Natural Gas Auction
Iraq Postpones Natural Gas Auction, Again
Iraq's Natural Gas Auction Postponed Until October


SOURCES

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

Hafidh, Hassan, “UPDATE: Shell, Iraq To Sign Initial $12 Bln Gas Deal – Official,” Dow Jones, 7/8/11

Rasheed, Ahmed, “UPDATE 2-Iraq signs final Akkas gas deal with KOGAS,” Reuters, 10/13/11

Salaheddin, Sinan, “Iraq inks final gas deal with SKorea’s KOGAS,” Associated Press, 10/13/11