First International Energy Company Pulls Out Of Iraq

In October 2010 Iraq held its third energy auction. Three natural gas fields were put up for bidding by international companies. A South Korean and Kazakhstan consortium won the Akkas field in Anbar province. The local government however, protested the deal, and put up one objection after another. Seven months later, the Kazakhstan company pulled out, marking the first time a foreign firm has walked away from Iraq’s rich natural resources.

Akkas was one of three natural gas fields auctioned off in Oct. 2010 (Energy-Pedia News)

The Akkas gas field near the Syrian border is one of the largest in Iraq. It has 5.6 trillion cubic feet of reserves. In mid-2008, the Oil Ministry announced that it was opening the field to foreign investors. It was included in the first bidding round in June 2009, but did not get a successful bid. (1) The Ministry then decided that it was going to develop the field itself. That went nowhere, and in April 2010 the government once again said it would put up Akkas for auction. 45 companies would be pre-qualified to participate, and would be offered 20-year technical service agreements. The auction took place on October 2010, and Akkas was won by South Korea’s KoGas and Kazakhstan’s KazMunai Gas. The Oil Ministry was hoping that this third auction would finally bring in the foreign money and know how to develop its natural gas resources. This was desperately needed because the industry has been largely neglected, and gas is required to fuel the country’s power stations.

The central government quickly ran into problems with the Anbar provincial government. Days before the October auction, Anbar’s Governor Qasim Abdi Mohammad Hammadi Al-Fahadawi began objecting. He claimed Akkas should be under local control, and warned that he would not provide security for the field if that demand was not met. The head of the provincial council also complained that Baghdad had ignored their concerns. The provincial council demanded that all the gas produced in Akkas should be used for domestic use, instead of being exported. There were even protests in the province the day of the auction. Anbar’s politicians were successful in delaying the signing of a preliminary deal between Iraq and the two foreign companies. This was the first time that one of Iraq’s provinces had been taken seriously by the central government over its energy resources. Before, the Oil Ministry had been acting independently, doing anything that it wanted with oil and gas.

Protests were seen in Anbar the day of the Oct. 2010 auction (Reuters)

Baghdad quickly opened negotiations with Anbar to try to resolve their differences. Seeing a chance to push their cause, the local politicians made demand after demand, such as the construction of a new oil refinery, that all of Akkas’ production go to power plants in the province, improving infrastructure, jobs, a pipeline, and a percentage of the profits. Every time the Oil Ministry agreed, Anbar asked for something else. As a result, the Akkas deal was put off again and again. The oil and gas committee in parliament could see the writing on the wall and suggested canceling the bid and looking for new investors.

The government believed that it had finally worked out all of the differences, but it proved too late. In late-April 2011, the Oil Ministry said that the Akkas deal would be approved in May. Instead, on May 11 it was reported that KazMunai Gas was withdrawing. No explanation was given, but the Kazakhstan company was probably frustrated by all of the delays. In fact, Baghdad has still not worked out all of the details with Anbar over Akkas, which is now going to be solely developed by the KoGas company.

Iraq’s natural gas industry is almost completely underdeveloped. Most of the gas produced comes from oil fields in the south, and is burned off instead of used. Baghdad was hoping that the October 2010 auction could finally allow the country to exploit this important resource. Two other fields were successfully bid on and the deals singed, but the Akkas field was the exception. Anbar’s politicians felt like they had been ignored by the central government, and used a series of threats to get the Oil Ministry to negotiate the contract with them, a first in Iraq. Unfortunately, Anbar’s growing demands led to a foreign energy company to walk away. The corporation finally grew tired of the long delays that mark most facets of business and politics in the nation. Fortunately for Iraq, it has such large oil and gas reserves that few others are likely to follow KazMunai Gas’ exit.

FOOTNOTES

1. Hafidh, Hassan, “UPDATE:Iraq Asks 1 Co To Revise Nasiriyah Oil Field Bid – Min,” Dow Jones, 7/6/09

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