Iraq Steps on the Gas: Baghdad's Drive to Achieve Energy Supremacy Switches Focus from Oil to Natural Gas, but the Country's Deep-Rooted Sectarian Rivalries and the Perennial Security Problem Undermine Efforts to Secure an Economic Future

By Blanche, Ed | The Middle East, November 2011 | Go to article overview

Iraq Steps on the Gas: Baghdad's Drive to Achieve Energy Supremacy Switches Focus from Oil to Natural Gas, but the Country's Deep-Rooted Sectarian Rivalries and the Perennial Security Problem Undermine Efforts to Secure an Economic Future


Blanche, Ed, The Middle East


After pushing its oil production to its highest level in a decade, Iraq is moving towards harnessing its vast gas reserves. It is scheduled to auction off 12 exploration blocks that could add 29 trillion cubic feet (tcf) of natural gas, as well as 1o billion barrels of oil, to the country's abundant energy reserves. The Oil Ministry has pre-qualified at least 46 foreign companies to bid in the auction set for 25-26 January 2012, with the focus this time on accelerating the development of the country's gas reserves, the l0th largest in the world, and ending the wasteful process of flaring off 70% of the gas recovered from oil fields which, in June, totalled more than 874 million cubic feet a day.

Some l00 executives from many of the companies listed attended an Oil Ministry road show in Amman, Jordan, in September. They included ExxonMobil and Chevron of the US, British Petroleum, Total of France and Lukoil of Russia.

Spearheading the effort to boost gas production is a $12 billion deal with Royal Dutch Shell and Japan's Mitsubishi Corporation, signed in July, to capture the huge volumes of gas flared off in the giant southern oil fields of Rumaila, Zubair and West Qurna Phase 1, and produce two billion cubic feet of gas a day.

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These two companies, together with the state-owned South Gas Company, will form the new Basra Gas Company.

In energy terms, Iraq is hugely unexplored. In addition to proven oil reserves of 143.1 billion barrels, industry analysts say the country could hold as much again in untapped fields.

As Iraq's current oil reserves are easy to tap because of favourable geological conditions, with production costs low, the ministry has made little effort to explore untapped reserves, which industry analysts say could exceed another l00 billion barrels.

Bureaucratic bottlenecks

These are mostly located in remote regions in the provinces of Babil, Basra, Dhi Qar, Muthanna, Najaf, Diwaniyah and Wasit in the energy-rich south, Diyala and Nineveh in the north and Anbar in the restive west.

Iraq has known natural gas reserves of 112 trillion cubic feet (tcf), plus another 150 tcf in probable reserves. About 7o% of these are what is known as associated gas, natural gas produced in conjunction with oil.

The gas drive is vital to Iraq's pro-war reconstruction, primarily to provide the fuel necessary to expand the country's woefully inadequate power-generation capabilities.

But the bureaucratic bottlenecks and constant political in-fighting that have blocked important legislation in recent years could well undermine the effort.

A hydrocarbons law has been delayed for years in parliament because of political and regional rivalries, seriously undermining efforts to coordinate the energy development vital to putting the country, battered by decades of misrule, international sanctions, insurgencies and wars, back on its feet.

The landmark deal with Shell and Mitsubishi could become a victim of this internal strife, even though Baghdad hopes it will open up new joint ventures to utilise natural gas in other oil zones.

But reality bites, to the point that Iraqis often seem to be their own worst enemy. The deal was proposed in 2008, yet three years later it's still not been finalised. Many aspects of the deal remain dogged by uncertainty and controversy.

That underlines the tortuous process for such ground-breaking ventures in post-war Iraq, where political and ethnic rivalries, as well as disputes between the federal government and provincial authorities, have paralysed the decision-making process on vital energy projects.

Long process

Oil Ministry officials said in July that Shell, Mitsubishi and Iraqi authorities had finally settled legal issues that delayed the gas project for two years, along with political opposition and haggling over gas pricing. …

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