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Iraq Eyes Gas Exports amid Project Talk Frenzy.

by Samuel CiszukPetroleumworld
October 21st, 2009

IHS Global Insight : Iraq's gas export plans

Iraq Eyes Gas Exports amid Project Talk Frenzy

Buoyed by the vast oil projects making negotiation headway this week, Iraq is eyeing gas exports to Turkey and possibly beyond, while revelations over oil deals continue to cast a shadow over Iraqi Kurdistan's autonomous institutions

IHS Global
Insight Perspective


Iraq will discuss Akkas gas exports to Turkey, while Eni—fresh from having won the giant Zubair field contract—has second thoughts about taking on a Nassiriya field deal; at the same time progress looks less convincing—for a change—in Iraqi Kurdistan amid reports of potential oil deal irregularities.


We are coming to the end of a week in which extraordinary Iraqi upstream potential has looked closer than at any time since the 2003 invasion. Iraqi Kurdistan, however, seems increasingly embroiled in controversy, which ultimately provides political capital for a centralising Iraqi government.


While a raft of good news has come out of Iraq this week, political progress on ratification needs to follow, in order to back the agreements up with substance; the diminished credibility of Iraqi Kurdistan on the other hand could signal a potential, though tentative, reversal of fortunes.

Akkas Promise

A Turkish delegation led by Prime Minister Recep Tayyip Erdogan yesterday met with Iraqi prime minister Nuri al-Maliki to discuss a wide array of issues of common interest, including efforts to bring Iraqi gas—most likely to come from the Akkas field initially—to Turkey and onwards to Europe. According to Upstream Online, the delegations drew up plans for an oil and gas pipeline co-operation agreement, with al-Maliki telling Reuters before the meeting that Iraq could export 15 bcm/y of gas to Europe through the Nabucco pipeline. It was, however, unclear in what timeframe the exports were being seen and whether Turkey wanted the possible eventual Iraqi gas volumes to flow through the Nabucco project or some other pipeline project.

Taner Yildiz, Turkey's energy minister, told Turkish news agency Anatolia that "talks in Baghdad regarding energy area were discussed under three main topics; oil, natural gas and electricity" adding that "a study will be carried out to direct private sector, building natural gas power plants, to Iraq. Pumping of 8 billion cubic meters natural gas from Iraq to Turkey is planned at the first stage". Clarifying the oil part of the talks, Anatolia further quoted Yildiz as saying that the "Kirkuk-Yumurtalik [more commonly referred to as Kirkuk-Ceyhan] pipeline has 70 million tonne capacity. It currently works with 18 per cent capacity. We will make a 15-year agreement about this. Kirkuk-Yumurtalik pipeline is a departure gate for Iraq. We want this pipeline to work in full capacity".

The Akkas field, very close to the Syrian border and relatively far from Iraqi markets, has never been developed but is relatively well delineated and could swiftly be brought onstream and connected to the Syrian pipeline system for transport on to Turkey. This idea has been at the forefront of Iraqi thinking for some time, but given the relative lack of success in the first licensing round—in which Akkas was included—in June, the project has made no further progress. Although security in the Western Anbar area of Iraq has improved tremendously, it is still feared to be a hotbed of smuggling and a potential new flashpoint should relations between the region's Sunni's and Iraq's large Shi'a community deteriorate, a factor that has led investors to shy away from committing to the otherwise promising project. With other gas investment projects in Iraq, domestic supplies would first have to be secured so Iraq could rebuild its gas-fired power generation capacity, and gas would thus have to be marketed to the government due to the domestic market subsidies in place. For Akkas, however, the export of all of its gas makes for a naturally good business case—albeit one potentially restrained by restrictive Iraqi terms.

The Akkas field has a known production capacity of 400 mmcf/d on development, which means that exports from the field should be able to reach 4 bcm/y easily. Additional development on the field might well be possible, but those reserves are less known—if at all—meaning that Turkish hopes of a total of 8 bcm/y might have to include deliveries from Iraqi Kurdistan. This might prove politically tougher, not only because of the dispute between the Iraqi government and the Kurdistan Regional Government about who has the rights to the region's hydrocarbon reserves, but also because domestic gas needs will rise rapidly in Iraq if and when oil development gets under way and the full rebuilding of the country's power generation and transmission capacity is financed. If export allocations at some point come to clash with domestic demand, political controversy might be very easily stoked.

Plans for a further 7 bcm/y (according to al-Maliki's 15 bcm/y export target) now appear to be so far away—especially given the need to bring gas onstream to satisfy a fully recovered and developed domestic market—that at this point they should be seen more as a way for Iraq to rhetorically insert itself into Europe's future energy calculations, rather than as realistic project plans in themselves.

Eni Balances the Portfolio

Meanwhile, Italy's oil and gas giant Eni has said that it is to "think twice" about its involvement in the Nassiriya field development project, for which it has been seen as a front-runner. The 4-billion-barrel Nassiriya field is about the same size, reserves-wise, as the Zubair field, but is not believed to be able to sustain the same high production levels as Zubair, which Eni won a 25-year technical service contract (TSC) to develop earlier this week. Development of the Nassiriya field is targeting a 100,000-b/d capacity within 18 months and a later phase could see production reach 300,000-400,000 b/d—in fact, a Japanese consortium led by Nippon Oil, which also has been reported as a front-runner, says that 600,000 b/d could be possible in the long run. The target for Zubair, on the other hand, is now 1.125 million b/d within seven years, making that project much larger in terms of cash flow. Moreover, Nassiriya is not offered under a TSC contract but only as an engineering, procurement, and construction (EPC) contract, making it far less interesting financially over the medium-to-long term. It is also uncertain if any production capacity over the second phase development would be included in the contract—which is currently being negotiated and heavily delayed.

Eni might feel that exposure to Iraq's still-significant risks may be too high with both fields potentially in its portfolio, but the Iraqi Oil Ministry still has other bidding consortia to choose from.


While the week has been full of potentially game-changing positive news from Iraq proper, questions continue to mount over the share deals between the KRG Energy Ministry and Norwegian independent DNO. According to KRG Energy Minster Ashti Hawrami, he was approached by DNO chief executive Helge Eide with a request that the KRG would buy shares in DNO to help it raise funds, a statement that completely contradicts Eide's repeated claims that DNO had no knowledge about who had bought those shares. Given that the Norwegian police's financial crime unit, Okokrim, launched an investigation into the affair earlier this month, such a discrepancy might do little to ease wide interest in the matter.

The KRG has striven to clarify its position, releasing a statement and holding a press conference showing that Turkey's Genel Enerji (now merging with the United Kingdom's Heritage to form HeritaGE) was the intended buyer of the shares all the time, and that the eventual transfer of the shares from KRG to DNO was backdated to when KRG purchased the shares, leaving the KRG with none of the profit from the significant rise in DNO share value over the intervening six months. KRG has from the start maintained that the deal was made to help two companies—crucial to its oil production capacity development—raise finance in the midst of the global economic crisis and the prolonged shut-in of exports from Iraqi Kurdistan by the Iraqi government.

Outlook and Implications

While Iraq this week has shown the greatest promise of a hydrocarbon projects breakthrough since before the 2003 U.S.-led invasion, the continued question marks surrounding the financing and share deals in Iraqi Kurdistan are casting a shadow over the region's young institutions. While it is understandable that the KRG might have wanted to ensure that development continued despite the IOCs' inability to produce fully due to the political dispute with the central government, the suspicion—hitherto unsubstantiated—that corruption has been involved has spread to the south of the country and will provide the Iraqi government with ammunition in its attempt to rein in the KRG's autonomy in the upcoming campaign for the January general election. This points to some coming difficulties for the Kurdish factions, which have so far have gained strength from the large degree of division between the rest of Iraq's factions and sectarian groupings. Should the elections produce more of a cohesive government coalition, the situation for the Kurds might indeed reverse significantly compared with the past term, when the region could continue to strengthen its autonomy and make maximalist political and territorial demands.
Still, the initial progress in Iraq is just that—initial. Political progress needs to follow, with ratification of the contracts by the cabinet not being as straightforward as it might seem, despite the vast amount of investment and development the projects would entail. Political deadlock has solidified in Iraq over recent months, as every faction gears up for the elections, and the government perhaps prefers to keep the contracts pending so as not to have to take full political responsibility for them in the face of resource-nationalistic attacks, but at the same time being able to tempt the electorate with huge crude export windfalls in the not-too-distant future.

Analysis by IHS Global Insight Middle East Energy analyst Samuel Ciszuk (samuel.ciszuk@ihsglobalinsight.com). Petroleumworld not necessarily share these views.

Petroleumworld News 10/21/09

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