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Baghdad targets greater gas security

As US-Iranian tensions threaten energy imports, Iraq is ramping-up domestic gas development

Iraq continues to import large quantities of its neighbour Iran's gas, a rare exception to the White House's ever-tightening squeeze on Iran's international trade. Anathema to the White House both for the financial fillip to the Islamic Republic and for adding an economic dimension to Tehran's political positioning in Baghdad, the permission recognises Iraq's dependence on the gas lifeline to meet rising power generation requirements—reducing electricity shortages that have proven potential to spark public unrest. 

Nonetheless, acquiescence is granted only under short-term waivers and accompanied by huge pressure on the Iraqi authorities to step up development of indigenous gas resources, which have been largely neglected for a decade in the rush to boost more lucrative crude oil production. 

Pressure on Baghdad to do more on domestic gas has intensified as a corollary to the recent escalation of US-Iranian tensions. Thus, despite the turmoil engulfing the tottering Iraqi government after more than four months of widespread public protests over corruption, poor services and Iranian political interference, the cabinet found time on 23 January to approve the award of six upstream licences provisionally apportioned nearly two years ago during an 11-block bid round for acreage along the Iranian and Kuwait borders. 

The intent of finalising the contracts now was spelt out in a statement from the office of then-prime minister Adel Abdul Mahdi—asserting, with somewhat improbable precision, that the fields therein would be capable of producing 750ft³/d of gas within three years. Imports from Iran typically run at around 1bn ft³/d, while electricity is also directly supplied across the border. 

With the hastily arranged auction in April 2018 largely shunned by the majors, the blocks went to a combination of relatively small Emirati and Chinese firms—a disappointment at the time that could yet prove a blessing, given Western majors' greater risk-aversion and the fear, for US firms in particular, of becoming proxy targets in conflicts involving Iran. 

Pressure on Baghdad to do more on domestic gas has intensified as a corollary to the recent escalation of US-Iranian tensions

Crescent Petroleum, an affiliate of Sharjah-based Dana Gas with long experience of Iraq’s volatile politics and security after more than a decade producing gas in the semi-autonomous Kurdish north, was the main winner and seems likely to be the chief repository of Baghdad's hopes. The company was awarded three licences—crucially including those covering the Gilabat-Qumar and Khashim Ahmer-Injana non-associated gas fields, as well as the Kudr al-Maa oil block. 

China’s Geo-Jade Petroleum picked-up the Naft Khana and Huwaiza oil blocks while compatriot United Energy Group (UEG) took the Sindbad licence, again advertised as prospective for oil rather than gas. Both were newcomers to the country but UEG has subsequently gained local knowledge inorganically by dint of acquiring Kuwait Energy Company, which commissioned Iraq's first non-associated gas field, Siba, in 2018. 

Even were to the trio to fulfil the government's production ambitions, a substantial shortfall would remain, and a surer and cheaper remedy lies in harnessing more of the huge volumes of associated gas generated by rising oil production—currently running at around 4.5mn bl/d. Efforts to this end have been stepped up over the two-and-a-half years since the expulsion of Islamic State and the associated drain on state finances, and latterly bolstered by US exhortations to act. 

4.5mn bl/d Associated gas from Iraq's oil production

After a slow start, production from the seven-year-old flagship project to capture, process and distribute hitherto-flared gas from the giant Rumaila, West Qurna 1 and Zubair oilfields, under execution by the Basrah Gas Company joint venture of state-owned South Gas Company (SGC), Shell and Japan’s Mitsubishi Corporation, hit 1bn ft³/d in late 2018 and Shell took FID in January last year on the Basra NGL sub-project, designed to yield 400mn ft³/d from a new plant at Ratawi in Basra province, by the end of this year. 

Newer projects carry American fingerprints. Energy technology heavyweight Baker Hughes signed a contract in April 2018 to build and, crucially, finance a 200mn-ft³/d plant to process gas from the Nasiriyah and Gharraf oilfields in the south-eastern Thi Qar province while in July last year, while compatriot technology firm Honeywell entered into a memorandum of understanding with SGC to develop a 600mn-ft³/d plant at Ratawi processing gas from the Luhais, Majnoon, Sabah, Tuba and West Qurna oilfields. 

However, the wellspring of American engagement could also risk proving counter-productive, should Iran seek to strike again against US interests on Iraqi soil. ExxonMobil and Chevron withdrew staff in the immediate aftermath of the US’ assassination near Baghdad of leading Iranian general Qassem Soleimani in early January, fearing reprisals. And Iraqi domestic political stability remains a long way off—with the presidential appointment in early February of parliament’s latest nomination as prime minister, Mohammed Tawfiq Allawi, immediately rejected by the demonstrators, primarily on the basis of his alignment with Iran.

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