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IOCs stay committed to south Iraq

IOCs are pushing ahead with plans for output expansion—and the phasing out of flaring—despite Basra violence this summer

BP and Russia's Lukoil will move forward with output increases at their flagship projects in southern Iraq despite civil unrest that roiled the region this summer. Shell is also gearing up for an expansion of its gas venture which should deliver economic and social benefits.

BP, operator of the Rumaila field, Iraq's largest producer, aims to lift production there from its current 1.48m barrels a day to 2.1m b/d, although this is a downward revision from an initial target of 2.85m b/d due to logistical constraints such as the water supply, and has no intention of pulling out in the wake of violent protests in Basra.

"BP has been successfully operating the Rumaila oilfield for the past eight years without interruption. That speaks for itself," says Zaid Elyaseri, BP's Iraq country manager. "Long-term sustainability is what drives us." BP's Rumaila service contract runs until 2034, enabling the company to make long-term decisions.

And the Iraqi government recently approved a development plan that will double the current 400,000 b/d production at the Lukoil-operated West Qurna 2 field by 2025. "I strongly believe that much more potential for development will emerge in the coming years," Lukoil's country manager Yaroslav Okulov told an Istanbul conference, pointing to a "very promising discovery" in exploration block 10, 120km (75 miles) west of Basra. Preliminary estimates put recoverable reserves there at 2.6bn barrels.

Shell has sold its shares in the West Qurna 1 oilfield and handed the Majnoon field to the state-run Basra Oil Company. Its sole focus now is on gathering and processing associated gas. Shell is the 44% operating partner, alongside the Iraqi government (51%) and Mitsubishi (5%), in the Basrah Gas Company (BGC).

The BGC's brief is to gather associated gas from three major oilfields in the south: Rumaila, West Qurna 1 and Zubair. The operation, according to Shell's Iraq country manager Mark Wharton, "is truly mega-project in scale". At present, BGC is handling close to 1bn cubic feet a day of gas through two natural gas liquids trains, with three more trains being installed to take that figure up to 1.4bn cf/d over the next two to three years, and ultimately to 2bn cf/d. Dry gas is delivered to the power sector and liquefied petroleum gas (LPG) goes to the domestic market, with excess LPG production exported from Umm Qasr port.

1bn cf/d—BGC's gas production

Close to half of the gas that used to be flared from the three big fields is now processed. "Driving around southern Iraq," Wharton added, "the flares have been very visible. Step by step we're playing a strong role to take those flares away and turn them into useful products to benefit society and benefit the environment." By 2021, BGC aims to capture 94% of associated gas from the targeted fields.

The increasing natural gas and NGLs output will eventually outstrip domestic demand and Shell's intention is to develop a petrochemicals complex where the gathered gas volumes can be used as a feedstock. But a proposed liquefied natural gas export terminal, which was an initial goal of the southern Iraq gas project, and even got as far as the award of a FEED contract for a 4.5m tonne a year terminal to Italy's Saipem in 2014, appears to now be entirely off the table.

Shell's plans tick a number of boxes. "The young people need water, electricity and jobs," Mohammed al-Tamimi, deputy governor of Basra, told the conference. "Instead, they smell the smoke from the oilfields. I don't blame them if they go out and demonstrate."

For years, Iraq has been second only to Russia in the table of gas-flaring countries. Iraqis living in the region have complained for years about the poor air quality. Alongside frustrations at failings in the power and water supply, this resentment helped to fuel the summer's surge in violent protest.

But, even though the disorder may have caught IOC operators on the back foot, it has not weakened their resolve to remain in southern Iraq for the long haul. "The violence was a shock," says Shell's Wharton, "but we reviewed our security, as we always do, with the government and decided that it remains in a band where we can operate. We have a strong and unwavering commitment to Iraq."

The BP and Lukoil expansions will bring jobs and greater tax revenues, although it will also increase the volume of associated gas that requires either capturing by BGC or flaring. Shell's project is perhaps the most transformative—offering benefits to government coffers and the local job market, particularly if the petrochemicals complex moves forward—but helping too to stabilise power supply and remove the acrid smell of flared methane from Basra's air.

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