Thursday, August 10, 2023 12:20 PM
Follow-up / National News Center
The Emirates Center for Policies stated that Iraq will likely be able to invest part of its gas with the help of foreign companies, and it may reach self-sufficiency by 2030,
but the continuous population increase - more than a million people every year - will consume most of the gas that Iraq will produce, which limits Iraq's chances of being a gas exporter.
A report affiliated with it, the National News Center, stated that political conflicts have delayed the signing of the fifth licensing round - which includes oil and gas fields - for a full five years, and will most likely delay other strategic projects in the future.
The rampant corruption in Iraq is still a major factor limiting foreign investment in its various economic sectors, including oil and gas.
The following is the text of the report:
During the signing of the fifth licensing round, which concerned oil and gas fields in the country in February of this year (2023), Iraqi Prime Minister Muhammad Shia al-Sudani said that Iraq would achieve self-sufficiency in gas within three years and enter the global gas market as an exporter.
Al-Sudani’s statements sparked mixed reactions between enthusiasts and those skeptical of their realism, and it seems that the Iraqi government has retreated from these ambitious hopes.
Last May, Iraq signed a contract with Iran to extend the import of Iranian gas for five years. In the same month, the Iraqi Deputy Prime Minister and Minister of Oil Hayan Abdul-Ghani said in a press interview that Iraq plans to be self-sufficient in gas in 2030, which seems closer to reality than the optimistic Sudanese statement.
This paper sheds light on Iraq's attempts to invest in the gas sector, and the chances of it becoming an exporting country.
Double gas crisis
Iraq has been suffering from a double gas crisis for many years.
On the one hand, it ranks 12th in the world in terms of gas reserves,
but it produced only about 9 billion cubic meters in 2021, which puts it in the 40th rank in the world in terms of production.
Part of the uninvested gas -
the other part is free natural gas - comes out as a by-product during oil extraction.
Almost half of this gas - which is called associated gas - is burned because Iraq does not have the appropriate technologies to invest it.
On the other hand, Iraq contracted to import 72 gas turbines to produce electricity - distributed among 16 power stations at a value of more than $10 billion - from the American General Electric (GE) and Germany's Siemens in 2008.
And while Iraq succeeded through the four rounds of oil licensing signed with foreign oil companies, which aim to increase Iraqi oil and gas production since 2009, in reducing gas flaring in half by 2023, the increase in consumption driven by the high population forced Iraq to continue to rely on Iranian gas.
Since Iran has been subject to severe US sanctions since the Trump administration withdrew from the 2015 nuclear deal, Iraq has been granted periodic renewals from the US government that allow it to import gas and electricity from Iran under complex and slow payment mechanisms that avoid paying in dollars.
The US government also pressured Iraq to seriously invest in gas to end dependence on Iranian gas (especially after the gas prices rose in the wake of the Russian invasion of Ukraine).
In addition, the burnt gas has negative environmental and health repercussions on the lives of the population in southern Iraq and in Basra in particular.
Results of the licensing rounds
Figures from the Iraqi Ministries of Planning and Oil show that gas investment rose from 10.4 billion cubic meters in 2002 to 14.8 billion cubic meters in 2020.
This modest increase - despite the media frenzy of the licensing rounds - was accompanied by a much larger increase in the amount Flammed gas increased from 3.3 billion cubic meters to 14.1 billion cubic meters in the same period.
And while the licensing rounds succeeded in almost doubling Iraqi oil production - to about 4.5 million barrels per day before the Corona pandemic - this was only partially and slowly achieved in the gas file.
An Iraqi government oversight report attributes this failure to the lack of seriousness of the Iraqi Ministry of Oil in investing in the gas sector, as the first licensing round did not include any gas project or any details of (associated) gas investment.[i]
The second licensing round did not set any specific date that would oblige companies to invest (associated) gas, leaving the matter to the discretion of the companies.
Although the ministry contracted on fast-track projects for investment in gas, these projects did not enter service as planned, such as the Bazargan field in Amarah, which was run by the Chinese company Sinooc until the end of 2014, and investment in the northern gas fields was also delayed.
In Basra, the Iraqi government, through the South Gas Company, entered into an investment partnership with the multinational Shell and the
Japanese Mitsubishi, where the Basra Gas Company was established in 2011, but it did not start production until 2013. [ii]
Iraq's lack of an integrated pipeline network to transport the produced and processed gas led to the wasting of processed quantities of gas,
as happened in 2014 when the Zubaydiyah power plant that works with the gas produced in the Al-Ahdab field stopped working, which led to wasting quantities of gas because it could not be transported to other stations..
Other gas investment projects also faltered, such as rehabilitating the gas compressors of the North Gas Company, which were installed in 1989 and never entered service.
Two decades passed until Iraq contracted with an Emirati company to rehabilitate them in 2009, but the work was not completed. 
In addition to The aforementioned, Iraq lacks a system of accurate and sufficient meters to calculate the gas produced or consumed, whether in gas production projects or in gas-fired electricity production plants, and workers there often resort to estimation in calculating quantities.
The issue of the fifth licensing round arouses attention, because this round was announced in 2018,
but the contracts resulting from it were not finally signed until 2023 due to mutual accusations of corruption between a deputy in Parliament and officials in the Ministry of Oil, which prompted the Iraqi Prime Minister, Muhammad Shia Al-Sudani, to say during The final signing ceremony for the fifth licensing round in February of this year, that this round was suspended for 5 years due to a communication from a member of Parliament who questioned the validity of its procedures, and
after the Integrity and Judicial Commission scrutinized the matter, it was found that the procedures were sound, and that Iraq lost millions of dollars because of this disruption. [iv]
What matters in this regard is not the mutual accusations that abound in the Iraqi political arena,
but rather the observation that the issue of obstructing the fifth licensing round constitutes an excellent example of the fatal slowness that characterizes government work in Iraq.
These years have been punished for ruling the country with four different governments and four prime ministers!
This example explains the reasons why many major international companies have moved away from the Iraqi oil file, leaving the field open to less important companies, many of which came from China.
It also denies the Iraqi government's claims about the country's eligibility to attract foreign investment.
Is the goal of Iraq entering the global gas market as a realistic exporter?
Regional and global interest in Iraqi gas has increased over the past year, and
Iraq has signed a number of agreements, memorandums of understanding and contracts with a number of companies, such as the French “Total” and the Saudi “Aramco” in addition to the American “Baker Hughes” and “Shell” that has been operating for years.
The economist, Nabil Al-Marsoumi, paints an optimistic scenario by saying that: Iraq's current need for imported gas amounts to 40 million cubic meters per day... and
when the current gas projects are completed (namely: the Nasiriyah gas investment project with a capacity of 5.6 million cubic meters per day, and the Halfaya field investment project with a capacity of 8.4 million cubic meters). cubic meters per day, and the Artawi field project in the Basra Gas Company with a capacity of 11.3 million cubic meters per day, and the Artawi field project in the South Gas Company with a capacity of 8.4 million cubic meters per day), within three to four years,
it is hoped that their production will reach 33.9 million cubic meters. per day, which will lead to achieving 80% self-sufficiency in gas, and even Iraq can reach an export surplus of 19 million cubic meters per day.
While this rosy scenario seems promising, the Iraqi practical experience has often proven that the winds come with what ships do not desire.
This scenario assumes stability in the domestic Iraqi demand for gas, while Iraq's population is increasing by at least one million people every year, and with them the consumption of electricity is increasing.
In 2003, Iraq, with a population of 25 million, produced about 3 gigawatts of electricity.
Ten years before that date, specifically in 2012, the Iraqi Deputy Prime Minister for Energy Affairs at the time, Hussain al-Shahristani, made his famous promise that Iraq would export electricity next year.
And when this year came - 2013 - the population of Iraq had exceeded 35 million people, and their need for electricity had increased to 17 gigawatts, while production had only reached about half of this number.
At that time, Iraqi Prime Minister Nuri al-Maliki acknowledged that there was a defect in the contracts signed with General Electric and Siemens for the construction of gas power stations.
It is worth noting that the Iraqi government planned in 2013 to invest Iraqi gas by 2015, but that did not happen.
Today, after another ten years, the population of Iraq has reached 42 million, and their need for electricity has doubled to about 35 gigawatts, while production has reached a maximum of about 23 gigawatts,
and Iraq is still planning to exploit its wasted gas.
At the same time, the Iraqi Ministry of Planning expects that the population of Iraq will reach 51 million people in 2030, and
this means - based on the experience of the past twenty years - that the need for electricity will increase by at least 20 gigawatts.
This increase may absorb all the gas that optimistic Iraqi officials expect the country to produce.
The picture may be less bleak if the Iraqi government is able to convince the Iraqis to limit the population increase - something that has never been proposed before - or to rationalize electricity consumption, which it has so far failed miserably.
Another issue related to this issue that may negatively affect foreign investment opportunities in Iraqi gas is that foreign companies aspire to make a profit by marketing Iraqi gas globally,
but this may not be achieved as long as the Iraqi market will consume the produced gas and as long as there are subsidized prices for the purchase of gas for gas stations. Iraqi electricity.
The Iranian factor
Many observers believe that Iran, through its political allies and armed political arms in Iraq that dominate the current government and parliament, will not allow Iraq to invest its gas, because that contradicts the Iranian interest in Iraq remaining an importer of Iranian gas.
While this analysis seems logical, the truth may be more complex.
On the one hand, Iran itself consumes the majority of the gas produced to the extent that it is forced to stop exports to Iraq sometimes at peak times in winter and summer.
Iran also imports gas from Turkmenistan to supply its northern regions, especially in winter.
On the other hand, the Iraqi payment mechanism for the price of this gas, which is conditional on American approvals and exemptions from sanctions, cannot be an encouraging factor.
The issue of the price by which Iraq imports Iranian gas, which is generally subject to market prices, remains a motive for its continued export to Iraq, as well as to Turkey, which imports almost the same amount.
What is certain is that the price of selling Iranian gas to Iraq - and Turkey - is commercially better than the price of its government-subsidized consumption inside Iran.
It seems likely that Iran desires a continuation of the gas crisis in Iraq, which constitutes an Iranian card of influence added to other cards such as the relationship with the "coordinating framework" parties and their armed wings.
However, this did not prevent the Iraqi government, which has been closest to Iran since 2003, from offering gas investment. As a priority, including the signing of the fifth licensing round, the announcement of the sixth round, and the signing of the huge agreement with the French companies “Total” and “Qatar Energy” worth $27 billion.
Iraq suffers from a shortage of gas supplies - which is used in electric power plants - which has led to its heavy dependence on imports from Iran.
Iraq began to pay attention to the issue of investing in associated gas - which is burned during oil extraction - and natural gas since the licensing rounds were signed 14 years ago, while the increase in Iraqi gas production did not exceed more than 50% in 18 years.
Political conflicts have delayed the signing of the fifth licensing round - which includes oil and gas fields - for a full five years, and will most likely delay other strategic projects in the future.
The rampant corruption in Iraq is still a major factor limiting foreign investment in its various economic sectors, including oil and gas.
Iran has an interest in Iraq's continued dependence on Iranian gas, but this did not prevent Iraq from seeking to end this dependence.
Iraq will likely be able to invest part of its gas with the help of foreign companies, and it may reach self-sufficiency by 2030,
but the continuous population increase - more than a million people every year - will consume most of the gas that Iraq will produce, which limits Iraq's chances of being Gas exporter.
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