- Iraq continues to rely on Iran for around 40 percent of its power supplies.
- Iraq flared the second largest quantity of gas in the world.
- The potential for gas capture in Iraq is huge and there are many companies who want to do the projects for Iraq, including Baker Hughes.
It has long been a point of extreme contention with the U.S. that Iraq continues to rely on neighbouring – sanctioned – Iran for around 40 percent of its power supplies, constituted in large part by imports of gas. Although every year when, whoever is prime minister of Iraq at that point goes to Washington to ask for money, promises that this reliance on Iran will end soon, it never does. The solution, though, is simple: Iraq stops burning away all the gas that it releases in the process of extracting oil from its wells and uses this ‘associated’ gas for its power generation. If there is enough of it, which there could be, given the country’s huge oil excavations, then anything left over after powering Iraq properly day and night could be exported and generate much-needed revenues for the country. Last week saw some movement towards this eminently sensible strategy with Iraq’s Ministry of Oil approving increasing associated gas production in the Zubair oilfield to 147 million standard cubic feet per day (mmscf). “The new project aims to raise the number of compressors at the Hammar Mishref station to eleven [which will enable the] raising [of] the compressor capacity from 35 million standard cubic feet per day to 147 million standard cubic feet per day,” highlighted the Director General of the South Gas Company, Hamza Abdel-Baqi. If this project proceeds then it would be a good start to a broader roll-out of capturing associated gas and using it for purposes that benefit Iraq, rather than just burning it off through flaring at oil wells. Unbeknownst to many, and hardly surprising given Iraq’s appalling record on gas flaring, Baghdad signed up to the United Nations and World Bank ‘Zero Routine Flaring’ initiative - aimed at ending by 2030 the routine flaring of gas produced during the drilling of oil. At that time, Iraq flared the second largest quantity of gas in the world (after Russia) – some 17.37 billion cubic metres. As of this year, Iraq is still the second worst offender in this regard after Russia, although the amount of associated gas flared has decreased to around 16 billion cubic metres. This amount, though, could still power around three million homes day and night, year in, year out. This would go some considerable way to alleviating the extraordinary paradox that Iraq suffers from ongoing power blackouts despite having the fifth largest crude oil reserves on the world (at least 145 billion barrels) and the twelfth largest gas reserves in the world (nearly 131 trillion cubic feet). Related: Citi Commodity Analyst: EU Gas Price Cap Numbers Are Silly
There have been similar announcements to the one last week made several times in the past. One notable example was in 2020 when Iraq’s Oil Ministry announced that it had signed a deal with Baker Hughes to capture associated gas at the potentially huge Gharraf and Nassiriya oilfields in Dhi Qar Province. According to the comment at that time from the director of Iraq’s state-owned Dhi Qar Oil Company, Anwar Hadi Shiaa, the initiative aimed to increase gas production from the sites from 20 mmscf to 200 mmscf in the first phase of development. This same announcement was again made in October of this year. Moreover, it is exactly the same deal with Baker Hughes that the Oil Ministry announced as well in 2018. Shortly after these identical deals had been announced at around the same time in both of those years, whoever was prime minister of Iraq at the time went to Washington to ask for money.
The fact remains that the potential for gas capture in Iraq is huge and there are many companies who want to do the projects for Iraq, including Baker Hughes. The first stage of the Nassiriya plan, which would be similar to that for Gharraf, would involve an advanced modular gas processing solution being deployed at the Integrated Natural Gas Complex in Nassiriya to dehydrate and compress flare gas to generate over 100 mmscf/d of gas. The second stage would involve the Nassiriya plant being expanded to become a complete natural gas liquid facility that will recover 200 mmscf/d of dry gas, liquefied gas and condensate. All this output would go to the domestic power generation sector, with Baker Hughes stating previously in 2018 and 2020 that addressing the flared gas from these two fields would allow for the provision of 400 megawatts of power to the Iraqi grid. The project, if Baker Hughes was allowed to just get on with it, would take around 30 months to be implemented. Similar development plans could then be rolled out for other major gas capture sites, which back in 2018 and 2020 included Halfaya (300 mmscf/d), and Ratawi (400 mmscf/d) in the first instance.
Synergies could then be developed with the only major gas project that has made significant progress in Iraq over the years, the Basra Gas Company (BGC) project, orchestrated by British oil and gas giant, Shell, which owns a 44 percent stake in venture. The BGC was designed specifically to enable Iraq to increase its energy independence and to achieve economic diversification by capturing currently flared gas from the fields of Rumaila, West Qurna 1, and Zubair, in the first phase. By 2019/2020, the BGC had reached a peak production rate of 1035 mmscf/d, the highest in Iraq’s history and sufficient gas to generate approximately 3.5 gigawatts of electricity. The BGC is also responsible for currently supplying around 70 percent of Iraq’s liquefied petroleum gas (LPG) and for enhancing Iraq’s export capabilities, which helped the country to become a net exporter of LPG from 2017. Back in June this year, BGC exported its first semi-refrigerated liquefied petroleum gas shipment, from the BGC Umm Qasr jetty. as part of plans to boost the country’s LPG exports.
Shell’s efforts in the BGC were intended to be a foundation stone for the build-out of Iraq’s value-added petrochemicals sector, specifically, to begin with, the Nebras petrochemicals plant project that began in earnest on 2013. The original design plans for Nebras – formulated between Shell and the Iraq Oil Ministry and Ministry of Industry and Minerals – were for a project that could produce at least 1.8 million metric tonnes per year (mtpy) of various petrochemicals. This would make it Iraq’s first major petrochemicals project since the early 1990s and one of only four major petchems complexes across the entire country, with the others being Khor al-Zubair in the south, Musayeb near Baghdad and the Baiji refinery complex in the north. Shell’s titanic efforts to get BGC volumes up to over 1 billion scf/d means that the ethane can be extracted on a sustainable and reliable basis, and that allows for sufficient volume for a major petrochemicals plant to be viable. Ethane needs to be the initial feedstock for Iraq’s first few plants in the same way that it was in the development of Saudi Arabia’s master gas system that captured associated gas, which was then fractionated and supplied as primary feedstock to the flagship Jubail Industrial City.
By Simon Watkins for Oilprice.com
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Simon Watkins
Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…
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