Natural gas has been in relative decline in Iraq for a long time now. The highs of the 1980s when two large processing plants and associated pipelines were built were followed by years of wars and sanctions and almost lack of investment and minimum maintenance and rehabilitation. The situation intensified since 2003, where the focus was centred on upstream deals with international oil companies with little regard to the downstream sector.
In reading the International Energy Agency’s (IEA) ‘Iraq Energy Outlook’, one discovers the uphill battle to achieve a measure of success in utilising this vital resource and the limited time frame available to avoid further enormous losses.
The IEA estimates that the gas flared in June 2012 was 1043 million cubic meters (mcm) out of a production of 1988 mcm or about 52.5 per cent at a time when the power generation industry is using liquids in the form of fuel, crude oil and even imported gas oil. Most of the flared gas is in the south for the lack of proper maintenance and rehabilitation of the South Gas processing facilities and the unfinished national gas pipeline to Baghdad and further north.
Even the Basra Gas Company, established about a year ago as a joint venture with Shell and Mitsubishi, hasn’t made a dent yet in this situation. The processing capacity in the south is sufficient for all the current gas production if properly maintained and rehabilitated to process close to 10 billion cubic meters (bcm) a year.
The situation does not bode well with the impending increase in crude oil production and the rising production of associated gas. In the IEA central scenario where crude oil production reaches 6.1 million barrels a day (mbd) in 2020, gas production in the south is expected to reach 29 bcm, which means the current processing capacity must at least be tripled. The processing expansion in the rest of the country is substantial but more manageable. If Iraq elects or manage to go for higher crude oil production such as the high scenario of 9 mbd in 2020, the processing capacity in the south must increase by four-and-half-fold at least.
In both cases, this is not an easy task due to the size of the investment and the time required to establish the system of gas gathering, processing, transmission and distribution. Therefore, the IEA is saying that “the cumulative volume of gas flared during the years 2012-2020 in the Central Scenario is about 110 bcm; in the High Case, it is close to 160 bcm.” This is the equivalent of 726 and 1056 million barrels of oil and the IEA says: “If this gas were to be substituted for oil in Iraq’s power generation, allowing the oil to be exported, the implied value of this flared gas is $70 billion [Dh257.1 billion] in the central scenario and more than $100 billion in the high case.”
Adding all this to the losses of the previous years is a reminder to those who were so quick to award the best of Iraq oil fields to international oil companies without shouldering them with any responsibility for the produced associated gas. Basra Gas Company may take care of the produced gas from Rumaila, Zubair and West Qurna I oil fields, which is substantial, but who will deal with the gas produced from other equally rich fields such as Majnoon, Halfaya, West Qurna II and others?
Many Iraqi oilmen, including myself, are in favour of developing the free gas fields’ resources, which are included in the above estimate to the tune of 20 to 30 per cent. However, these fields must not be produced as long as there is associated gas that can be used. At the same time, the possibility of using these fields for gas storage when there is surplus must be fully investigated and utilised. The storage of gas in the domes of Janbor and Ajil must be given equal importance as this can be one of the easy ways to avoid flaring until the gas can be fully processed and utilised.
There is urgent need for innovated solutions of quickly assembled smaller gas plants that may not fully process the liquids but save the dry gas and allow the liquids to be exported as condensate until such time as the huge gas complexes are built. Gas exports are important but they still need processing and let us not chase a pie in the sky and instead put the domestic industry in order first.
Considering these potential losses, Iraq should stop at nothing to deal with this situation. The age of caring about oil and flaring the gas is over and it should be over in Iraq too.