As if to commemorate the 11th anniversary of the invasion and occupation of Iraq, the ‘Economist’ in its March 23 issue had an article titled ‘Electricity in Iraq’ and added ‘Not yet switched on, in any way’.

The Ministry of Electricity recently said that available supplies are 10,550 MW, which was the same number as in the first-half of 2013 and indicating that no additional capacity was added since. The Ministry’s generation over that period was close to 6,000 MW only, and imports from Iran and Turkish barges in the Gulf were about 1,300 MW, on average. Therefore, Iraqis are supplied domestically with about 57 per cent of their requirements and about 69 per cent at best with imports.

Yet, the Economist details “the brightest lights shine from oilfields, where flares burn useless gas” and Iraq wastes about 12 billion cubic metres (BCM) a year of gas this way — more than Austria’s entire consumption’. Having lived in Vienna for eight years, I know what gas can do not just for electricity generation but to the entire economy of Iraq. Gas production is on the rise as crude oil production increases and some of the free gas fields come on stream. Yet, instead of expediting the capture and treatment of the flared gas, Iraq elects to import gas from Iran at exorbitant prices, estimated at $11 per million British Thermal Unit (BTU), and close to European levels.

The Basra Gas Company (BGC) — a joint venture with Shell, Mitsubishi and the state-owned South Gas Company — has been slow and has met with little success in increasing LPG for domestic use and has yet to revitalise the South Gas treating facilities of more than 10 BCM a year, a target that the company says it will reach only by 2016.

There is news about a new gas treating plant in Ratawi with a capacity of close to 6 BCM a year costing about $2 billion, but Iraq probably needs four of such plants if it is going to meet rising gas production emanating from the increased crude oil production targeted by the government.

Electricity and gas are not the only problems affecting the domestic situation in Iraq. The refinery throughput is hardly more than what it used to be just before the occupation. In 2013, it was around 570,000 barrels a day although capacity has increased by the addition of distillation units but with no further downstream treating units to improve the low quality of products.

Iraq was compelled to import about 93,000 barrels a day of light petroleum products such as gasoline, diesel, kerosene and LPG in 2013; yet there were sporadic shortages now and then.


Four new refineries

Iraq has announced four new refineries in one go, but has not been able to attract private investment since 2009. Recently, the Ministry of Oil signed a contract for an 140,000 barrels a day refinery costing $6.5 billion — a much higher cost than the ruling rates in neighbouring countries — and expected to be completed in 2018.

The Ministry may claim success in crude oil production where the latest figure is around three million barrels a day (mbd). But this is much lower than originally planned and the Ministry scaled down it aspirations from 12mbd in 2017 to 9mbd in 2020. A government source recently said that long-term production is a moving target, which could mean another revision may be coming.

Given the outlook in the oil markets, high level production from Iraq and Opec can only be at the expense of oil prices.

But lifters of Iraqi oil complain about the deterioration and instability of the quality, with Basra light billed at 34 degrees gravity is now fluctuating between 28 to 32 degrees. The marketing company SOMO is paying lifters a compensation of $0.4 per barrel for each degree reduction in gravity from the original 34.

The reason is the inclusion of heavy crude streams and the dumping of fuel oil in the export stream without having the proper segregation infrastructure and/or adequate storage and blending facilities.

Iraq is losing $40 billion a year for the lack of stable and continuous electricity supply, according to Deputy Prime Minister Shahristani. The International Energy Agency (IEA) estimates the value of the flared gas between 2012 and 2020 to be at $70 billion and the import bill for petroleum products is probably $4-$5 billion a year.

These are sufficient indicators for the Ministry of Oil to take the bull by the horns and expedite the necessary projects and corrections to stabilise the energy situation in Iraq and save much needed resources.

— The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.