Last week I discussed the natural gas situation in the south of Iraq where the Basra Gas Company (BGC) is making slow progress rehabilitating the gas processing plants or building new ones after more than three years of its establishment in late 2011.

The result is the continued flaring of natural gas to the extent of an average 1,035 million cubic feet a day (mcfd) in the third quarter of 2014, and which could be more now.

Given the growing need for fuels for power generation, Iraq resorted to burning more expensive liquid fuels while the diesel part is mostly imported. But natural gas is the preferred fuel of the Ministry of Electricity, which then resorted to importing gas from Iran, and the Ministry of Oil only kept quiet about this to relieve the pressure on it for failing to supply enough natural gas.

The deal, signed in July 2011, involved the construction of a 227-kilometre, 46-inch diameter pipeline from the border with Iran through the Diyala province to Baghdad to feed the Mansuriya power station midway and two power stations on the Baghdad outskirts, at the cost of $365 million (Dh1.34 billion). The quantity of gas is said to be around 850 mcfd for a period of four years, which was later extended to 10 years without explanation.

The Ministry of Electricity said: “Iraq will buy the contracted gas according to international prices each day from Iran under the four-year deal, which could be extended, generating 2,500 megawatts.” But there are no “international” prices for natural gas and no indication is given as to how to calculate the price of gas when market conditions change.

The only indication we have is that the deal is worth $3.7 billion a year which makes the gas price close to $11 per million British Thermal Unit (Btu). That is very expensive compared to the LNG delivered in 2011 to Germany at $10.48 a million Btu and to Japan at $14.73 a million Btu.

Now that the price of oil almost halved, these prices will be much lower. The current Minster of Electricity, Qassim Al Fahdawi, “attributed the dependence on imported Iranian gas for its cheap price” without giving the basis of his statement. He also said that the Ministry of Oil will “not be able to meet Iraqi demands before 6-10 years”.

But hopes for quick solution by importing gas was soon dashed by delays as the promised two months construction time was extended by circumstances of security in Iraq, and in Diyala province specifically. The latest info is that the line is six kilometres short of completion and gas deliveries will start in May 2015. No one knows how as the security situation in Diyala is still volatile.

In spite of criticism from many sources, Iraq is now on its way to have a second line for importing gas from Iran. The initiative this time came from the Basra province, which in October 2013 started bilateral negotiation to import gas following the many public demonstrations in Basra prompted by the lack of electricity. The initiative was disowned by both the ministries of oil and electricity, though some sources suggested the Ministry of Oil may have helped in the technical negotiation.

However, the Deputy Prime Minister Sharistani acknowledged the near signing of the contract in October 2013 at the World Energy Congress in Daegu, South Korea. Incredibly, he expected gas exports from Iraq to start after 2018-20 when he said, “There will be some gas available for export. All our neighbours, with the exception of Iran, have asked Iraq to supply them with gas. The European Union has asked us to supply Europe with gas.”

The new pipeline is 115-kilometre long and 56-inch in diameter that will carry gas from the Abadan area across Shatt al Arab to Basra and Rumaila, and the quantity is initially reported to be around 882 mcfd. The Basra Governor Majid Nasrawi said the line will be completed before summer of 2014.

Here again, no pricing information was given for the gas and the cost of the pipeline. There is not much being reported about this project except that the National Iranian Gas Export Co.’s director-general Alireza Kameli recently said that the “Iranian gas exports was raised from 25 to 40 mcm per day” and that the contract for Basra pipeline will be finalised soon to export “another 50 mcm per day of gas to Iraq’s southern city of Basra”.

I am of course not against imports of gas if the need arises. But I fail to see how all this is easier than an expedited programme to rehabilitate Iraq’s gas infrastructure and stop flaring by also adding new processing facilities that must be added anyway.

This is why the Economist of March 23, 2013 said ‘Electricity in Iraq not yet switched on, in any way’.

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