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Iraq’s energy ministers never do the obvious thing

Pursuing exorbitantly expensive pipeline projects with Iran flies in the face of wisdom

Gulf News

In 1983, I visited Poland when General Jaruzelski was head of state and at the zenith of his power. He was known to always wear dark glasses which resembled welder’s googles. The joke at that time was that the General will never take off his glasses before he completely welds Poland to the Soviet Union.

In Iraq nowadays we have politicians who, without welder’s googles, are determined to completely weld the country to Iran even when it is against Iraq’s interest. In 2011, the Minister of Electricity (MoE) at the time, Karim Wahid, signed a deal with Iran to import natural gas via a new pipeline to Diyala and Baghdad regions. Only the Ministry of Oil (MoO) is legally authorised to initiate such a deal with parliament approval.

None of that happened and the MoO and the parliament were just ignored. Two years later a similar deal was done to import gas to Basra region to the very place where huge quantities of Iraq gas was flared every day.

Let me say at the outset, that I am not against importing gas from Iran or anybody else if needed ... but only after utilising Iraq resources first.

Full operation

The first pipeline is now operational and the second should do so shortly. The cost of the two pipelines was reported to be $715 million (Dh2.6 billion) and Isam Al Khalisi, a seasoned observer of electricity and gas in Iraq, recently said: “The total gas supply from Iran when the two pipelines are in full operation is estimated to be around 1,900 million cubic feet a day costing around $5.2 billion per year at the 2015 price”, and probably more now.

The current MoE, Qasim Al Fahdawi, recently announced the happy news to the Iraqi people, as reported by that “Over the next seven years, Iraq will need Iranian natural gas supplies to feed its power-generation plants, because domestic gas output will not be enough.”

Both minsters are wanted for questioning on corruption charges.

So, if everything remains the same, Iraq would be paying Iran more than $35 billion in addition to the cost of imported electricity which is now 1,000MW. The catastrophe is bigger.

Between September 2008 and June 2017, I calculated from published results by the MoO that Iraq burnt an average of 104,000 barrels a day of crude oil in power stations while the average flared gas in the same period is equivalent to 194,000 barrels a day costing about $45 billion in the period under consideration, sufficient to build an entirely new gas industry and phase out flaring completely.

But the haemorrhage goes on while the MoO promises to export gas to Kuwait.

Another white elephant is about to be unleashed. Reuters reported that “Iran and Iraq are moving closer to building a pipeline that would export crude oil from the northern Iraqi fields of Kirkuk via Iran.”

Double the cost

The ministers agreed to commission a feasibility study by international company based on a memorandum of understanding signed last February.

The idea is to take the crude oil to Tabriz or Kermanshah refineries. Looking at the terrain and the capacity of these refineries would rule out such an idea immediately.

Both Tabriz and Kermanshah are 1,000 metres higher above sea level than Kirkuk, which would make such a pipeline extremely expensive if at all feasible. Tabriz and Kermanshah refineries capacities are only 110,000- and 48,000 barrels a day respectively, none of them would be sufficient for the available Kirkuk crude. To take the crude oil to other refineries or even down to the Arabian Gulf ports would probably double the cost of the venture.

In any case, Iraq would have to regain the major parts of the Kirkuk fields, which were taken by the Peshmerga in 2014, and according to the KRG would not be available for such a venture. It also said that the project would violate US sanctions against Iran and “related international conventions”, whatever that means.

Moreover, Dilshad Shaaban, deputy chairman of the Kurdistan Parliament’s natural resources committee, told Asharq Al Awsat: “Will Kirkuk remain part of the Iraqi territory until the completion of the implementation of the project?”

Swap deal

Nazm Dabakh, the KRG’s diplomatic representative to Iran said that “when the deal is about oilfields in Kurdistan, or an oil pipeline that has to go through Kurdistan, then the Kurdistan region can stop it, or obstruct it.”

Let us see how the government in Baghdad answer such conceit. Just a year ago the KRG itself was pursuing a similar project without even bothering to inform Baghdad.

A related idea is that of a pipeline to Abadan refinery of 400,000 barrels a day capacity — perhaps in a swap deal where Iraq would get an equivalent volume from say Kharg Island. Some reports suggested that products from these refineries would be sent back to Iraq.

The question is why doesn’t Iraq develop its own refineries instead? Why doesn’t Iraq revitalise its western pipelines and feed Kirkuk crude to its refineries as was done in the past?

But what is the use when Iraq entrepreneurs are investing in Ukrainian chicken farms to export the poultry back?

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