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Iraq’s litany of wasted opportunities in energy

Nothing glaringly illustrates this than the flared gas through the decades

Gulf News

I would like to continue from what I said last week about the statements Iraq’s oil minister Jabbar Al Lueibi and other officials. The minster said that the budget for fuel imports “comes to $1.2 billion [Dh4.4 billion] to $1.3 billion a year”, well below the $4 billion reached when oil prices were at their zenith.

To discuss this, one needs reliable data and, unfortunately, the Ministry stopped publishing what is needed for meaningful observations since October 2016, and in any case the ministry’s website is more often down than up. However, Iraq provided data to the Joint Organisations Data Initiative (JODI) and the question must be asked why this data is provided to an external body and denied to Iraqis.

The data for April raises some questions and it is not clear whether this is because of the data provided by Iraq or by JODI’s interpretation.

Iraq that month imported 51,000 barrels a day (b/d) of gasoline and 33,000 of diesel or 84,000 of the expensive light products, which is less than the average of 90,000-100,000-b/d a few years ago. The situation is ameliorated by the export of 6,000-b/d of LPG and 14,000 of natural gasoline.

Imports would have been much higher if the troubled governorates in the north and west of Iraq were properly provided for. We may see an increase of imports now that Daesh is just about totally dislodged from Mosul and other cities.

It is good that Iraq restarted exports of fuel oil rather than dumping it with crude oil exports, a practice started in 2009. The volume for April was 75,000-b/d. There may not be a financial advantage here but certainly a better option for the quality of the exported crude oil.

Minister Al Lueibi managed to push the operating refineries to a higher degree of utilisation than what was observed since 2004. The refineries were operating at about 591,000-b/d or close to the limit after the loss of Baiji refinery.

Draft law

The ministry drafted a new law for Iraq National Oil Company (INOC) and which the Cabinet approved on March 23. The draft was reviewed in detail by Ahmad Mousa Jiad, a seasoned observer of Iraq oil and gas legislation, and described as “brief and dysfunctional”. But here, I want to comment on one point only.

Apparently, INOC activities are confined to “exploration, extraction and production of oil and gas”. The legacy of foreign oil companies of completely ignoring the downstream is still persisting. The refining, gas processing, transportation and distribution of oil products are second-class activities and the new law like the old one does not want to bother with them.

Iraq just does not want to learn from Aramco in Saudi Arabia, Adnoc in the UAE, KPC of Kuwait, INOC of Iran or the integrated international oil companies elsewhere.

On the gas side, the minister said that Iraq would “capture 1.36 billion standard cubic feet per day (bcfd) of gas.”

Yet, Ihsan Ismael, the director-general of South Gas Company (BGC), said it will process 970-bcfd by the end of the year, which is “almost half of BGC’s contractual capacity and hitting the 2-bcfd by 2020.” The difference with the minister’s number is too large and far exceeds the possibility of other gas processing plants.

Iraq is flaring huge quantities of gas, and the production and flaring in the first nine months of 2016 was 2.658- and 1.681-bcfd respectively. Compared to the 2009 average, production has increased by 90 per cent while flaring increased by 136 per cent.

One study after another

The director-general goes on to say that the plan “could add another 2 billion-bcfd by 2022.” One cannot escape the thought as to how much more gas would be flared as production rises.

It is surprising that four years of operations were not enough to rehabilitate the plants in the south to process more gas and equally painful that no new gas processing facilities were contracted. All we have is one study after another.

It took less than three years to build the great south gas project in the 1980s. Minister Lueibi did indeed move to invigorate BGC by allocating money, but this is not enough, especially as Iraq started to receive Iranian gas at a high cost.

The flared gas in 2016 is about equivalent to 280,000-b/d of oil, which is probably the liquid fuel going wastefully into power generation. This is about $12 billion a year at today’s low oil prices. The loss in a year is probably sufficient to double the gas processing capacity and the capacity of the delivery system to consumers.

The battle for gas in Iraq should be one of national priority.

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