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Iraq’s wasted years with its refinery plans

The worst of it is the billions being spent on importing much needed supplies

Gulf News

When a politician makes statements that are incorrect, self-serving, self-endearing or giving promises that cannot be fulfilled, his statements are often disregarded or quickly forgotten.

But when a technocrat minister falls in the same game, it is hard for beneficiaries to let go, as their expectation is much higher and they don’t want to be let down. When Iraq’s Oil Minister Jabbar Al Luiebi took office a year ago, former colleagues, including myself, were hopeful that he will be able to drive the ministry on a recovery path to fulfil its most urgent objectives. He is after all a son of the industry with decades of operational and management experience.

However, recent statements by the minister are reasons for concern. I refer to an interview with “Iraq Oil Report” and a television interview with “Al Sharqiya” later. The Minister insists that the Opec accord, which Iraq twice signed and agreed to, is concerned with export cuts and not production. This is counterproductive and does not serve any interest of Iraq. The numbers are clear in the Opec agreement — Iraq is to reduce production from 4.561- to 4.351 million barrels a day (million bpd), implying a reduction of 210,000 barrels a day.

The minister said that Iraq production will increase to 5 million bpd by the end of the year, and that “Iraq is committed to be in line with Opec. We will not deviate from Opec policy at all.”

The two things are difficult to reconcile and the market will view them as preludes to future conflict and lower oil prices.

Iraq against all logic contracted with international oil companies in 2009-10 to have a production capacity of 12 million bpd by 2017. So, 5 million bpd by the end of this year means that Iraq should not develop any new fields to exacerbate the difficulties faced with current contracts. Yet, the minister said that negotiations with ExxonMobil and CNPC are ongoing to develop Nahr Omar and Rattawi fields and an agreement — including one for the delayed water injection scheme — is expected by the end of the year. (The water injection is a must but not tied to additional field developments.) The Minister said: “All in all, we want to have a total refining capacity of 1.5 million bpd at least”, which implies the Iraq National Energy Strategy’s 2013 numbers. And includes the four large refineries announced previously.

Yet, there are so many new announcements made for new refineries that Iraq’s capacity may surpass 2 million bpd. No one knows how these came about or on what feasibility studies. This does not constitute a “very genuine and comprehensive strategy” and such announcements serve local politics and not the refining industry.

On the Missan refinery, the minister said: “But I think we’ll terminate the contract with them and retender it”, meaning no role for Satarim, a company of no standing and which was declared bankrupt in Switzerland. Iraq waited more than three years for nothing.

The 300,000 barrels a day Nassiriya refinery is now 150,000 because the minister “looked at it and it was too high of a scope of work, so I like it at 150,000 bpd.” So what will happen to the millions spent on the refinery feasibility and FEED? I respect the minister’s wish but this is not the way to plan an industry.

It is sad to know that the infamous Ninewa refinery is now a reality and in spite of all the objections made is “built outside of Ninewa, within Erbil territory”. The first user is the Ministry of Oil, in a processing deal to refine 40,000 barrels a day.

But I must say that the Ministry is well advised to learn how a local investor can build and operate a refinery in three years while it is even unable to keep the Kerbala refinery schedule for lack of funds. And the Minister in his television interview implied that it is a mistake to finance refineries and that should be left to investors.

Is it not a mistake to import billions of dollars in products since 2003? The budget of 2017 “comes to $1.2 billion to $1.3 billion a year for importing fuel” and may have reached $4 billion a year in years when oil prices were high.

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