Iraq is to open 10 new gas exploration blocks to international investors in the coming weeks, according to Oil Minister, Hayan Abdul-Ghani. These new contracts follow the awarding of concessions on 14 out of 29 blocks and fields offered in previous licensing rounds. Many of these went to Chinese firms, which manage more than a third of Iraq’s proven oil and gas reserves and over two-thirds of its current production, according to industry figures. In an interesting twist, Abdul-Ghani subsequently stated that these new gas opportunities were to be presented in his then-upcoming visit to the U.S., which took place last week. For seasoned Iraq watchers, especially those in Washington who have been fighting a rearguard action against increasing Chinese influence in the country, the question is will any of this mark a significant shift in Iraq’s geopolitical alliance moving forward?
For the U.S., Iraq’s gas sector is equally packed with opportunities and threats. Official estimates are that Iraq’s proven reserves of conventional natural gas amount to 3.5 trillion cubic metres (Tcm) or about 1.5 percent of the world total, placing Iraq 12th among global reserve-holders. This said, around three-quarters of these proven reserves consist of associated gas – a by-product of oilfield development. However, Iraq did not revise its figure for proven gas reserves in 2010 at the time of the upwards revision of proven oil reserves. However, the International Energy Agency (IEA) estimates that ultimately recoverable resources will be much larger than the official estimates of 3.5 Tcm – its estimate is 8.0 Tcm, of which around 30 percent is thought to be non-associated gas. This means that almost 40 percent of the resources yet to be found are expected to be in non-associated gas fields. Additionally, judging from the 60 percent or so success rate of drilling activity in its oil operations, a high degree of prospectivity in gas operations is likely, as analysed in full in my latest book on the new global oil market order.
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Conversely – and perversely, given these huge reserves – Iraq is still dependent on neighbouring Iran for around 40 percent of its power needs, as supplied in gas and electricity. This has long cemented Tehran’s enormous influence over Baghdad, along with the political, economic, and military hold it has over its neighbour through various proxies. Located in the heart of the Middle East with combined oil and gas reserves far exceeding any other single country in the world, this Shia alliance of Iran and Iraq has long posed the biggest threat in the region to the U.S.’s interests there. And with its fetters removed following the U.S.’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA or ‘the nuclear deal’), Iran has grown in significance in the group of states head by China and Russia that comprise the new global opposition to the U.S. and its global allies. The centrality of the ongoing supply of gas to Iran’s ongoing influence over Iraq has long been reflected in the U.S.’s continued attempts to steer Baghdad towards other choices to fill its power needs, via the imposition of waivers of varying lengths on these Iranian gas imports. Ultimately, none of Washington’s initiatives in this regard have succeeded, with Iraq recently signing its longest ever deal with Iran to keep supplying it with gas for the next five years, as analysed in full by OilPrice.com.
The other major threat to Washington’s ongoing strategy to gradually re-assert its influence over Iraq through investment in new business and energy opportunities has been China’s dramatic projection of its power into the country (and into Iran) in the vacuum left after the U.S.’s end of combat mission there in December 2021. The groundwork for Beijing’s power push had been laid in the 2019 ‘Oil for Reconstruction and Investment’ agreement with Iraq, which saw billions of dollars’ worth of investment flowing into the country in exchange for cheap oil for China. With the U.S.’s end of combat mission in view, China extended this agreement into the much broader and deeper 2021 ‘Iraq-China Framework Agreement’, as also detailed in my latest book. One element of this was a preference to be given to Chinese firms on all future oil and gas contracts for the sites in which Beijing had an interest, and another element was discounted pricing on Iraqi oil and gas headed to China. However, the 2021 deal went a lot further than oil and gas, allowing China great scope to build out corollary infrastructure across the country. This included the awarding in 2021 to China of contracts to build a civilian airport to replace the military base in the capital of the southern oil-rich Dhi Qar governorate, a region containing two of Iraq’s potentially biggest oil fields – Gharraf and Nassiriya. It was later agreed that the airport could be expanded later to be a dual-use civilian and military airport.
At the same time as this superpower manoeuvring was in full swing, little tangible progress was being made in developing Iraq’s gas sector by either country. Various announcements were made over the years on the same projects but with different developers, most notably initially the 2020 statement that Iraq’s Oil Ministry had signed a natural gas capture deal with oil services provider Baker Hughes to harness 200 million cubic feet per day (mmcf/d) from the Gharraf oil field (and neighbouring ThiQar site, Nassiriya), plus other oil fields north of Basra. According to the Oil Ministry at the time, the first stage would involve the advanced modular gas processing solution being deployed at the Integrated Natural Gas Complex in Nassiriya to dehydrate and compress flare gas to generate over 100 mmcf/d of gas. The second stage would involve the Nassiriya plant being expanded to become a complete natural gas liquid facility that would recover 200 mmcf/d of dry gas, liquefied gas and condensate. All this output would go to the domestic power generation sector, with Baker Hughes stating that addressing the flared gas from these two fields would allow for the provision of 400 megawatts of power to the Iraqi grid. According to an accompanying statement from then-Oil Minister, Jabbar Al-Luaibi, Iraq was also negotiating a similar gas capture deal for the state-run Nahr Bin Umar field with Houston-based Orion Gas Processors. Additionally, according to later comments from Iraq’s South Oil Company, gas-processing facilities were to be constructed in the Missan and Halfaya fields that would have a combined capacity of 600 mmcf/d of gas when completed. In tandem with this, the construction of gas-processing facilities in the West Qurna, Majnoon and Badra fields would also move ahead, with respective overall capacities 1,650 mmcf/d, 725 mmcf/d and 85 mmcf/d. The same announcements have been made twice since then, with little progress being made overall.
It could be that this time around things are different, of course. Abdul-Ghani and his team did sit down last week during his U.S, visit with several leading firms that could do the jobs required of them if they were allowed to do so. These included Baker Hughes again, BP, KBR, Hunt Oil, and Honeywell, among others. However, these sorts of meetings have happened regularly for years -- usually around the same time as senior Iraqi figures then go on to Washington to ask for money to bailout its budget. They also usually ask for an extension on the U.S.’s waivers for a continuation of Iraq’s imports of gas from Iran on the understanding that these will ‘end soon’. That said, given the ground it lost in recent years to China in Iraq, it may well be that the U.S. is prepared to play the game again with Iraq, regardless of if progress is made in its gas sector, if it affords Washington a greater chance to re-assert its influence in the country.
By Simon Watkins for Oilprice.com
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