A deal to import gas from Iran will help Iraq to reduce its chronic shortages of electricity by providing the fuel for a number of power stations; but a lot more gas is needed to end the frequent power cuts. Iraq has plenty of gas of its own and there were once plans for large scale exports. Now, although, it cannot even produce enough to meet its most basic needs.
The agreement with Iran is for the supply of just under 250 million cubic feet of gas, which will be used to fuel three power stations in Baghdad. Iraq’s Ministry of Electricity has announced plans for a series of gas-fired power stations yet it is not yet clear where the gas to fuel them is to come from. The Iranians were originally asked to supply 1.5 billion cubic feet and whilst a deal in principle has been agreed for the supply for an additional 250 million cubic feet of gas, it is not yet clear when any of the additional volumes will arrive, whilst all along, Iraq strugs to increase its own production of gas.
What’s the problem?
Iraq possesses large proven reserves of natural gas. Its production, on the other hand, is small and its consumption is in consequence restricted. Whilst there were once plans to export gas to Kuwait, these fell afoul of the politics that led to Iraq’s invasion of its southern neighbour in 1990. The sanctions that followed, especially those imposed by the US, the subsequent invasion and its violent aftermath have set back Iraq’s gas developments by more than two decades. Only recently has there been any sign of a revival in the gas industry, mainly as the result of a single large gas recovery project in the south of the country.
Last year witnessed an increase in net production of about a third thanks to the Basrah Gas project, which is designed to capture the large volumes of associated gas that are currently flared owing to the lack of a proper gas-gathering system in Iraq’s southern oilfields. Last year, about two-thirds of Iraq’s total gas production was wasted in this way.
For all the contribution to Iraq’s present production by BGC, Iraq’s gas production is still below the peak of 1.4 billion cubic feet, which was achieved as in 1979. Nearly all of Iraq’s gas is produced in association with oil, and the 1979 coincides with the country’s then peak output of oil, when it reached 3.5 million bpd. Output fell in the 1980s during Iraq’s war with Iran and remained depressed in subsequent decades because of sanctions and war, only recovering to its former peak in 2015. In that time, however, much of the gas-gathering infrastructure was damaged or destroyed and the BGC is the first serious attempt to remedy this situation.
More work needs to be done on recovering gas if the electricity industry is to meet its targets to add more gas-fired generating capacity. This is not the only constraint, however, since increasing the production of associated gas requires a rise in oil production, and plans to increase oil production may be delayed if global crude oil prices remain close to present levels.
More free Iraq gas
There may be more gas available in future from non-associated gas-fields. Progress on developing these has been slow up to now. On the other hand, there are a number of new gas projects planned for the Kurdish north of Iraq. The Kurdistan Regional government (KRG) has identified reserves in excess of 20 tcf in the region. Not all of these are proven, but they support a production level of about 400 million cubic feet.
The Kurdistan Regional Government (KRG) (Kurdish: حکوومەتی هەرێمی کوردستان, Hikûmetî Herêmî Kurdistan; Arabic: حكومة اقليم كردستان, Ḥukūmat ʾIqlīm Kurdistān) is the official ruling body of the predominantly Kurdish region of Northern Iraq referred to as Iraqi Kurdistan or Southern Kurdistan.
Like the government in Baghdad, the KRG is promoting the production of gas to provide a substitute for oil in the generation of electricity in order to be able to export more crude oil and refined products. The Arbil government is also keen, again, like Baghdad, to recover more gas liquids for domestic use or export. There are plans to double Kurdish gas production but, as in Iraq, these are behind schedule, and there is no clear indication when, or if, the KRG’s target can be met during the present decade.
Low oil and gas prices have proved an obstacle to the KRG’s plans. There have also been disagreements between the cash-strapped KRG and gas producers in Kurdistan over late payments by Arbil for gas and NGL production which, if not settled amicably, threaten future investment plans.
A higher price environment will encourage Baghdad to agree more generous investment budgets with IOCs in an effort to halt further declines, but new capacity additions will remain thin on the ground. Further into the future, the situation does not look much better. In the south, the glacial progress of the seawater treatment facility represents a barrier to significant growth at any of the large fields, while the star of the Kurdistan region shines much less brightly now than it did a few years ago due to recent reserve downgrades. In short, while Iraq may manage some modest growth in the next few years, the accelerator will not be pressed down again, as it was in 2015, for some years to come.
Iraq’s gas future for the time-being lies with more imports rather than higher production.