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Iraq offers gas and oil licences

The focus falls on larger fields to help push nation towards top of major world producers' league.

Iraq, the holder of the world's third-biggest proved oil reserves, has announced its third post-war bidding round for oil and gas licences. This time, Baghdad's focus will be on developing the nation's large but mainly overlooked gas resources. Starting on September 1, the Gulf state would seek offers to develop its Akkas, Mansouriya and Siba gasfields, Dr Hussain al Shahristani, the Iraqi oil minister, said yesterday.

Iraq has sought for years to develop gas exports, in addition to expanding domestic supplies of the fuel to burn in power plants. Baghdad had earlier set aside the under-developed Akkas field, near the country's western border with Syria, to supply the proposed Nabucco pipeline, which was conceived to reduce European dependence on Russian gas. "This will make Iraq one of the major producers for natural gas," Ali al Dabbagh, the Iraqi government spokesman, said last week at a business forum in Abu Dhabi, in remarks heralding the gas auction.

"Once these fields are put on stream, the production will be used to meet Iraq's growing energy needs as well as possibly exporting to neighbouring countries or the European Union," Dr al Shahristani added yesterday. The minister also said a US$4 billion (Dh14.69bn) joint venture with Royal Dutch Shell to gather and market up to 700 million cubic feet per day of gas produced as a by-product from Iraq's main southern oilfields had been submitted to the government's energy committee for approval, more than 18 months after Baghdad signed a preliminary deal with the company.

The gas is currently being burnt as "waste" because Iraq lacks gathering and processing facilities. But the deal is controversial because Baghdad negotiated it directly instead of inviting competitive bids, and because it appeared to give Shell a monopoly over gas produced from Iraq's main oil exporting province of Basra. Despite the country's dire need for gas to fuel electricity generation, the agreement could still be overturned in parliament or by the next Iraqi government.

In what appeared to be a compromise, Dr al Shahristani said the scope of the final deal would cover only three fields: Iraq's biggest oilfield, Rumaila; the Zubair field; and West Qurna phase 1, which is being developed by ExxonMobil and Shell. The new bidding round for contracts to develop gasfields that are not associated with oil also faces challenges. Akkas, which holds about 5.6 trillion cubic feet of gas, and Mansouriya, with an estimated 4.5 trillion cu ft of reserves, were among the fields offered in Iraq's two previous licensing rounds last year. But Mansouriya, located near Iraq's disputed border with Iran, attracted no bids.

A consortium led by Italy's Edison submitted the only bid for Akkas. That was rejected because it failed to meet Baghdad's maximum payment terms. Siba, a smaller field with about 1.1 trillion cu ft of reserves, was initially included in the second bidding round but later withdrawn. "We have indications that there is renewed interest among companies to compete for these fields," Dr al Shahristani said. "We expect that these companies will come with offers better than the ones they gave before."

Any plan by Baghdad to develop Akkas before allowing the semi-autonomous Iraqi Kurdistan region to export gas, however, would meet Kurdish resistance. Austria's OMV and Hungary's MOL, which are both partners in Nabucco, are part of a consortium led by Crescent Petroleum and Dana Gas of Sharjah that hopes to export Kurdish gas through Turkey. But Baghdad has declared contracts between the Kurdistan regional government and foreign oil and gas companies illegal.

Yesterday, Dr al Shahristani said Iraq's central government had reached an "initial agreement" with Kurdistan over oil production but had not agreed on payments to the foreign companies pumping Kurdish crude. Those companies, including Norway's DNO International and Turkey's Genel Enerji, which halted exports last October because they were not being paid for their oil. * additional reporting by Hadeel al Sayegh

Published: May 6, 2010 04:00 AM


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