Iraq’s perennial unwillingness to reduce the vast amount of gas that it burns while drilling for oil (‘associated gas’) caused it three major problems over the years. To begin with, by failing to capture this gas for domestic power generation, the country was left reliant on Iran for as much as 40 percent of those needs, supplied through imported gas and electricity. That dependence gave Tehran an enormous lever over Baghdad, reinforcing the political, economic, and security influence it already wielded through its various proxy networks, as analysed in depth in my latest book on the new global oil market order. On top of that, the Iranian imports remained a persistent irritant in U.S.–Iraq relations, scaring off a wide range of Western investors who did not want to be caught in the crossfire of sanctions or geopolitical pressure. And finally, the failure to capture this associated gas and to monetise it through exports exacerbated Iraq’s often strained financing, pushing it into severe budget crunches. When U.S. President Donald Trump won his second term in office it became clear that he was not going to continue to put up with Baghdad promising Washington that it would end its energy dealings with Iran, while at the same time making bigger and longer deals with Tehran than ever before. The latest developments in its gas-capturing efforts revealed last week appear to underline this new commitment.
At the heart of this new initiative was the announcement from Iraq’s Oil Ministry of the launch of an accelerated gas processing and transport project in southern Iraq aimed at further reducing associated gas flaring and increasing supply to the domestic power sector. The project is being implemented by the South Gas Company (SGC) in partnership with the State Company for Oil Projects (SCOP) Oil Projects Company, focusing on capturing and processing additional volumes of associated gas from various oil fields, with several of these ranking as among Iraq’s largest. The Oil Ministry highlighted that the project would supply around 55 million standard cubic feet per day (MMscfd) of dry gas to power plants, helping stabilise electricity generation across the country, which has frequently been subject to extended blackouts over recent years. The initiative includes transporting and processing associated gas from Bin Omar field, the Majnoon field, and the North Rumaila field in the Basra governorate through a new pipeline network, which will be executed in two phases. The first will cover 4.5 kilometres and the second phase a further 4 kilometres, with the overall effect being a mini-network that can connect to similar networks over time. It is due to be completed within a month, with the speed of the build partly being driven by the sudden and sharp drop in Iranian gas supplies following U.S. and Israeli attacks, which has reduced Iraq’s electricity generation by 3,500 megawatts (MW), according to industry figures. The pipeline network being planned by the SOC and SCOP also encompasses moving gas from Iraq’s first floating liquefied natural gas (FLNG) import platform, which is due to be operational by June.
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Crucially, from a Western perspective, U.S.-based technology and engineering giant KBR is the consultant firm for the FLNG platform, which is designed to handle 500 MMscf/d of gas, although it has a technical ceiling of up to 1 billion cubic feet per day (Bcf/d). The Khor al-Zubair port in the oil and gas hub of Basra is being modified to act as the permanent home of this infrastructure. Moreover, as exclusively analysed by OilPrice.com last year, U.S. firm Excelerate is a linchpin of the U.S.’s push not just to sever the energy, economic and political links between Iraq and Iran but to replace Tehran’s influence over Baghdad with Washington’s once again. Under a five-year renewable agreement signed with Iraq’s Electricity Ministry, Excelerate holds a dual mandate to operate the terminal to convert liquid gas back into the dry gas needed for Iraq’s power plants and to serve as the LNG supplier, effectively enabling it to prioritise U.S. gas to ensure supply reliability amidst regional volatility. This influence is further underpinned by the fact that Excelerate is the primary investor in the FLNG, with the project’s cost now forecast at US$520-550 million. And just in case anyone in the Iranian, Russian, or Chinese governments missed the enormous strategic importance of what all this means, Excelerate made it clear in their summary of the deal: “The project has been developed in close collaboration with the Iraqi government and enjoys strong support from both Iraqi and U.S. government stakeholders… It represents not only a commercial partnership but also a strategic step toward enhancing Iraq’s long-term energy security.” Moreover, as the world’s leading producer and exporter of LNG — and with nearby Qatar’s formerly steady and sizeable LNG supplies having been set back by recent Iranian attacks — Washington is in an even better position now to press home its massive energy, economic, and political advantage in Iraq.
Whilst the U.S’s Excelerate will provide Iraq with the immediate relief from an energy squeeze, Europe’s TotalEnergies is continuing to build the permanent backbone of Iraq’s energy future. As part of the French supermajor’s four-pronged US$27 billion deal, TotalEnergies’ projects to reduce gas flaring from key Iraqi oil fields will not compete with the SOC/SCOP mini-network, but rather are likely to anchor it, creating a unified, Western-managed grid for the south. Over time, this will work alongside the other key moving parts of the four-pronged deal, including most notably boosting Iraq’s oil production up to levels at least on a par with Saudi Arabia’s by rolling out the Common Seawater Supply Project (CSSP). As also detailed in my latest book on the new global oil market order, the CSSP involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities in order to maintain pressure in oil reservoirs, which will optimise the longevity and output of the fields. The scope for oil output gains was made plain back in 2013, in the Integrated National Energy Strategy (INES). This analyses in detail three realistic forward oil production profiles for Iraq and what each would involve, as also detailed in my latest book. Specifically, the INES’ best-case scenario was for crude oil production capacity to increase to 13 million bpd (at that point, by 2017), peaking at around that level until 2023, and finally gradually declining to around 10 million bpd for a long-sustained period thereafter. The mid-range production scenario was for Iraq to reach 9 million bpd (at that point, by 2020), and the worst-case INES scenario was for production to reach 6 million bpd (at that point, by 2020). These numbers compare to the average Iraqi production of 4-4.2 million bpd before the recent U.S./Israel-Iran conflict broke out.
Taken together, these moves mark the most serious attempt in years to pull Iraq out of the structural trap created by decades of wasted gas, unreliable power, and external leverage. With U.S.?backed LNG capacity providing short?term stability and European?led flaring?reduction projects laying the foundations for a more resilient industry, Baghdad now has the beginnings of an energy architecture that could finally support genuine economic independence. Whether this becomes the long?awaited turning point will depend on execution rather than ambition, but the scale and alignment of the projects now underway give Iraq a clearer pathway than at any time in recent memory.
By Simon Watkins for Oilprice.com
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