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Iraq seeks to auction three gas fields

May 7, 2010 at 2:14 PM   |   Comments

BAGHDAD, May 7 (UPI) -- Iraq has invited international energy companies to bid for production deals at three natural gas fields as Baghdad expands its drive to boost oil and gas production to fund its reconstruction program.

Meantime, it finalized a $4 billion gas deal with Royal Dutch Shell Thursday to work with the state-owned South Gas Co. on a joint venture to extract gas from fields near the southern port city of Basra.

"We're now waiting for Cabinet approval to go ahead and sign the contract," Oil Minister Hussein al-Shahristani said.

That could take some time since Iraq's political leaders are heavily engaged in horse-trading to form a new government following inconclusive March 7 parliamentary elections. That could take several weeks, possibly longer.

Shell holds a 44 percent stake in the venture, with Mitsubishi Corp. of Japan holding 5 percent. The Iraqi South Gas Co. has a controlling 51 percent.

The government has also signed an agreement with Russia's TNK-BP to explore other joint gas and oil ventures, the Russian company announced Thursday.

Shahristani said that around 45 foreign companies that qualified for the two rounds of auctions for 10 of Iraq's major oil fields in 2009 will be eligible to bid in the gas auction Sept. 1 in Baghdad.

On offer will be the Akkas, Mansouriya and Siba gas fields.

Akkas, near the Syrian border in the northeast, holds an estimated 5.6 trillion cubic feet of gas. It was offered in the first auction in June 2009 but got only one offer, which was rejected.

Mansouriya, with reserves of 4.5 trillion cubic feet, is in the once insurgency-wracked province of Diyala north of Baghdad. It could become a problem if the insurgency flares again because of the political upheaval.

Siba, the smallest of three with 1.1 trillion cubic feet of reserves, is located near the southern border with Kuwait. It wasn't offered in 2009.

Iraq has an estimated 111 trillion cubic feet of natural gas, with much, much more yet to be tapped, according to industry analysts. But as with the country's oil fields, these have never been fully explored or exploited.

Only 20 percent of Iraq's oil fields have been developed. These contain the equivalent of 115 billion barrels of oil, the fourth largest after Saudi Arabia. Canada and Iran, and could hold as much again.

An even smaller percentage of Iraq's gas reserves have been developed. But the infrastructure is so neglected that large amounts of gas produced in the oil fields are flared off rather than being stored or utilized through domestic consumption.

That means an estimated $70 million a year in revenue is simply going up in smoke.

Baghdad clearly plans to change all that. Iraq appears ready to play a key role in the Nabucco pipeline project that will carry natural gas 2,000 miles from the Caspian Sea basin through Turkey to Austria to feed energy-hungry Europe and break Russia's stranglehold.

The European Union signed a memorandum for a strategic energy partnership with Iraq in Baghdad in January. EU energy experts believe that Iraq could provide between 5 billion and 10 bullion cubic meters of gas a year.

Iraqi Prime Minister Nouri al-Maliki announced in July 2009 at a meeting in Ankara of prospective Nabucco users that Iraq could provide up to 15 bcmy by 2015. That's half the pipeline's planned capacity.

Given the woeful state of Iraq's energy infrastructure after four decades of neglect, war and international sanctions, that may be far more than it will be able to produce within that time frame.

But foreign investment is crucial and Baghdad clearly hopes to obtain that through leasing its major gas fields as it did in the oil sector in 2009 and to develop a gas export infrastructure to boost energy revenue.

Iraq's position regarding the U.S.-backed Nabucco project, which would pivot on neighboring Turkey, has been enhanced by a flurry of problems between potential participants such as Azerbaijan and Turkmenistan.

If Iraq can provide the gas it says it can that would help overcome one of Nabucco's biggest problems: the lack of committed gas providers to make the project viable.

© 2010 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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