Iraq signs deals to open up gas fields

Oct. 20, 2010 at 12:06 PM
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BAGHDAD, Oct. 20 (UPI) -- Iraq's Oil Ministry awarded contracts to develop three of its biggest natural gas fields Wednesday, although concerns about security -- a factor that could undermine Baghdad's drive to become the world's new energy giant -- apparently scared off some potential investors.

The fields that were on the block in Baghdad contain 11.2 trillion cubic feet of natural gas, about 10 percent of Iraq's known reserves of 112 trillion cubic feet.

Iraq wants to open the gas fields as soon as possible to maximize its energy exports, the country's economic lifeline, to provide the funds for massive reconstruction after decades of war, rebellion, U.N. sanctions and neglect.

The two biggest fields on offer, Akkaz and Mansouriya, lie in regions where insurgents are particularly active. They are likely to remain so as U.S. forces have been reduced to around 50,000 in a military withdrawal scheduled to be completed in late 2011.

But if security concerns lay behind the poor showing at Wednesday's auction by foreign energy companies, an abundance of gas on the global market undoubtedly contributed to their indifference.

"There are abundant gas resources, especially after recent huge discoveries in the region and the United States, which have forced gas prices down," one industry analyst commented.

The auction had been postponed twice, apparently because potential investors didn't find the Oil Ministry's terms attractive enough.

The government's efforts to sweeten the pot, such as scrapping hefty "signature bonuses" paid by companies that secure deals, failed to overcome the qualms of potential bidders.

Of the 45 firms that had pre-qualified for the auction, only 13 paid participation fees and only five of those actually submitted bids for the 20-year contracts offered by the Oil Ministry.

The small number of bids "is not at the level we aspired to," Senior Deputy Oil Minister Abdul-Karim Elaibi acknowledged.

The largest of the three fields, Akkaz, was awarded to a consortium of the Korean Gas Corp., or Kogas, and KazMunaiGaz of Kazakhstan. The field in Anbar province west of Baghdad near the Syrian border, contains reserves estimated at 5.6 trillion cubic feet of gas.

Total of France and the Turkish Petroleum International Co., or TPAO, were the only other bidders. The winners had offered $5.50 per oil barrel equivalent and a production ceiling of 400 million cubic feet per day over 13 years.

A consortium of TPAO, Kogas and Kuwait Energy secured the contract for the Mansouriya field in turbulent Diyala province northeast of the capital. It has reserves of 4.5 trillion cubic feet.

The consortium offered $7 per oil barrel equivalent and a production level of 320 million cubic feet a day for 13 years. There were no other bids.

The smallest field of the three fields, Siba, with reserves of 1.1 trillion cubic feet, went to a joint venture between Kuwait Energy, marking the Persian Gulf emirate's first foray into Iraq's energy industry, and TPAO. They offered $7.50 per barrel equivalent and a production plateau of 100 million cubic feet a day for nine years.

KazMunaiGaz was the only other bidder for Siba, which is in southern Basra province near the borders with Iran and Kuwait.

If the international interest in Iraq's gas fields and the expectations that these reserves will swell considerably as new fields open, was less than it was for the oilfield contracts auctioned off in 2009, Baghdad is unlikely to be too despondent.

Producing gas will require a whole new infrastructure, including terminals and a pipeline network but Iraq will benefit greatly from domestic production even if exports may be slow to develop.

The gas will be used to fuel power plants and overcome chronic electricity shortages that plague the country nearly seven years after the U.S.-led invasion and impede industrial progress.

According to government statistics, power stations and industrial plants require 1.05 billion cubic feet of gas per day. They only get 670 million.

Demand for gas is expected to reach 2.46 million cubic feet per day by 2014 and 5 billion cfd three years after that.

Meantime, Iraq is driving to raise oil production from around 2.3 million barrels per day to 10 million-12 million over the next seven years, rivaling Saudi Arabia's output, that will bankroll reconstruction.

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