Iraqi factions wrangle over gas reserves

The Iraqi cabinet has signed off on a deal with Korea Gas to develop the Akkas gas field in Anbar province in the west of the country. Akkas is a prime attraction because, unlike most of Iraq’s gas, its reserves of 3,300bn cu ft are non-associated or free gas not connected to an oilfield.

The agreement, however, has not been without its complications. Iraqi government officials first said the deal would be signed in February but it fell victim to local politics, causing Kazakhstan’s state gas company to withdraw. The governor of Anbar had demanded that a portion of the Akkas gas remain in his governorate to generate power rather than be made available for export.

Kogas now has a 75 per cent stake in the Akkas venture, up from 37.5 per cent previously, while Iraq’s state-run North Oil Company holds the remaining 25 per cent share.

“The delay was principally due to disputes between the central authorities and the provincial authorities [Anbar] over possible gas exports to Syria,” says Justin Dargin, an energy expert at Harvard University.

“A constant refrain was that local power brokers were not consulted on project specifics. Disputes were a plague on the negotiations and massive demonstrations caused numerous delays,” Mr Dargin says.

Political wrangling over Iraq’s gas reserves is such that Akkas looks uncontentious compared with some other deals.

At issue is a rich prize. Iraq is massively under-explored. The country’s proven gas reserves are estimated at 112,000bn cu ft, putting it 10th in the world, according to the US Energy Information Administration. But proven and probable reserves could be as high as 300,000bn cu ft.

In particular, Royal Dutch Shell’s massive project to capture flared gas from three of Iraq’s giant southern fields, Rumaila, West Qurna-1 and Zubair, is the subject of a battle for power between Iraq’s parliament and Hussain al-Shahristani, the former oil minister and now deputy prime minister, analysts say. Having been first agreed in 2008, the deal was initialled in July this year.

The fields flare 700m cu ft a day of gas that could otherwise be used to meet Iraq’s desperate power shortfall.

Walid Khadduri of the Middle East Economic Survey, an industry publication, says the way the contract was negotiated, although done in good faith, has raised the ire of Iraqi parliamentarians.

“The main reason is that the contract was not put out for bid – it was bilaterally negotiated with the minister himself and that is unconstitutional,” Mr Khadduri says. “If you allow one major agreement to go without bidding you are setting a precedent.”

Mr Khadduri says Mr Shahristani used Saddam-era laws to push the agreement in 2008 through because of fears that parliament and Iraq’s provincial chiefs between them would further delay the much-needed project. Iraq is still generating only 7,000MW a day, little more than at the time of the US-led invasion.

The 2005 constitution, however, gives parliament the right to review all oil and gas accords including the series of production-sharing agreements negotiated with international oil companies.

Between late 2008 and early 2010 Iraq signed long-term contracts with oil groups to develop a dozen gigantic fields in the country’s south, aiming to overtake Iran as the Opec oil cartel’s second-largest producer.

“Parliament has said this [bilateral negotiation] is no go,” Mr Khadduri says. “They [the deputies] are insisting on their rights to review the [oil and gas] agreements but I think they will approve them with very minor alterations. But they want the principles to be established that they review the agreements.”

Royal Dutch Shell had no immediate comment on the state of its flaring project in Iraq.

For other analysts, the price that Mr Shahristani negotiated is simply the one necessary to attract an international oil company to develop a large project in a country where security remains fragile at best. The price that Shell is due to receive under the terms of the agreement is related to the oil price.

Mr Dargin estimates that if the Brent oil price is approximately $100, the Iraqi side will pay slightly above $4 per million British thermal units (mmbtu) for the gas, while being forced to sell it domestically at a fixed price of $1.04/mmbtu.

“Overall, it is competitive with current US gas prices and illustrates that Middle Eastern countries, even if they drive a hard bargain, may not be able to entice investment in any other way in the natural gas sector,” says Mr Dargin.

Mr Khadduri believes that parliamentarians are focused on a new but much-delayed oil law that proposes twocompeting visions of how Iraq will manage its hydrocarbons. Iraq’s Kurdish parties, which are developing their own oil and gasfields, are insisting on a regional or federal version while Arab deputies are pushing for a centralised vision whereby all revenues accrue to the government in Baghdad.

Ordinary Iraqis also want to see the end to the flaring of gas in their country because they know it is wasteful and could be better used elsewhere.

“The priority is the oil and gas law and the deputies don’t want to waste their efforts and energy on the Shell agreement. And people want to see the gas flaring stopped,” Mr Khadduri says. “I think parliament will pass it because of the focus on the oil law, which is controversial.”