x Abu Dhabi, UAESunday 21 January 2018

Auctions to fuel Iraq's power drive

Iraq has awarded contracts to develop all three of the gasfields it offered in a bidding round.

Iraq has awarded contracts to develop all three of the gasfields it offered in a bidding round yesterday, sweeping aside widespread doubts about the auction's success and boosting Baghdad's hopes of developing domestic supplies to fuel the country's power sector as it is rebuilt.

Preliminary contracts for the work would be signed within "the next few days", Dr Hussein al Shahristani, the Iraqi oil minister, said in Baghdad.

He assured the winning companies they would get all the help they needed from the ministry to develop the fields, emphasising that the government would not allow any party to hamper their work because of the "urgent" need for gas in Iraq.

The gasfields, containing more than 11 trillion cubic feet of exploitable natural gas, or about 10 per cent of Iraq's proved reserves, are expected to produce a combined 800 million cubic feet per day (cfd) of gas. But they will not be developed by the major international oil companies that are boosting output from the country's biggest oilfields.

Instead, consortiums led by South Korean and Turkish state-controlled oil and gas producers, and an independent Kuwaiti company, have won the 20-year development contracts for Iraq's Akkas, Siba and Mansuriyah fields.

A partnership between Korea Gas Corporation (Kogas) and Kazakhstan's KazMunaigas won the deal to develop the Akkas field, containing 5.6 trillion cu ft of reserves. The companies agreed to develop 400 million cfd of gas output for remuneration of US$5.50 (Dh20.20) per barrel of oil equivalent (boe), beating a rival offer from the French oil major Total and Turkish Petroleum Corporation.

Turkish Petroleum and Kuwait Energy Company won the contract to develop the smaller Siba field in southern Iraq, containing 1.13 trillion cu ft of reserves. Eventually, some of that gas could be exported to Kuwait to fuel power generation.

"We don't know yet if we are going to export gas from Siba. The gas belongs to Iraq," said Besim Sisman, the vice president of Turkish Petroleum.

A consortium of Kuwait Energy, Turkish Petroleum and Kogas won the rights to develop the 4.5 trillion cu ft Mansuriyah gasfield in north-eastern Iraq, near the country's border with Iran, after lowering its fee for the work to $7 from $10 per boe.

The new gas licences, however, could prove to be double-edged swords for the successful bidders. They face huge challenges to develop the fields, including building an almost nonexistent infrastructure for processing and transporting the gas in a shaky security environment exacerbated by deep-seated local opposition to foreign involvement in Iraq's gas sector, and central government control of the nation's gas resources.

To encourage participation in yesterday's auction, which had already been delayed twice to give companies more time to study contract terms, the country's oil ministry waived requirements for foreign developers to pay signing bonuses and promised to allow some of the gas to be developed for export. That ran counter to local demands for Iraq's gas to be developed strictly for domestic use.

"We are against the approach of the central government and we will be against any contract between the central government and any company in the world," Qasim Abid, the governor of Iraq's Western Anbar province, said this week.

The province holds the Akkas field near Iraq's border with Syria, which is far from any domestic infrastructure or markets but conveniently located for developing gas exports to the Levant and Europe through Syria.