[NGW Magazine] Iraq Fires Up Anti-Flaring Programme
This article is featured in NGW Magazine Volume 2, Issue 12
By Zainab Calcuttawala
After some years of rising flaring in Iraq, producers are expected to have stemmed the damage and more improvement may come.
Three new gas processing plants in southern Iraq will significantly reduce gas flaring at the nation’s sprawling oilfields, according to senior government advisor Thamir Ghadhban. And work by producers during 2016 may have reversed the recent steep increase.
Iraq signed up to the World Bank’s Zero Routine Flaring (ZRF) initiative, which commits Baghdad to phasing out the systematic flaring of associated gas by the year 2030, on May 10.
The Iraqi oil ministry’s adoption of anti-flaring provisions in its oilfield licensing contracts paves the way for Baghdad to meet this goal, provided it is underpinned by strong political will.
Iraq’s decision to join the initiative is a coup for the bank. Gas flaring in Iraq rose from 13.3bn m³/yr in 2013 to 16.2bn m³/yr in 2015 – making it the world’s biggest flaring nation after Russia. Had that 16.2bn m³ wet gas been processed and monetised, it would have saved Iraq $2.5bn.
The World Bank says the amount of gas flared in Iraq could support roughly 8.5 GW of new generation capacity – highly relevant in a country with acute power shortages. It adds that gas shortages have led the frequent use of imported fuel, costing the country an estimated $6bn-$8bn/yr.
Put another way, the Basrah Gas Company says that 70% of all Iraq’s gas production is flared, enough to provide electricity for more than 15mn homes if used for generation. It also says that enough liquid petroleum gas is lost through flaring in Iraq to fill 250,000 LPG cylinders each day.
Ghadhban, who served as Iraq’s oil minister immediately after the fall of Saddam Hussain’s regime, did not specify the finances or a timeline for the construction of the three plants, which would be clustered in the southeastern provinces of Basrah, Maysan and Dhi-Qar. Oil minister Jabar al-Luaibi mentioned the projects in April 2017, but without revealing details.
Iraqi gas reserves were 3.7 trillion m³ (130.5 trillion ft³) at end-2016, according to the newly published BP Statistical Review of World Energy 2017. Roughly three-quarters of those reserves are associated with the nation’s many oilfields.
The World Bank points to environmental and climate damage from Iraq’s gas flares. It says the country’s annual CO2 emissions are about 140mn metric tons and that reductions in flaring and the equivalent displacement of oil, heavy fuel oil, and diesel-fueled power generation by natural gas would decrease Iraq’s CO2 emissions annually by millions of tons.
Round 1 lacked gas incentives
Since 2009, five consecutive oilfield licensing rounds have locked oil production into an upward trajectory. Iraq awarded a 20-year concession on its largest field, the 1.4mn b/d Rumaila, to BP 38%, Chinese National Petroleum Corporation 37% and South Oil Company (SOC) 25% during Round 1 licensing eight years ago.
Although the 870,000 b/d West Qurna-1 oilfield and the 390,000 b/d Zubair fields were up for tenders alongside Rumaila, the government granted the concessions to two consortiums in post-round negotiations.
West Qurna-1 is licensed to ExxonMobil, PetroChina, and Iraqi Oil Exploration Co (each 25%), Anglo-Dutch major Shell has 15% and Indonesian Pertamina 10%; while Zubair is licensed to Italian Eni (32.81%), South Korean Kogas (18.75%), local Maysan Oil Company 25% and SOC 23.44%.
None of the concession contracts for these three oilfields remunerated participants for any associated gas produced while extracting oil.
The missing financial incentives and flaring ban led to the 2013 formation of the Basrah Gas Company, an incorporated joint venture including Shell 44%, Mitsubishi 5% and state-run South Gas Co 51%, which independently built an up to 20.7bn m³/yr gas-capturing facility in Basrah, Wood Mackenzie’s principal analyst for Middle East upstream Jessica Brewer told NGW.
The plant processed 5.9bn m³ in 2016 from the three oilfields for local use, according to the 2016 Shell Sustainability Report published this April. That amount of energy can power more than 4.5mn homes, it said.
Looking forward, BGC plans to triple total LPG exports from 30,000 tons in 2016 to 100,000 tons in 2017 via an expansion of the existing facility, South Gas chief Ihsan Abdul Jabbar said in January, which would enable Iraq to double its gas condensate exports in 2017 to 400,000m³/yr in the space of one year. Funding for the expansion will come from federal back-payments to the BGC for natural gas supplies, he said.
Baghdad funnels part of BGC’s gas supplies to power plants across Iraq, using a war-torn 1980s-built 1,775-km pipeline system, Brewer said. Two major gas power plant projects stand to boost demand for Iraqi gas – associated and non-associated alike.
In 2014, Jordan’s Mass Global Holding (MGH) signed an agreement with the Iraqi government to build a 3-GW facility in Bismayah, a city that sits just 40 km away from Baghdad and has become the nation’s largest post-war development project.
Two months ago MGH, which has a 100% stake in the power plant owing to the Iraqi electricity ministry’s build-own-operate model, announced the start of simple-cycle commercial operations after the completion of the first, 1.5-GW phase.
The second major project, led by Iran’s Mapna group and a consortium of 14 Iraqi energy and construction companies, comes with a $2.5bn price tag for another 3-GW facility (NGW Vol 2, issue 11). The first phase of the combined-cycle power plant, named Rumaila but sited in Basra, is due to enter production later this year. The completion of all four phases by 2020 will increase Iraq’s total electricity generation capacity by 20%.
Iraq’s other notable gas-fired power plants, including Nainawa (750 MW), Al-Mansurya (728 MW) and Rumaila (1.460 GW) often stand idle as bouts of civil unrest prevent the timely delivery of gas supplies. To dodge this logistical issue, BP set up a 235-MW gas power plant at the Rumaila oilfield, which powers field redevelopment without putting undue pressure on local grids.
Shell curbs flaring, despite flimsy contract
Although concession contracts from licensing Round 2 and onwards stipulate that oil companies develop gas infrastructure to avoid flaring, the Iraqi oil ministry’s reimbursement policy, which makes Baghdad responsible for gas production costs, means the construction of gas plants and pipelines is vulnerable to the whim of oil revenues which represent 90% of federal revenues.
If bearish markets mean the government will not be able to meet contractual obligations, multinationals will not approve construction plans for gas processing facilities as these are considered to be secondary projects, Brewer said.
The contractual anti-flaring framework gives Baghdad the legal authority to push oil producers to build gas-capturing plants. In 2013, the flaring ban spelt out in the Majnoon oilfield Round 2 contract allowed the Petroleum Contracts and Licensing Directorate to argue that Shell Iraq’s lack of “serious” interest in accommodating gas processing constituted a breach of contract. Although the tough talk did not lead to any punitive action, it did persuade Shell Iraq Petroleum Development (45%-owned by Shell) to complete a second phase of a gas-processing plant at Majnoon last year.
In April 2017, the company said it repurposed 65% of gas from the field that would otherwise have been flared, or in volume terms 90mn m³/d (32.85bn m³/yr). “Delivery of this phase marks a significant milestone in our efforts to reduce gas flaring at Majnoon and deliver natural gas for power generation in Iraq,” said the 2016 Shell Sustainability Report.
Shell Iraq made money from the arrangement too, since the contract entitled it to a $1.39/barrel of oil equivalent fee for the gas it captured, which was not the case for Round 1 producers.
At the West Qurna-2 oilfield, Lukoil (75% stake) contracted Turkish construction firm Enka to build a 126-MW gas treatment and distribution facility on-site, as dictated by signed service contracts, that would power all oil production activities. The facility has been operational since at least 2014.
The Iraq oil ministry has promised a sixth licensing round for a batch of small- and medium-sized fields this year on terms that deviate from the service contracts that dictate activities in the southern oilfields. The ministry has not commented on the presence of stricter gas flaring provisions in the latest contracts.
Given the efforts made by oil producers, power plant developers and the government during 2016 to monetise associated gas, it’s hoped that World Bank 2016 flaring data – when released around the start of July – will show the first reduction in Iraq’s flaring for several years.
Zainab Calcuttawala