On December 20, 2018, the Trump administration granted Iraq a 90-day extension to an exemption from Iran sanctions to continue importing oil and natural gas.
On December 20, 2018, the Trump administration granted Iraq a 90-day extension to an exemption from Iran sanctions to continue importing oil and natural gas. After that period ends in March, the U.S. expects Iraq to halt all energy imports from Iran. Iraqi officials have argued they need two years to find an alternative.
Indeed, close to 40 percent of Iraq’s electricity is produced from imported Iranian gas, even though Iraq is the third-largest exporter of oil and sits on top of untapped natural gas reserves. Moreover, Iran’s cutoff of gas supplies to Iraq, for failure to pay its bill last summer, resulted in massive protests in Basra, Iraq’s second-largest city and southern oil hub.
To reduce its dependence on natural gas imports from Iran, Iraq plans to monetize its wasted associated gas, which is natural gas dissolved in a hydrocarbon reservoir. As a byproduct of crude oil extraction, associated gas comes to the surface during oil production. Lacking the necessary pipelines and other infrastructure to use or sell associated gas, Iraq burns the majority of it. The resulting flared gas is a major polluter, greenhouse gas emitter, and a wasted fuel source as well as a loss of monetary opportunity for the country.
The 2018 protests in Basra over lack of jobs and basic services, including water and electricity shortages in the middle of an intolerably hot summer, have put the country’s unity to the test.
The 2018 protests in Basra over lack of jobs and basic services, including water and electricity shortages in the middle of an intolerably hot summer, have put the country’s unity to the test. Although power generation has increased over the past six years, it continues to lag behind the growing demand and rising population.
Frustrated with poverty, neglect, and poor governance, the southern province of Basra renewed its demands of autonomy from the central government last year. Although such demands are unlikely to be met, they highlight the depth of despair in the oil-rich southern region of Iraq.
The Iraqi government has the resources to meet the basic electricity needs not only of Basra’s residents but also the whole country. According to the World Bank, harnessing associated gas as a fuel would be enough to meet Iraq’s entire electricity demand. Iraq currently loses about $2.5 billion in wasted gas flares.
Even as it ramped up its oil production after 2005, Iraq failed to tackle gas flaring and related environmental and public health issues. In 2016, the World Bank ranked Iraq the second-largest flaring country in the world after Russia.
Siemens, a German industrial conglomerate, estimated that monetizing captured gas could save Iraq $5.2 billion in the next four years. Due to its protracted war and low oil prices, which cut the country’s budget in half since 2014, the Iraqi government has been lacking the ability and revenues to address gas flaring.
In January 2018, Iraq’s former oil minister Jabbar Al Luaibi announced that his country would completely end gas flaring by 2021.
In January 2018, Iraq’s former oil minister Jabbar Al Luaibi announced that his country would completely end gas flaring by 2021. Thamir Ghadhban, who succeeded Al Louaibi in October 2018, has made capturing associated gas a priority. Iraqi officials have been actively partnering with the World Bank and international companies to attract investment and new technologies to capture gas from oil production.
The Iraqi government has made some progress in reducing gas flaring. Basrah Gas Company—51 percent of which is owned by Iraq, 44 percent by Shell, and 5 percent by Mitsubishi—processes 938 million standard cubic feet of gas per day. Established in 2013, this joint venture has tripled its processing capacity. With a plan to expand production of natural gas liquids (NGLs) from captured gas by 40 percent, Basrah Gas Company has plans to significantly cut down flaring. Furthermore, NGLs such as ethane, propane, and butane have even more economic value as separate products than natural gas itself.
Multinational energy corporations, such as Shell, BP, Siemens, GE, and others have ambitious energy and infrastructure plans for Iraq, which also include capturing and processing associated gas. GE is to build a gas processing facility to capture gas at Nassiriya and Al Gharraf oilfields to produce liquefied petroleum gas and condensates, aimed primarily for Iraq’s domestic market.
Siemens, GE’s competitor in this Middle Eastern country, is planning to build infrastructure to turn captured gas into electricity generation that would provide power to nearly 23 million Iraqis. Orion’s gas processing facility in a massive Nahr Bin Omar oilfield will process up to 150 million cubic feet per day of gas, which will power electricity stations.
The Trump administration actively pushed for GE and Orion gas deals in Iraq to help rehabilitate and develop its electricity and natural sectors and force an end to its dependence on energy imports from Iran. However, despite these promising contracts to reduce gas flaring, local bureaucracy and corruption remain major obstacles to these companies.
Iraq’s plans include not only the use of captured gas for domestic purposes but also its export to neighboring countries. In the first quarter of 2018, the country sold nine shipments of gas condensates and 21 shipments of NGL and the Iraqi oil ministry is poised to increase these exports as more gas is captured. Kuwait, Turkey, and Jordan expressed interest in importing natural gas from Iraq.
As Iraq plans to significantly boost its oil output—from almost 5 million barrels per day (bpd) to 6.5 million bpd by 2022—its production of associated gas is bound to rise as well. After years of conflict, any additional income from oil exports is critical for the country’s reconstruction and development.
Iraq’s ability to rebuild also hinges on a healthy population and clean environment, which are currently threatened by pollution.
Finally, Iraq’s ability to rebuild also hinges on a healthy population and clean environment, which are currently threatened by pollution. Fumes from flared gas in the southern region increasingly concern the public and could become a political issue at election time.
Iraq faces a challenge to keep up with investments in capturing and processing associated gas as it expands its oil industry while addressing public and environmental concerns.