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$100 oil encourages Iraq to ramp up production at two major oilfields

With Brent Crude Oil still holding above the key support level of US$100.00 a barrel, Iraq is looking to optimize its oil production, including from fields considered slightly more difficult to exploit than other others in the country. Encouraging the development of these fields – including several in ThiQar province, including Nasiriya and Gharraf – also allows Iraq to judge which of the potential foreign suitors for these more difficult oil and gas projects might make suitable partners in other areas of its hydrocarbon sectors. . For obvious reasons at present, American and Chinese companies are at the center of ThiQar’s field development plans, with Russia taking a further back seat. In the case of Nasiriya, initial plans for self-sustaining development of the potential 4.36 billion barrel oilfield were shelved in the run-up to the Iran-Iraq war that began in 1980 and lasted until 1988. The field , discovered in 1975 by the then Iraq National Oil Company (INOC), was finally commissioned in 2009 and included in the 2009-2010 Accelerated Development Plan which aimed to increase its production to at least 50 000 bpd in the first phase. At that time, Italian ENI, Japanese Nippon Oil, American Chevron and Spanish Repsol were invited to submit bids to develop the field on the basis of an engineering and construction contract ( EPC). The Japanese consortium led by Nippon Oil – also including Inpex and JGC Corporation – looked set to win the contract before negotiations collapsed again.

In 2014, another serious effort was made to reinvigorate the development of the Nasiriya field as part of the larger “Nasiriya Integrated Project” (NIP), which also included the corollary construction of a 300,000 barrel per day refinery. (bpd). This followed the departure in September of the same year of divisive Shiite Islamist Nouri al-Maliki as prime minister, and his replacement by Haider al-Abadi. Although al-Abadi is also a Shia, his arrival has sparked optimism in the international investment community that a more inclusive government will emerge – with a more secure tenure. This optimism was reinforced by al-Abadi’s announcement of his three deputies – Hoshyar Zebari, the outgoing Kurdish foreign minister, Saleh al-Mutlak, a secular Sunni who held the same position in the previous government, and Baha Arraji. , a Shia and former MP. – prompting then-US Secretary of State John Kerry to say that the new cabinet “has the potential to unite all of Iraq’s diverse communities.”

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With respect to the tender itself, changes were made to the original Technical Service Contract (TSC) in an effort to address the concern of international investors that the TSC model fell far short of the typical of production sharing contracts (PSC) they preferred. Unlike previous contracts, the new contract offered investors a share of the project’s revenue, but only upon the start of production, and the Ministry of Petroleum would pay the cost of recovery from the start date of work. This differed from the previous contract in which costs were only paid when the contractor increased production by 10%. That said, investors would still have to pay 35% tax on the profits they made from the Nasiriya project, the same amount as in previous transactions.

By that time in 2014, international engineering and construction firm Foster Wheeler had already completed a preliminary engineering and design study for the refinery, and seven of the initial potential bidders remained on the list (Indian Reliance Industries, the French Total, the Russian Lukoil, and Zarubezhneft, the Chinese CNPC, the American Brown Energy and a joint Japanese team of JGC and Tonen General). These had been completed by Oil and Natural Gas Corp in India and Essar Oil, Rosneft in Russia, Maurel & Prom in France and GS Engineering & Construction in South Korea. As might be expected, however, given Iraq’s history endemic corruption, sectarian conflict, absence of real governanceas analyzed in depth in my new book on world oil markets, these potential agreements came to nothing.

In 2017, however, China relaxed its directive of the previous two years to all state-owned hydrocarbon companies to cut budgets.. On the Iraqi side, this coincided with a renewed push to ramp up production in the south of the country as much as possible before the chaos in the northern oil supply that was likely to result (and did result) from the referendum on independence from the Kurdistan to be held in September. , as also analyzed in depth in my new book on world oil markets. These factors have led Chinese companies Sinopec and PetroChina to propose a deal that would see NIP rolled out as part of the broader “Southern Integrated Project” (ISP). The ISP aimed to boost production in the oilfields of southern Iraq, as well as build related infrastructure, including pipelines, transportation routes and the construction of the Joint Seawater Supply Project (CSSP).

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“The Chinese said they would spend $9 billion on the [NIP-related] refinery and the first phase of Nasiriya development, but under the terms of the Iraqi oil contracts, the Iraqis would have to reimburse this cost to the Chinese from the value of the recovered oil,” said a source who works closely with the Iraqi ministry. petrol. OilPrice.com. “The Oil Ministry’s first reaction was to decline the offer and say that the development should only cost around $4 billion, which the Chinese in turn categorically refused.”

All of this placed the United States in a prime position to use the Nasiriya development, and then potentially the NIP, as a springboard to other development projects in Iraq’s oil and gas sector, in accordance with its new, softer power policy. in the country. Iraq Drilling Company director Basem Abdul Karim said last week that the company has started work on the first of its 20 oil wells at the Nasiriya oil field, in collaboration with American Weatherford. . He added that the project should be completed within 18 months. All of this fuels recent news that the newly resurrected Iraqi National Oil Company was authorized by the government of Baghdad to negotiate directly with the American oil giant Chevron so that it develops the site of Nasiriya more widely.

Relatively nearby, the Gharraf oilfield has seen its crude oil production increase by 20,000 bpd in the past month alone, according to the Oil Ministry, with further production increases to come. With Japex and Malaysia’s Petronas in the lead roles in site development, there has been a greater sense of urgency to move forward on the billion-barrel oil reserve field than has was evident on Nasiriya, despite the company’s relatively low compensation cost of US$1.49 per barrel, after the initial production target of 35,000 bpd was met.

Initially, they were to appease local tribesmen who refused to peacefully cede their ancestral lands, whatever the Iraqi government in Baghdad had promised Japex (and Petronas) in view of accepting the offer. Then they had to build the initial surface facilities for production, including a degassing facility with two trains of 50,000 bpd each, eight storage tanks, piping, atmospheric flares and other ancillary infrastructure. In just over two years, production from the field has reached 60,000 bpd. At that time, in order to accelerate further production increases, the development partners – who had budgeted a minimum of US$8 billion to bring the field to its plateau production target of 230,000 bpd – sent a call for tenders for engineering companies and contractors to bid. for an engineering, procurement and construction contract estimated at US$100 million for the construction of the Gharraf “Light Oil Transport System”.

This enabled approximately 300,000 bpd of production to be transported from the two fields of Gharraf and Badra. The first phase of the project – under the jurisdiction of Petronas and Japex – consisted of the construction of a 92 kilometer pipeline transporting oil from the central processing facility of the Badra field (managed by the Russian Gazprom Neft) – the area Gharraf-Badra Interconnector (GBTA) – to a storage depot at Nasiriya, which would then be routed to the Al Fao export terminal in Basra. The Russians completed their part in March 2014, allowing the commissioning of the second phase pipeline in late 2016/early 2017 – supplying oil from the Yamama reservoir of the Gharraf field. At this time, Gharraf was producing around 150,000 bpd, having seen production drop from 60,000 bpd at the end of 2013 to 100,000 bpd in 2014. Subsequently, production at Gharraf again increased and then decreased, due to delays in drilling works.

By Simon Watkins for Oilprice.com

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