Iraq, OPEC’s No.2 producer is finally ready to work on its plans to develop its associated and non-associated gas resources. Iraq’s Deputy Oil Minister, Hamed Younis confirmed the move in a statement recently. He said the Oil Ministry was scrutinising projects to develop 1.2 billion standard cubic feet per day (scf/d) of associated gas as an adjunct to oil excavation.
There are three good reasons why it should do so. The first reason is political. Iraq needs to have some evidence to show the U.S. its plan to reduce its dependence on Iran for electricity and gas imports. The long-running arrangement between the two countries has been a source of irritation to the U.S. The announcement of new gas projects from Iraq is part of the set of reassurances in this regard.
The second reason for working on gas plans is financial. In the context, not developing its non-associated gas fields is analogous to leaving money in the ground. In terms of gas reserves, Iraq does not have reserves on the scale as Iran. However, it does have nearly 135 trillion cubic feet of gas, the 12th largest in the world according to the EIA. The global gas prices, currently, are low but that will not always be the case. Moreover, it will take at least as long to develop the gas fields as it takes for the world gas price to pick up. It makes sense to stop flaring the gas associated with oil field development, for the same reason, as it is something Iraq can ill-afford.
The attempts at financial straightening pose a severe danger to Baghdad. The new Prime Minister, Mustafa al-Kadhimi, requires IQD12 trillion (US$10 billion) to pay the next two months’ salaries of over employees, retirees, and others. It is understood in Iraqi government circles that failure to pay these obligations could result in extensive protests.
The third reason for Iraq to execute the gas plans is strategic (longer-term). In the context, not developing non-associated gas resources means that Iraq’s oil reserves have to be used instead to generate domestic power. This implies that the oil used for power generation cannot be monetised through export to boost Iraq’s coffers, which is near-empty, nor can it be used to help Iraq reach its long-planned crude oil production target of 7 million BPD.
Younis highlighted that the initial focus of the efforts to capture associated gas would descend on Halfaya (300 million scf/d), Nasiriyah (200 million scf/d), and Ratawi (400 million scf/d). According to the Oil Ministry, the plan was that Iraq would have ceased all gas flaring from its southern-producing oil fields by the end of 2021.