Basra Gas Project Rises Toward Exports
BMI View: The operators of the Basra Gas project have reported good results in their bid to capture gas from Iraq's larger southern oil fields, the majority of which is flared despite continued shortfalls in the country's power generation. While Iraq is not short on gas potential, fiscal terms and an absence of infrastructure remain key obstacles to greater monetisation of the resource .
Iraq's Basra Gas j oint v enture (JV) project announced that the amount of gas capture form oil field in the south will double by the end of 2013. The amount of gas process ed will increase from 7mn cubic meters per day ( m cm/d) at the end of 2011 to 14 m cm/d by end 2013. The Basra Gas Company is a JV between state run Southern Gas (51%), Royal Dutch Shell (44%) and Mitsubishi (5%) . The project seeks to capture associated gas from Iraq's large southern oil field - Rumalia, Zubair and West Qurna-1 - which produce some 30 m cm/d of gas daily . However , a lack of adequate capturing and processing infrastructure sees around 20 m cm/d of gas produced at the three fields flared.
Indeed , while some gas is reinjected to aid oil recovery, an absence of pipeline and processing plants sees up to 60% of total gas production flared even as the country continues to experience shortfalls in power supply . Flared gas could be used to provide badly needed feedstock for power generation, to support industrial development, or as the partners of the Basra Gas Company hope, monetised via export.
According to South Gas Director Ali Hussein Khudhier the JV is on track to start up exports of liquefied natural gas from 2020 once the needs of the local market are satisfied . The project calls for up to 6.1bn cubic meters (bcm) of gas to be exported, possibly via a floating liquefied natural gas (FLNG) platform near Basra. From 2014, the Basra Gas Co . plan to begin exports of liquefied petroleum gas (LPG) after meeting domestic needs.
The Basra project is part of a more ambitious push in Iraq to monetise the country's sizable gas potential. Proven reserves, largely associated gas, are already the world's 1 1 th largest at 3.1trn cubic meters (tcm) according to the Energy Information Agency ( EIA ) . However the country remains underexplored , and according to the International Energy Agency ( IEA ) ultimately recoverable resources could approach 7.9tcm.
|High On Gas|
|Iraq Proven & Estimated Resources (bcm)|
We pushed back the date at which we expect first exports of gas from Iraq , however , we continue to express caution as even the 2020 date could slip. This is particularly true given exports are contingent upon meeting domestic demand first. Yet overall, we have bullish forecast for gas production as we expect both the south and north to make sizable contributions to gas volumes. Although the ongoing political dispute between Baghdad and Erbil poses some uncertainty and thus downside risk to gas production from territory administered by the Kurdistan Regional Government (KRG).
|Gas Boom To Boost Iraq|
|Iraq Gas Production, Consumption & Net Exports (bcm)|
Although infrastructure and fiscal terms remain chronic challenges to Iraq's oil and gas potential, our overall outlook is for gas to experience strong growth underpinned by projects such as those at Basra. While there are plans to begin imports of gas from Iran, we have not yet included these volumes but are carefully watching these developments.
We will also be watching Iraq's upcoming gas licensing round as officials previously indicated better terms could be on offer ( see our online service, September 4 2012, 'Revised Terms Could Raise Upstream Interest,'). This could indeed be a test case of the government's seriousness in reforming oft criticised contracting and remuneration provisions and will be an indicator of any potential overhaul for oil laws as well.