Mi Iraq Oil Gas 2013

www.meedinsight.com

The Iraq Oil and Gas Projects Market Report 2013 A comprehensive overview of Iraq’s upstream oil and gas, downstream refining and petrochemical sectors, with a particular focus on the projects market A MEED Insight report

Table of contents Table of contents ............................................................................................................................................. 2 List of tables .................................................................................................................................................. 6 List of figures ................................................................................................................................................... 9 1.

Preface .................................................................................................................................................. 12

2.

Executive Summary .............................................................................................................................. 13

3.

Introduction............................................................................................................................................ 16 3.1 Geography and demographics .......................................................................................................16 3.2 Recent history ................................................................................................................................18 3.3 Economy ........................................................................................................................................19 3.4 Government structure ....................................................................................................................21 3.4.1 Federal government .............................................................................................................. 21 3.4.2

Government of the Kurdistan region ..................................................................................... 23

3.5 Key challenges for Iraq ..................................................................................................................24 3.5.1 The challenge of regionalism ................................................................................................ 24

4.

3.5.2

2014 parliamentary elections ................................................................................................ 26

3.5.3

Relations with Iran ................................................................................................................. 27

3.5.4

Security ................................................................................................................................. 28

3.5.5

Corruption .............................................................................................................................. 33

Overview of the Iraq oil industry ............................................................................................................ 35 4.1 Brief history of the oil sector ...........................................................................................................35 4.2 Oil Industry structure ......................................................................................................................37 4.2.1 The Kurdish exception .......................................................................................................... 38 4.2.2

The status of Kirkuk............................................................................................................... 39

4.2.3

Oil exports and the State Oil Marketing Organisation ........................................................... 41

4.2.4

Transparency ........................................................................................................................ 42

4.3 Oil revenues ...................................................................................................................................43 4.3.1 Iraq’s dependence on oil revenues ....................................................................................... 43 4.3.2

Restoring control over oil revenues....................................................................................... 44

4.3.3

Revenue sharing between the KRG and Baghdad ............................................................... 45

4.4 Legal framework .............................................................................................................................46 4.5 The procurement process ..............................................................................................................48 4.5.1 The challenge for contractors ................................................................................................ 49 4.6 Logistical obstacles ........................................................................................................................51 4.6.1 Drilling rigs ............................................................................................................................. 51 4.6.2

Customs and equipment ....................................................................................................... 52

4.8 The Iraq National Energy Strategy (INES) .....................................................................................54 4.9 Construction opportunities .............................................................................................................57 4.10 The contractor market ....................................................................................................................60 4.10.1 Petrofac ................................................................................................................................. 62

The Iraq Oil & Gas Projects Market 2013

www.meedinsight.com

2

5.

4.10.2

Saipem .................................................................................................................................. 63

4.10.3

Samsung Engineering ........................................................................................................... 64

4.10.4

Technip .................................................................................................................................. 65

4.10.5

Chinese contractors .............................................................................................................. 66

Upstream Oil & Gas .............................................................................................................................. 67 5.1 Upstream Oil ..................................................................................................................................67 5.1.1 Oil reserves ........................................................................................................................... 67 5.1.2

Oil production ........................................................................................................................ 68

5.1.3

Regional comparison ............................................................................................................ 71

5.2 Upstream gas .................................................................................................................................74 5.3 Developing Iraq’s oil and gas reserves ..........................................................................................81 5.3.1 Al-Ahdab ................................................................................................................................ 81 5.4 Bid round one .................................................................................................................................82 5.4.1 Controversy over the Rumaila contract ................................................................................. 83 5.4.2

Progress since bidding round one......................................................................................... 84

5.4.3

Missan ................................................................................................................................... 84

5.4.4

Rumaila ................................................................................................................................. 86

5.4.5

West Qurna-1 ........................................................................................................................ 88

5.4.6

Zubair .................................................................................................................................... 89

5.5 Bid round two .................................................................................................................................90 5.5.1 Contract terms ....................................................................................................................... 91 5.5.2

Progress since bidding round two ......................................................................................... 92

5.5.3

Badra ..................................................................................................................................... 92

5.5.4

Gharraf .................................................................................................................................. 93

5.5.5

Halfaya .................................................................................................................................. 94

5.5.6

Majnoon ................................................................................................................................. 96

5.5.7

Najma and Qayara ................................................................................................................ 97

5.5.8

West Qurna-2 ........................................................................................................................ 98

5.6 Bid round three .............................................................................................................................100 5.6.1 Akkaz gas field .................................................................................................................... 102 5.6.2

Mansouriya gas field ........................................................................................................... 106

5.7 Bid round four ...............................................................................................................................108 5.7.1 Blocks awarded in round four .............................................................................................. 110 5.8 Future Oil Ministry plans for upstream sector ..............................................................................112 5.8.1 Future production levels ...................................................................................................... 115 5.8.2

Pressure to revise contracts ................................................................................................ 120

5.9 Challenges around increased production ....................................................................................122 5.9.1 Southern oil reservoirs ........................................................................................................ 122 5.9.2

Water injection..................................................................................................................... 125

5.10 Upstream oil in the Kurdistan region ............................................................................................129 5.10.1 Production sharing contracts ............................................................................................... 130


www.meedinsight.com

3

5.10.2

Tawke .................................................................................................................................. 131

5.10.3

Taq Taq ............................................................................................................................... 132

5.10.4

Khurmala Dome .................................................................................................................. 133

5.10.5

Shaikan ............................................................................................................................... 134

5.11 Kurdish discoveries ......................................................................................................................135 5.12 Turkish investment in Kurdistan’s upstream sector .....................................................................138 5.13 Upstream gas in the Kurdistan region ..........................................................................................140 5.13.1 Khor Mor and Chemchemaal .............................................................................................. 140

6.

5.13.2

Miran West and Miran East fields ....................................................................................... 142

5.13.3

Sumail field .......................................................................................................................... 142

Midstream Oil & Gas ........................................................................................................................... 144 6.1 Pipeline security ...........................................................................................................................145 6.2 Oil pipelines and storage ..............................................................................................................146 6.2.1 Domestic pipelines and pumping stations ........................................................................... 146 6.2.2

Export pipelines ................................................................................................................... 150

6.2.3

Storage facilities .................................................................................................................. 151

6.3 Crude oil export terminals ............................................................................................................153 6.3.1 Al-Basra Oil Terminal .......................................................................................................... 153 6.3.2

Khor al-Amaya Oil Terminal ................................................................................................ 154

6.3.3

Umm Qasr and Khor al-Zubair ............................................................................................ 154

6.4 Midstream projects .......................................................................................................................155 6.4.1 Domestic pipeline projects .................................................................................................. 155 6.4.2

Export pipeline projects ....................................................................................................... 158

6.4.3

Iraq crude oil export expansion project ............................................................................... 158

6.4.4

Other expansion plans in the south..................................................................................... 159

6.4.5

Refined products import project .......................................................................................... 160

6.4.6

Syriaexport pipelines ........................................................................................................... 162

6.4.7

Jordan export pipeline ......................................................................................................... 163

6.4.8

Storage facility projects ....................................................................................................... 168

6.4.9

Pumping station projects ..................................................................................................... 171

6.5 Midstream gas ..............................................................................................................................174 6.5.1 Existing gas pipelines .......................................................................................................... 174 6.5.2

Gas export pipeline to Kuwait ............................................................................................. 176

6.5.3

Current gas treatment facilities ........................................................................................... 176

6.5.4

North Gas Company ........................................................................................................... 177

6.5.5

South Gas Company ........................................................................................................... 178

6.6 Midstream gas projects ................................................................................................................180 6.6.1 Gas processing ................................................................................................................... 183 6.6.2

Gas pipeline projects ........................................................................................................... 186

6.6.3

South Gas project (Basra Gas Company) .......................................................................... 192


www.meedinsight.com

4

6.6.4

Further criticisms of the Shell deal ...................................................................................... 198

6.6.5

Missan gas projects............................................................................................................. 199

6.6.6

Gas export options .............................................................................................................. 199

6.7 Kurdish pipelines ..........................................................................................................................200 6.8 KRG pipeline projects ..................................................................................................................201 6.8.1 Kurdistan Iraq crude export pipeline ................................................................................... 201

7.

6.8.2

Shaikan pipeline .................................................................................................................. 202

6.8.3

Kurdistan-Turkey pipeline ................................................................................................... 203

6.8.4

Nabucco gas pipeline .......................................................................................................... 204

Downstream Oil & Gas ........................................................................................................................ 207 7.1 Rising demand for refined products .............................................................................................207 7.2 The rehabilitation challenge .........................................................................................................210 7.3 Antiquated design and production................................................................................................211 7.4 Irregular crude oil supplies ...........................................................................................................212 7.5 Iraq’s existing refineries ...............................................................................................................214 7.5.1 North Refineries Company .................................................................................................. 215 7.5.2

Midland Refineries Company .............................................................................................. 218

7.5.3

South Refineries Company ................................................................................................. 220

7.5.4

Nasiriyah and other smaller refineries................................................................................. 221

7.6 Downstream projects ...................................................................................................................222 7.6.1 Greenfield refinery projects ................................................................................................. 223 7.6.2

Nasiriyah Integrated Project ................................................................................................ 225

7.6.3

Karbala refinery ................................................................................................................... 229

7.6.4

Kirkuk refinery ..................................................................................................................... 231

7.6.5

Missan refinery .................................................................................................................... 233

7.6.6

Other planned refineries: Ninevah and Mosul ..................................................................... 235

7.7 Benefits and challenges for greenfield refinery projects ..............................................................235 7.7.1 Legal framework for investors ............................................................................................. 237 7.7.2

Financial challenges ............................................................................................................ 238

7.8 Brownfield refinery projects ..........................................................................................................240 7.8.1 North refinery expansion ..................................................................................................... 241 7.8.2

Daura refinery expansion and rehabilitation ....................................................................... 242

7.9 Petrochemicals .............................................................................................................................246 7.9.1 Existing facilities .................................................................................................................. 246 7.9.2

Petrochemicals projects ...................................................................................................... 249

7.10 Downstream oil in the Kurdistan region .......................................................................................250 7.10.1 Erbil refinery ........................................................................................................................ 252 7.10.2

Bazian refinery .................................................................................................................... 252

7.10.3

Other refineries.................................................................................................................... 253

7.10.4

Kurdish refinery projects ..................................................................................................... 253

7.10.5

Kurdistan petrochemicals .................................................................................................... 254


www.meedinsight.com

5

List of tables Table 1: Snapshot of demographics by province .......................................................................................... 17 Table 2: Iraq economic indicators, 2002-12 .................................................................................................. 19 Table 3: Key indicators 2012......................................................................................................................... 21 Table 4: Branches of government ................................................................................................................. 22 Table 5: Iraqi government ............................................................................................................................. 23 Table 6: Kurdistan Regional Government ..................................................................................................... 24 Table 7: Regionalism in Iraq ......................................................................................................................... 25 Table 8: Iraq’s security forces ....................................................................................................................... 33 Table 9: Iraq oil sector historical timeline ...................................................................................................... 35 Table 10: Iraq's key NOCs ............................................................................................................................ 40 Table 11: Government budget for state-funded oil and gas projects, 2011-14 ($m)*................................... 56 Table 12: Leading contractors in Iraq ........................................................................................................... 61 Table 13: Middle East market share for European and South Korean contractors ...................................... 62 Table 14: Chinese state-owned EPC firms’ contract awards ........................................................................ 66 Table 15: Iraq’s crude oil reserves growth, 1989-2010 ................................................................................. 67 Table 16: Distribution of Iraq’s oil reserves, 2010 ......................................................................................... 68 Table 17: Iraq’s major producing oil fields prior to the concession agreements ........................................... 70 Table 18: Total gas reserves......................................................................................................................... 77 Table 19: Iraq’s proven gas reserves ............................................................................................................ 77 Table 20: Al-Ahdab field contractual commitments ...................................................................................... 82 Table 21: Licensing round one ...................................................................................................................... 83 Table 22: Missan field projects...................................................................................................................... 85 Table 23: BP/CNPC Rumaila field contractual commitments ....................................................................... 87 Table 24: Licensing round two ...................................................................................................................... 90 Table 25: Summary of licensing rounds one and two ................................................................................... 91 Table 26: Planned wells ................................................................................................................................ 92 Table 27: Badra field projects ....................................................................................................................... 93 Table 28: Gharraf field projects ..................................................................................................................... 94 Table 29: Petrochina second-phase development EPC tenders .................................................................. 95 Table 30: Lukoil’s major EPC projects in Iraq ............................................................................................. 100 Table 31: Gas fields signed under the third licensing round ....................................................................... 101 Table 32: Gas fields signed under the third licensing round ....................................................................... 102 Table 33: Akkaz contractual commitments and timeline ............................................................................. 103 Table 34: Mansouriyah contractual commitments and timeline .................................................................. 107 Table 35: Siba contractual commitments and timeline ............................................................................... 107 Table 36: Exploration block sizes and prospects ........................................................................................ 109 Table 37: Oil and gas prospects ................................................................................................................. 110 Table 38: Iraq’s fourth licensing round summary ........................................................................................ 112 Table 39: State-funded field developments, 2011-14 ................................................................................. 114 Table 40: Iraq’s budgeted oil production for 2012 ...................................................................................... 117 Table 41: Government oil price assumptions, 2010-14 .............................................................................. 117 Table 42: Southern oil field reserves and production ................................................................................. 124 Table 43: KRG oil field production .............................................................................................................. 130 Table 44: Selected Kurdistan region discoveries ........................................................................................ 137 Table 45: Iraq’s current pipeline network .................................................................................................... 145 Table 46: Selected existing major pipelines................................................................................................ 147 Table 47: Summary of Iraq’s current southern pipeline network ................................................................ 148 Table 48: Existing oil export pipelines ......................................................................................................... 151


www.meedinsight.com

6

Table 49: Iraq pipeline projects, 2011-14.................................................................................................... 156 Table 50: Planned pipelines ........................................................................................................................ 157 Table 51: International oil company pipelines ............................................................................................. 157 Table 52: Pipelines currently under construction ........................................................................................ 157 Table 53: Government crude export pipeline budget, 2011-14 ($m) .......................................................... 158 Table 54: Iraq southern oil export terminal capacity expansion projects .................................................... 160 Table 55: Iraq-Jordan export pipeline infrastructure project ....................................................................... 165 Table 56: Parties to the BOOT project ....................................................................................................... 166 Table 57: Iraq crude oil storage capacity .................................................................................................... 168 Table 58: Iraq tank farm projects ................................................................................................................ 169 Table 59: Selected pipeline and pumping station projects ......................................................................... 171 Table 60: Government pumping station budgeted rehabilitation projects, 2011-14 ................................... 171 Table 61: Iraq’s crude oil and product pipelines ......................................................................................... 173 Table 62: Iraq’s gas pipeline network ......................................................................................................... 175 Table 63: Selected existing gas pipelines ................................................................................................... 176 Table 64: Iraq’s main gas processing plants ............................................................................................... 177 Table 65: North Gas Company degassing stations .................................................................................... 178 Table 66: South Gas Company degassing and compressor stations ......................................................... 179 Table 67: Planned processing plants .......................................................................................................... 184 Table 68: Gas pipeline projects, 2011-14 ................................................................................................... 188 Table 69: Government gas feedstock pipeline budget, 2005-14 ($m) ........................................................ 188 Table 70: Planned gas pipelines and processing plants ............................................................................. 190 Table 71: Possible KRG pipelines .............................................................................................................. 204 Table 72: Oil product imports, 2010 ............................................................................................................ 209 Table 73: Output of petroleum products, 2006-10 ('000 b/d) ...................................................................... 210 Table 74: Consumption of petroleum products, 2006-10 ('000 b/d) ........................................................... 211 Table 75: Opec refining capacity complexity .............................................................................................. 212 Table 76: Current installed refineries in Iraq ............................................................................................... 215 Table 77: North Refineries Company facilities ............................................................................................ 215 Table 78: North refinery process units ........................................................................................................ 216 Table 79: Salahuddin-1 refinery process units............................................................................................ 217 Table 80: Salahuddin-2 refinery process units............................................................................................ 217 Table 81: North Refineries Company’s smaller refineries .......................................................................... 217 Table 82: Midland Refineries Company facilities ........................................................................................ 218 Table 83: Daura refinery production units ................................................................................................... 220 Table 84: South Refineries Company facilities ........................................................................................... 220 Table 85: Government allocated budget for downstream projects, 2005-14 ($m) ..................................... 224 Table 86: Announced grassroot refinery projects ....................................................................................... 225 Table 87: Nasiriyah refinery product slate (using Configuration-3) ............................................................ 226 Table 88: Prequalified firms for Nasiriyah Integrated Project ..................................................................... 227 Table 89: Nasiriyah refinery technology providers ...................................................................................... 228 Table 90: Karbala refinery units under Technip design .............................................................................. 230 Table 91: Karbala refinery product slate ..................................................................................................... 230 Table 92: Kirkuk refinery units..................................................................................................................... 231 Table 93: Kirkuk refinery product slate ....................................................................................................... 232 Table 94: Missan refinery units ................................................................................................................... 233 Table 95: Missan refinery product slate ...................................................................................................... 234 Table 96: Refinery principles and challenges ............................................................................................. 236 Table 97: Iraq refinery upgrade prgramme, 2012-2019 .............................................................................. 240 Table 98: Government budgeted refinery upgrade programme, 2011-15 .................................................. 240 Table 99: North refinery expansion projects ............................................................................................... 241 Table 100: Daura refinery in 2010 .............................................................................................................. 242


www.meedinsight.com

7

Table 101: Daura refinery projects .............................................................................................................. 243 Table 102: Status of Iraq’s brownfield refinery projects .............................................................................. 244 Table 103: Existing petrochemical facilities ................................................................................................ 247 Table 104: Iraq fertiliser plants .................................................................................................................... 248 Table 105: TTOPCO revenue, 2010-11 ...................................................................................................... 251 Table 106: Kurdistan region refining projects ............................................................................................. 254 Table 107: Iraq petrochemical projects ....................................................................................................... 255


www.meedinsight.com

8

List of figures Figure 1: Nominal GDP, 2002-12 .................................................................................................................. 19 Figure 2: Estimated average Iraqi civilian fatalities a year, 2003-11 ............................................................ 30 Figure 3: Iraq estimated weekly fatalities, 2011 to mid-2013....................................................................... 31 Figure 4: Oil Ministry organisation ................................................................................................................ 41 Figure 5: Iraq government revenues versus oil prices, Jan 2010-May 2013 ................................................ 44 Figure 6: Well requirements and rig count under IEA’s central production scenario .................................... 52 Figure 7: Iraq government capital expenditure forecast (2012-2030) ........................................................... 55 Figure 8: Government capital spending, 2008-2015 ..................................................................................... 55 Figure 9: Government expenditure, 2011-2015 ............................................................................................ 56 Figure 10: Comparative value of energy projects in the Gulf region, 2005-12 ............................................. 57 Figure 11: Iraq contract awards (2005-2013)................................................................................................ 58 Figure 12: Status of Iraq projects (%) ........................................................................................................... 58 Figure 13: Oil sector contract awards due in 2013 and 2014 ....................................................................... 59 Figure 14: Gas sector contract awards due in 2013 and 2014 ..................................................................... 59 Figure 15: Value of contracts for selected EPC firms ................................................................................... 60 Figure 16: Reserves, 1980-2010 (billion barrels) .......................................................................................... 68 Figure 17: Oil production, 1982-2012 (‘000 b/d) ........................................................................................... 69 Figure 18: Iraq’s major producing fields prior to the licensing rounds .......................................................... 71 Figure 19: Oil production in Iraq, Saudi Arabia and Iran, 1982-2012 ........................................................... 72 Figure 20: Number of active rigs, 2006-10.................................................................................................... 72 Figure 21: Producing wells: comparison between Iran, Iraq and Saudi Arabia, 2006-10 ............................. 73 Figure 22: Opec reserves and production by country ................................................................................... 73 Figure 23: Iraq gas reserves map ................................................................................................................. 75 Figure 24: Natural gas reserves, 1980-2010 ................................................................................................ 76 Figure 25: Total gas reserves (%) ................................................................................................................. 77 Figure 26: Iraq’s major gas fields .................................................................................................................. 80 Figure 27: Rumaila oil production profile, 2010-15 (‘000 b/d) ....................................................................... 86 Figure 28: West Qurna-1 oil production profile, 2010-15 (‘000 b/d) ............................................................. 88 Figure 29: Zubair oil production profile, 2010-16 (‘000 b/d) .......................................................................... 89 Figure 30: Majnoon oil production profile, 2010-17 (‘000 b/d) ...................................................................... 96 Figure 31: Other fields of first and second round production, 2010-17 (‘000 b/d) ........................................ 98 Figure 32: West Qurna-2 oil production profile, 2010-17 (‘000 b/d) ............................................................. 98 Figure 33: Iraq’s gas field licensing auction ................................................................................................ 101 Figure 34: Akkas gas production plan 2012-2036 ...................................................................................... 104 Figure 35: Akkas field drilling requirements 2012-2035 .............................................................................. 104 Figure 36: Akkas field facilities and pipeline plans ..................................................................................... 105 Figure 37: Akkas field preliminary development plan ................................................................................ 106 Figure 38: Fourth bid round exploration blocks........................................................................................... 109 Figure 39: Government budget for state-funded oil and gas projects, 2010-14 ......................................... 113 Figure 40: Northern oil field production expansion ..................................................................................... 114 Figure 41: Iraq’s short term maximum production target, 2014 .................................................................. 115 Figure 42: Iraq crude oil production scenarios ............................................................................................ 116 Figure 43: Iraq's four-year production plan, 2011-14 .................................................................................. 119 Figure 44: Iraq’s contracted capacity expansion......................................................................................... 120 Figure 45: Projected oil production, 2010-29 (million b/d) .......................................................................... 120 Figure 46: Ines oil production scenarios (million b/d) ................................................................................. 121 Figure 47: Southern oil field reserves and production ................................................................................ 125


www.meedinsight.com

9

Figure 48: Water injection requirements ..................................................................................................... 126 Figure 49: Proposed pipeline routes for CSSF ........................................................................................... 128 Figure 50: Common seawater supply facility project concept ..................................................................... 129 Figure 51: KRG production sharing contract structure ............................................................................... 131 Figure 52: The KRG’s major producing fields ............................................................................................. 133 Figure 53: Shaikan field proposed development plan ................................................................................. 135 Figure 54: Estimated oil and gas reserves at Kurdish discoveries ............................................................. 135 Figure 55: Chemchamaal field .................................................................................................................... 141 Figure 56: Iraq’s oil flows, 2011 .................................................................................................................. 144 Figure 57: Kirkuk to Baiji pipeline exclusion zone (PEZ) ............................................................................ 145 Figure 58:Iraq’s south oil pipeline network .................................................................................................. 148 Figure 59: Iraq’s current crude oil pipelines and pumping stations............................................................. 152 Figure 60: Iraq’s ports ................................................................................................................................. 153 Figure 61: Iraq’s southern oil export terminal expansion ............................................................................ 161 Figure 62: Southern export storage and pumping stations ......................................................................... 162 Figure 63: Planned export pipelines to Syria .............................................................................................. 163 Figure 64: Proposed Iraq-Jordan crude oil export project .......................................................................... 164 Figure 65: Iraq’s BOOT pipeline structure .................................................................................................. 167 Figure 66: Iraq’s oil storage projects ........................................................................................................... 170 Figure 67: Iraq’s southern storage and export system expansion .............................................................. 172 Figure 68: Iraq gas production and transportation, 2012 ............................................................................ 174 Figure 69: Associated gas gathering, treatment and processing infrastructure in southern Iraq ............... 179 Figure 70: Gas sector capital expenditure .................................................................................................. 180 Figure 71: Iraq’s current dry gas pipelines .................................................................................................. 181 Figure 72: Projected gas volumes from licensed oil and gas fields, 2010-16 ............................................. 182 Figure 73: Associated gas production plan, 2012-17 ................................................................................. 182 Figure 74: Iraq gas production (2011) ......................................................................................................... 183 Figure 75: Iraq’s dry gas and LPGdemand (2012-2030) ............................................................................ 184 Figure 76: Gas supply and processing capacity (billion cf/d) ...................................................................... 185 Figure 77: Gas value chain ......................................................................................................................... 186 Figure 78: Iraq’s gas transmission grid and proposed power plants .......................................................... 187 Figure 79: Proposed gas pipeline network .................................................................................................. 189 Figure 80: Proposed gas infrastructure network ......................................................................................... 190 Figure 81: Proposed LPG transport infrastructure ...................................................................................... 191 Figure 82: South Gas project: fields and facilities ....................................................................................... 193 Figure 83: South Gas project: sour gas system .......................................................................................... 195 Figure 84: South Gas project: overview of units required ........................................................................... 197 Figure 85: South Gas Project: overview of capacity expansion.................................................................. 198 Figure 86: Gas export opportunities ............................................................................................................ 199 Figure 87: Kurdistan Iraq crude export (KICE) pipeline .............................................................................. 202 Figure 88: Planned route for the Nabucco pipeline .................................................................................... 206 Figure 89: Domestic refined product consumption, 2006 to 2011 .............................................................. 207 Figure 90: Refined production consumption by province, October 2011 .................................................... 208 Figure 91: Iraq’s refined product supply and demand balance ................................................................... 209 Figure 92: Iraq’s refined product balance (2011) ........................................................................................ 209 Figure 93: Output of petroleum products ('000 b/d) .................................................................................... 210 Figure 94: Consumption of petroleum products, 2006-11 .......................................................................... 211 Figure 95: Crude oil supplies to refineries, Jan 2009-Mar 2013 ................................................................. 213 Figure 96: Existing pipelines and major refineries ...................................................................................... 214 Figure 97: Iraq refineries and grassroot projects ........................................................................................ 222 Figure 98: Comparison of regional downstream projects ........................................................................... 223 Figure 99: Oil Ministry refinery expansion plan ........................................................................................... 224


www.meedinsight.com

10

Figure 100: Nasiriyah refinery configuration chosen by Oil Ministry ........................................................... 228 Figure 101: Nasiriyah refinery production mix (%) ...................................................................................... 229 Figure 102: Karbala refinery production mix (%) ........................................................................................ 231 Figure 103: Kirkuk refinery production mix (%) ........................................................................................... 232 Figure 104: Kirkuk refinery configuration .................................................................................................... 233 Figure 105: Missan refinery production mix (%) ......................................................................................... 234 Figure 106: INES recommended refinery plan............................................................................................ 237 Figure 107: Forecast downstream and midstream capital expenditure (2012-2030) ................................. 239 Figure 108: Gasoil and gasoline production under the Oil Ministry plan .................................................... 241 Figure 109: Daura refinery configuration .................................................................................................... 244 Figure 110: Iraq basic petrochmicals capacity build up plan (2012 -2030) ................................................ 248 Figure 111: Urea capacity build up (2012-2030)......................................................................................... 250

Copyright 2013 MEED Media FZ LLC

All rights reserved. No part of this publication may be reproduced, stored in any retrieval system, or transmitted in any form, by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the copyright owner. While every care has been taken in completing this report, no responsibility can be accepted for any errors or omissions that may occur.


www.meedinsight.com

11

1. Preface Since 2003, Iraq has been talked about as the next big opportunity for the oil and gas industry. With some of the largest and largely untapped oil and gas reserves on the planet, it has long been held up as the one market that could act as a game-changer for the sector. But it has only really been over the past three years that this potential has begun to be realised. As peace and stability return to the country and the international oil companies ramp up their spending on their field concessions, there has been a marked increase in project activity since 2010. In this latest MEED Insight report, we assess the various opportunities in the Iraqi oil and gas sector across the value chain from the wellhead to the export terminal. These opportunities and their challenges are analysed along with the history, policy, targets, projects and key clients. This report, an expansion and update to the best-selling 2012 version, has been written by Adal Mirza, energy reporter and Iraq specialist at MEED. It is the product of several months work and thanks go to everyone who made it possible.

Ed James, Head of MEED Insight, Dubai, August 2013


www.meedinsight.com

12

2. Executive Summary With its enormous reserves, and equally big ambitions, the Iraqi oil and gas sector is now opening up for business. In 2009, Iraq set itself on the road to an unprecedented expansion of its oil and gas production, with plans to lift output to more than 12 million barrels a day (b/d) by 2017 with the help of more than a dozen international oil companies (IOCs). The upstream expansion, matching in under a decade what Saudi Arabia achieved in 70 years, will be accompanied by an overhaul of the country’s decrepit oil and gas infrastructure. After years of conflict, with an estimated $300bn-worth of energy projects planned over the next decade, the country will be the focus of attention for investors in the region. Few other countries across the globe offer such an opportunity. But it also comes with considerable risks. Iraq’s political instability and tense security situation are just the most apparent of the obstacles ahead for the projects market. In addition to this, there are a number of important questions over the country’s ability to deliver on its potential. One critical factor for the upstream sector is Iraq’s own commitment to the ambitious 12 million b/d target. More than three years into the plan, Iraq is now in the midst of renegotiating its production targets with the IOCs and is expected to make a decision on its long term production plans by the end of 2014. It is expected to choose between the more realistic figures of 9 million b/d by 2020 or 6 million b/d by 2025. Whichever target the Oil Ministry pursues, the challenges remain considerable. Reaching 9 million b/d will require approximately $600bn in capital expenditure up to 2030, with the Iraq government bearing the majority of the costs. This is in addition to the logistical challenges of sourcing and deploying hundreds of drilling rigs and thousands of trained staff to man the new facilities. Nonetheless, Iraq is making progress. Production currently stands at more than 3 million b/d and is heading upwards. Iraq earned about $94bn from oil exports in 2012 and this is the critical source of government revenue. Further export capacity growth, through pipelines and terminals will be fundamental to allow upstream production growth over the next few years. The key findings of the report are: 

Iraq was the third largest overall project market in the region, after Saudi Arabia and the UAE. Iraq is currently the fifth largest market for energy projects in the Gulf region after Saudi Arabia, the UAE, Qatar and Kuwait.



The main driver of the projects market has been oil prices, which have been consistently above the Iraq government’s budget value over the last few years, enabling greater spending on reconstruction and expansion.


www.meedinsight.com

13

This has been aided by the opening up of the oil sector, with the participation of IOCs again since 2009. 

Iraq set its highest ever budget in 2013 at $118bn, but it is unclear how much will be disbursed given the country’s poor track record in pushing ahead with major projects.



The largest portion of projects in the energy sector to be awarded will go towards oil production worth an estimated $84bn in 2012 and 2013 planned. This is followed by some $18bn in the downstream oil sector and $17bn in gas production.



So far, spending has been limited and focused on meeting the short-term oil production capacity increases at the licensed fields. Longer-term spending on permanent infrastructure such as processing facilities has only just begun, and will soon be followed by full field developments in the coming years.



Reaching the medium level of production set out by the Iraq National Energy Strategy document will require approximately $600bn in capital expenditure up to 2030, the majority of which will be borne by the Iraqi government.



But these investments could generate more than $6 trillion worth of revenues for the government up to 2030, mostly from the export of crude oil.



Iraq’s aged oil infrastructure will struggle to keep up with increases in oil production, with the potential for significant bottlenecks. Transport, storage and export facilities all need to be upgraded to cope with the increased production or Iraq will simply be adding idle capacity. Many of these problems are not particularly challenging or technically complex, but collectively place a huge burden on the Oil Ministry’s limited project handling capacity. Concerns are being addressed, but not at the same time or pace.



While Iraq is making progress, there are a number of major projects that will determine its oil production in 2015 which have yet to be sanctioned. The best example of this is the Common Seawater Supply Facility (CSSF) project, which remains in the early stages of design.



2012 was considered the break out year for Iraq oil and gas projects, which a great number and value of projects awarded and now under execution, such as for the West Qurna-2, Zubair and Badra oil fields, facilities which are expected to come on stream at the year.



The scale of projects from 2010 to 2012 is consistent with output levels reaching around 6 million b/d by 2020. Achieving sustained growth in investment will be a constant battle, which will be affected by numerous factors from politics and security to logistics. Legal and political obstacles remain critical challenges to the oil sector.




www.meedinsight.com

14



The downstream sector represents a $45bn-plus opportunity for investment in several new refineries and the rehabilitation of Iraq’s existing plants. Despite its massive oil reserves, the country is still reliant on imports for the majority of its refined products, a significant drain on the state purse. Iraq has ambitions to become a major refined product exporter, increasing throughput to 900,000 b/d by 2017, but so far, the government has failed to provide the right incentives for foreign investors.



The absence of an overarching oil law has been a major problem for the sector’s development. It will be critical to the long-term success of the industry, along with the re-establishment of the Iraq National Oil Company.


www.meedinsight.com

15

3.3 Economy Figure 1: Nominal GDP, 2002-12 140 120 100

$bn

80 60 40 20 0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011e 2012e

e=estimate; na=not available Source: IMF

Table 2: Iraq economic indicators, 2002-12 Indicator Nominal GDP ($bn) of which nonoil GDP Per capita GDP ($) Consumer price inflation (%)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011e

2012e

20.5

13.6

25.8

31.4

45.1

57.0

86.6

65.2

82.2

108.4

128.1

32.0

32.0

30.4

30.6

33.1

na

na

na

na

na

na

802

518

951

1,124

1,568

1,926

2,845

2,087

2,564

3,301

3,808

-7.8

-41.4

46.5

3.7

5.9

4.1

9.5

4.2

0.8

9.6

12.6

e=estimate; na=not available Source: IMF

Historically, Iraq's economy has been characterised by a heavy dependence on oil exports and an emphasis on development through central planning. Crude oil exports represent about 90 per cent of foreign exchange earnings and, helped by a recent revival in oil exports and high crude prices, the economy is now growing rapidly. According to the IMF, Iraq’s nominal gross domestic product (GDP) is set to double by 2015/16. Increasing oil production has contributed to a rise in GDP per capita from $1,300 in 2004 to $6,300 in 2012. The economy is dominated by the oil sector which


www.meedinsight.com

19

Figure 4: Oil Ministry organisation

Source: Oil Ministry

4.2.3 Oil exports and the State Oil Marketing Organisation Iraq’s only official exporter of crude oil, refined products and natural gas is the State Oil Marketing Organisation (Somo), which was created in 1997 as an Oil Ministry subsidiary. It is responsible for all crude oil sales via export terminals in the south, trucks to Jordan and pipeline sales through Turkey. After the needs of the domestic refining and power market have been met, Somo sells Iraqi crude according to global price formulas to achieve a maximum return. In terms of its customers, priority is given to companies that have large refining capacities, on the basis that they are better placed to withstand sudden price fluctuations and to maintain demand for Iraqi crude oil over the longer term. Contracts are based on semi-annual, annual or longer-term contracts. Since it was nationalised in the early 1970s, Iraq has had a relatively stable list of some 26 customers. Attempts to expand this client list have never been seriously pursued, at least in part because of outdated marketing practices by Somo and corruption.


www.meedinsight.com

41

Figure 6: Well requirements and rig count under IEA’s central production scenario

Source: IEA

Two parallel markets have been developing with the “Big-Four” service companies offering large integrated service packages in the south and more fragmentation in the exploration-oriented Kurdistan region in the north. Although the Kurdish region represents only 5 per cent of Iraq’s total production, its reserves are significant, and the KRG’s production sharing contracts have attracted 50 operators to the region. However, given the relative youth of the region’s oil sector, the majority of wells are exploration and appraisal wells. Some 30 exploration wells have been drilled and completed in the Kurdish region in the last five years, resulting in more than 20 discoveries so far. The region is getting to the stage where significant finds have been made, and are now moving from exploration to production. As such, the outlook for rigs will be similarly positive.

4.6.2 Customs and equipment However, the biggest challenge will be bringing the rigs into the country. There is only one real sea route. There is also the long wait for approvals at customs.


www.meedinsight.com

52

Many major projects are due to come to the market in the near future. Shell is expected to issue a major set of tenders in 2013 or early 2014 for a second phase of central processing facilities at the Majnoon oil field. This will include a 200,000b/d oil separation plant, a 250,000-cf/d gas treatment plant, as well as a 42-inch, 160km export pipeline, along with storage tank farms, enabling works, roads and bridges. BP is also expected to issue to tenders for new production facilities at the giant Rumaila oil field, Iraq’s largest producing field. There will also be major opportunities in the downstream sectors, where Iraq is making progress on two of its planned grassroot refineries.

4.9 Construction opportunities The key feature of Iraq is the need to move ahead with numerous large projects over a short period of time when both experience and infrastructure is scarce. Bottlenecks in infrastructure, labour and capital, along with Iraq’s political instability, are all major issues. According to regional projects tracker, MEED Projects, Iraq has a total of $8.45bn worth of engineering, procurement and construction (EPC) projects under execution. The region’s largest EPC market, Saudi Arabia, by comparison has awarded an estimated $53bn worth of projects. However, a comparison of the two countries planned projects is revealing. Iraq has a total of $78.5bn worth of projects currently in the design, prequalification or bidding stage, compared to $41.2bn in Kuwait and only $12.8bn in Saudi Arabia. Figure 10: Comparative value of energy projects in the Gulf region, 2005-12 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 -

Iraq

Saudi Arabia

Execution

FEED

UAE

Kuwait

Main Contract Bid

Oman

Qatar

Main Contract PQ

Source: MEED Projects


www.meedinsight.com

57

Figure 18: Iraq’s major producing fields prior to the licensing rounds

*fields now operated in joint venture with international oil companies Source: MEED Insight. Note the map can be zoomed to make it more readable

5.1.3 Regional comparison

The scale of the task facing the Oil Ministry as it tries to revive the country’s oil and gas industry becomes clear when Iraq is compared with its two key regional rivals of Iran and Saudi Arabia. In the mid-1960s, all three countries were producing close to 2 million b/d of oil. Since then, Saudi Arabia has increased its capacity fivefold and Iran has doubled its output, while Iraq has lost ground to both. Iraq is also languishing behind both Iran and Saudi Arabia on the basis of three other key measures of the health of its oil sector: the number of active rigs, the number of completed wells and the number of producing wells.


www.meedinsight.com

71

7.5 Iraq’s existing refineries Iraqi refining capacity is divided into three operating companies. The North Refinery Company is headquartered at the Baiji Oil Refinery, the Midland Refinery Company is headquartered at the Daura Refinery, while the South Refinery Company is headquartered at the Basra refinery. All of these companies fall under the control of the Deputy oil minister Ahmed al-Shamma. Figure 96: Existing pipelines and major refineries

Source: MEED Insight


www.meedinsight.com

214

Figure 104: Kirkuk refinery configuration

Source: North Oil Company

7.6.5 Missan refinery

Shaw has also completed the studies and designs for another 150,000 b/d refinery in the Missan province on Iraq’s southeastern border with Iran. The refinery is also estimated to cost $5bn. Table 94: Missan refinery units Process units Atmospheric distillation unit Vacuum distillation unit Naphtha HDS unit Reforming unit (CCR) C5/C6 isomerisation unit Saturated LPG treatment unit Kerosene HDS unit Gas-oil hydrotreating unit Vacuum gas-oil hydrotreating unit Solvent de-asphalting unit De-asphalted oil HDT unit Fluid catalytic cracking unit Unsaturated LPG treatment unit


Capacity (b/d)

150,000 82,300 31,800 22,500 11,600 2,200 16,700 30,300 56,300 46,700 27,600 42,300 9,800

Process technology licensor Shaw Energy & Chemicals Axens Axens Axens UOP Axens Haldor Topsoe Haldor Topsoe KBR Axens Axens KBR Axens

www.meedinsight.com

233

By 2030, the study forecasts total capacity reaching 16.8 million t/y. By comparison, Saudi Arabia’s capacity in 2011 was 22 million t/y, and Iran stood at 9 million t/y. Domestic demand is not expected to reach more than 1 million b/d, leaving the majority of production for export. Methane-based urea fertilizer production is another possibility. In 2009, Iraq spent more than $100m on importing 293,000 tonnes of fertilizers. INES suggests increasing production to meet local demand of around 2 million t/y through the rehabilitation of Iraq’s existing plants and addition of 700,000 t/y by 2017 with small short term facilities located near domestic demand centers. In the longer term this would then be ramped up to 8.3 million t/y by 2028 as greater volumes of methane become available, with around 6 million t/y for export.

Figure 111: Urea capacity build up (2012-2030) 9 8 7 6 5 4 3 2 1 0

Existing urea capacity

Rehabilitated capacity

New capacity

Source: Ines Both urea and petrochemical production will require significant volues of gas feedstock, rising to as much as 2 billion cf/d by 2030.

7.10 Downstream oil in the Kurdistan region The Kurdistan region is a net importer of refined products, despite having excess crude oil production. To counter that, the Kurdistan Regional Government (KRG) is planning to raise its refining capacity. The KRG says its refining capacity is around 114,000 b/d from two refineries; Bazian and Erbil. Add to this numerous topping plants and refining units at the producing fields and Genel Energy estimates that the


www.meedinsight.com

250

Iraq Oil and Gas Projects Market Report 2013 Order Form A comprehensive overview of Iraq’s upstream oil and gas, downstream refining and petrochemical sectors, with a particular focus on the projects market Place your order by completing this form. Your report will be sent in a convenient PDF format straight to your desktop. Your details Name ________________________________________ Company name ______________________________ Job title _____________________________________ PO box _____________________________________ Address _____________________________________ ______________________________________________ Postcode ___________________________________ Country _____________________________________ Email address for report delivery ________________________________________________ Telephone _______________________________ Fax _________________________________________

Payment details Price: $4,995 (please note: subscribers to MEED Projects benefit from a discount – please contact MEED Insight to find out more) Price: $5,500 (Executive package inclusive of a subscription to MEED Magazine & MEED.com Note: Original price is $6,490 saving you $990) Please choose ONE payment method below: Credit Card Please debit $____________ from my credit card Mastercard

Visa

Name of cardholder ___________________________________________ Card number ____________________________________ Expiry date

Signature:

______/___________ Signature __________________________________________

Company stamp:

How did you hear about this report – tick one box  email  advert  MEED.com  article in MEED  Other _______________ Data protection  Please tick if you do not wish to be contacted by MEED or third parties carefully screened by MEED

Return your order now

Please quote priority code: IOG03 Tel: +971 (0)4 390 0436 Fax: +971 (0)4 368 8023 Email: [email protected]

Bank Transfer Bank account name: MEED Media FZ LLC IBAN: AE760200000022156251101 Bank account number: 022-156251-101 SWIFT: BBMEAEAD Bank: HSBC Bank Middle East Limited Branch: Emaar Square Branch Address: Building 5, PO Box 502601, Dubai Please fax a copy of transfer details to: +971 (0)4 368 8023 Please tick below if you are interested in any other market intelligence report from MEED Insight Saudi Arabia 2013

UAE Projects 2013

Qatar Projects 2013

Visit www.meedinsight.com for further information on MEED Insight reports

Mi Iraq Oil Gas 2013

Recommend Documents