Baghdad’s downstream plans take fresh twist

27 March 2017
22 March 2017, Week 11, Issue 298

Iraq has now added an integrated export-orientated refining and petrochemicals complex to a list of projects aimed at encouraging private investors to upgrade the downstream sector, writes Clare Dunkley

Iraq’s Ministry of Oil issued a statement in early March outlining the latest iteration of oft-changing and slow-moving plans for downstream expansion.

Most eye-catching was the invitation to invest in a previously unheard-of greenfield refining and petrochemicals complex, while the oil ministry extended deadlines and amended the scope of smaller refineries launched to prospective bidders late last year.

Baghdad’s plans to enlist private partners to develop a trio of stand-alone refineries across federally controlled areas of the country date back a decade but have foundered on financial, political and security challenges. An effort to integrate the largest downstream project with upstream development has likewise failed thus far to proceed, but was not mentioned in the latest statement.

Meanwhile, several heavyweight international oil companies (IOCs) have previously expressed provisional interest in developing petrochemicals plants in the south of the country. The greater availability of gas, evident in first exports last year, is likely to now render such a proposition both more feasible and politically more palatable to the authorities.

Refining focus

Investors were invited in several notices issued by the ministry in March to express their interest in developing a 300,000 bpd refinery, which would be built allowing for expansion to include an integrated petrochemicals complex, in the Fao peninsula in the south-east of Basra Province.

The project would be implemented on a build-own-operate (BOO) or build-operate-transfer (BOT) model based on the provisions of a law issued in 2007, detailing the terms to be offered to private investors relating to crude feedstock prices and tax treatment.

Products from the new refinery would be required to conform to Euro-5 fuel standards and the facility was described in one of the notices as an export refinery. Presumably this was geared to eliciting greater international investor interest than the authorities’ already floated schemes, for refineries designed to serve solely the domestic market.

In the March 9 summary of the status of the oil ministry’s various refinery projects, no mention was made of the long-planned development of a 300,000 bpd facility at Nasiriyah in neighbouring Dhi Qar governorate. When first mooted this was to have been integrated with upstream development of the oilfield of the same name.

Having been suspended in 2014 in the wake of the invasion by Daesh, reported revival last year of bilateral negotiations on an amended version of the original scheme with several firms appear to have come to nothing. Notable inclusions in discussions were existing upstream operators LUKoil of Russia and PetroChina.

Meanwhile, super-majors Total and – more concretely – Royal Dutch Shell reached provisional agreements to develop major petrochemicals plants in the south of the country in 2015. The French firm said that plans for a large-scale complex were at the “preliminary study” phase, while in January 2015, Shell signed a heads of agreement (HoA) for a project – dubbed Nebras – covering a proposed cracker and derivatives complex in Basra Province. The pair had signed an MoU on Nebras in 2012.

Gas push

In the interim, Shell firm had entered the Basra Gas Co. (BGC) partnership with state-owned South Gas and Japan’s Mitsubishi to implement the US$17.2 billion South Gas Utilisation Project (SGUP). This is designed to capture, process and put to productive use the substantial volumes of associated gas generated by the giant Rumaila, West Qurna-1 and Zubair southern oilfields.

Tension over the foreign partners’ desire to export part of the volumes as swiftly as possible was resolved by an agreement that overseas sales would be permitted only once local needs had been satisfied and with special government dispensation.

Attainment of the former milestone was celebrated in March last year, when the first cargo of natural gas in the form of condensate was exported from the southern port of Umm Qasr.

In June, LUKoil president Vagit Alekperov said that the company – the operator of the giant West Qurna-2 oilfield, the gas from which is not under BGC’s purview – was in talks with Shell over participation in the petrochemicals project.

Iraq’s gas reserves are estimated to be at least 112 tcf (3.2 tcm) – among the world’s largest – making it a natural candidate for development of a world-scale petrochemicals industry akin to those reaping rich economic rewards for regional counterparts Iran and Saudi Arabia.

Status check

The ministry’s notice on March 9 also extended the deadline until April 30 for investors to express interest in BOO or BOT contracts to develop refineries with capacities of 100,000 bpd and 70,000 bpd respectively at Kut and Samawa in eastern Wasit Province.

The projects were first offered to investors in September as part of a flurry of up- and downstream activity following the accession of the current oil minister, Jabbar al-Luiabi, the previous month.

A project with a longer history to develop a greenfield refinery in the oil-rich province of Kirkuk was revised in proposed scope in the latest statement. The envisaged capacity has been more than halved to 70,000 bpd from the 150,000 bpd mooted both last year and in the earlier incarnation of the scheme put on the table in 2008, when the government failed to secure private investment.

Of the four greenfield refining projects launched by Baghdad at the end of last decade, only that covering a 150,000 bpd plant in Karbala has proceeded definitively to the construction phase. In fact, this only happened after the government reverted to implementing the project via an engineering, procurement and construction (EPC) contract – let for US$6 billion to South Korea’s Hyundai Engineering & Construction in early 2014.

The status of a refinery of the same size in the southeastern province of Missan remains unclear – with an obscure Swiss-based firm Satarem signing up to invest in 2013 and claiming to have broken ground last year.

No explanation was offered for the downsizing of the Kirkuk venture. However, the statement was preceded by an announcement the previous day that brownfield expansion of the existing Kirkuk refinery was progressing, with a new commissioned 10,000 bpd unit taking capacity to 40,000 bpd and another unit of the same size due to be added by the end of the year.

The expansion was announced in a public statement emphasising its aim to serve the needs of the surrounding area better. This followed an outbreak of local unrest motivated partly by Baghdad’s alleged failure to spread the benefits of the country’s oil wealth to the Kurdistan Region.

The change of plan also coincided with a report that crude from federally controlled fields around Kirkuk was now being sent under a new agreement to private refineries in territory administered by the Kurdistan Regional Government (KRG). This provides a further sign of some pragmatic rapprochement on oil matters between the two authorities, born of shared fiscal hardship and joint battles to expel militants from the border regions between their respective domains.

The fourth project launched last September for a 100,000-150,000 refinery in Basra Province was not mentioned in the latest statement and is assumed to have been superseded by the larger, integrated scheme.

Edited by

Ian Simm

Editor

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