Iraq exported its first shipment of gas condensate on March 20, from the port at Khor al-Zubair to Fujairah in the United Arab Emirates (UAE). Hamed Zubai, undersecretary at the Iraqi Ministry of Oil, reported that the Iraqi Oil Marketing Co. had arranged for the 10,000-cubic-meter consignment, and the Basrah Gas Co. had successfully exported the shipment.
“Due to surplus exceeding local consumption, gas condensate exports will continue. In addition, the ministry seeks to export other types of associated gas-processing products,” Zubai said during a March 20 news conference. He did not mention potential export destinations. “Exporting condensate opens the door for the state to secure added financial returns, driven by the fact that the global price per ton is around $350.” What does this development mean, and does it represent a new beginning for the gas industry in Iraq?
Whereas natural gas refers to gaseous hydrocarbons that accumulate in porous sedimentary rocks and consist mainly of methane, gas condensate refers to a natural gas liquid recovered from gas wells that consists mainly of pentane. Iraq is one of the world’s richest countries when it comes to natural gas.
Citing the Oil & Gas Journal, the US Energy Information Agency (EIA) reported that as of January 2015, Iraq had proven gas reserves of about 112 trillion cubic feet, ranking it 12th globally in total volume of reserves. The EIA estimates that about three-quarters of Iraq's natural gas resources are of the associated type, meaning that they are located deep underground and mixed with oil. In contrast, neighboring Iran and Qatar have nonassociated gas, which is not mixed with petroleum.
Associated gas puts constraints on actual production, first, because increasing production is associated with increased oil production, and second, because separating the gas from the crude oil and processing it for cooking or electricity-generating gas requires special techniques and facilities. Due to the lack of such facilities and infrastructure to overcome these constraints, and as a result of reduced investment in the energy sector because of historical challenges — among them UN sanctions, war and rampant corruption — Iraq resorted to burning off gas associated with oil production.
In an extended report on Iraq's natural resources sector, the International Energy Agency (IEA) estimated that in 2011 Iraq burned 12 billion out of the total 20 billion cubic meters of gas produced. According to the World Bank, Iraq ranked fourth among countries that burn off the most gas.
In addition to the estimated loss of $5 million a day as a result of burning associated gas, not to mention the environmental damage, the practice hinders gas-powered energy production in a country that suffers from power supply shortages. All this ultimately exacerbates social and political tensions and increases reliance on foreign sources of energy. Royal Dutch Shell, which has investments in southern Iraqi oil and gas projects, estimated in 2013 that converting wasted gas to electricity would generate 4.5 gigawatts of electric power — or enough to cover the needs of about 3 million homes.
The tragic reality of Iraq's gas sector has put pressure on government officials to change their approach to the exploitation of their country’s natural resources. In this regard, Oil Minister Adel Abdel Mahdi announced in a March 15 interview posted on the ministry’s website, “In the first licensing round, companies were not compelled to extract associated gas. But starting with the second round of licensing, provisions have been added to compel contractors to extract said gas.”
He also said, “In 2015, we achieved an exploitation ratio of 50% of the 3 billion cubic feet of associated natural gas extracted daily. Free gas production rose from a maximum of 600 billion cubic feet per day in 2013-2014 to a maximum of 1.1 trillion cubic feet per day in recent months. In addition, during the same period, liquid gas production increased from a maximum 4,300 tons per day to 5,000 tons per day in recent months.”
In that context, the Basrah Gas project, launched in 2011 by the Iraqi government in partnership with Royal Dutch Shell and Japan’s Mitsubishi, began operations in 2013. It is one of the largest associated gas extraction and processing projects in the world, representing the cornerstone of Iraq's effort to exploit its gas resources more efficiently.
The World Bank, which oversees a global initiative to reduce the volume of gas burned, presented an appreciation award to the Basrah Gas Co. in October for its efforts in this regard. The bank also awarded the Iraqi Oil Ministry for similar efforts, recognizing Iraq's advances in reforming its gas sector.
Iraq's first shipment of gas condensate indeed represents progress toward better exploiting the country's gas resources. Expanding that effort, particularly if export-ready volumes are increased in the future, will open new revenue streams that the government sorely needs in light of falling oil prices, rising deficits and reliance on foreign loans to cover deficits.
Increasing Iraq's gas production requires a similar increase in oil production, and the feasibility of the latter cannot be accurately determined. Moreover, the unreliable security situation in northern and western Iraq has seriously hindered efforts to complete the development of free gas fields there, such as at the Akaz gas field in Anbar and the Mansuriya field in Diyala.
Still, the responsibility for drafting an effective, sustainable and more transparent energy policy rests squarely on the shoulders of Iraqi officials. Gas exportation, despite the associated potential gains, may not always be the best solution, particularly if the sector can be exploited locally to diversify the economy and address the growing need for electric power.