After years of stalling any investment in Iraq's gas sector due to corruption misgivings, the Iraqi cabinet has recently made several key decisions to boost the country’s production of natural gas and eliminate flared gas, which costs Iraq billions of dollars annually and is environmentally damaging.
“Iraq must enter the gas market and be a producing country capable of supplying all its demands. It will be a political, economic, and security gain,” Iraqi Prime Minister Mohammed Shia al-Sudani said in a press conference on 7 February.
“Imported gas [from Iran] costs up to 10 trillion dinars (nearly seven billion dollars) annually in the budget. One of the companies operating in the project can provide a quarter of the amount of imported gas within 15 months, and our goal is to secure the entire amount of imported gas within three years.”
According to the World Bank, Iraq is one of the top 10 gas-flaring countries in the world and has committed to the World Bank’s Zero Routine Flaring by 2030 (ZRF) Initiative, which "commits governments and companies to (a) not routinely flare gas in any new oil field development, and (b) to end routine flaring in existing oil fields as soon as possible and no later than 2030".
In early February, Sudani’s cabinet, on the recommendation of the Economic Energy Council, approved the signing of contracts with several Emirati and Chinese companies to invest in six gas fields in the Diyala and Basra provinces.
On Tuesday, Sudani supervised a ceremony for signing the final contracts for the fifth round of energy licenses with the UAE's Crescent Petroleum, China's Geo Jade Petroleum, and Hong Kong's United Energy Group (UEG).
Iraq's oil ministry currently plans to open bids for the sixth round of energy licenses, and Sudani has vowed to provide security, legal, and administrative facilitation for the successful companies.
Can Iraq export natural gas?
“Reformation in the oil sector is being done through the best investment in oil resources. We had planned for Iraq to enter the gas market and the plan will be carried out,” Sudani reaffirmed.
Over the last decade, flaring has steadily increased in Iraq, with volumes rising from 13 bcm [cubic meters] in 2012 to almost 18 bcm in 2021, accounting for around 12 percent of total global flaring. At the same time, "Iraq is importing natural gas; about 10 bcm in 2020. Flare gas recovery and associated gas utilization are significant opportunities for Iraq,” the World Bank said in its 2022 Global Gas Flaring Tracker Report.
“Iraq burns more than 18 billion cubic meters of associated gas annually. The associated gas burned every year in Iraq is worth 6.5 billion USD,” the advisor to the Prime Minister for Energy Affairs, Imad Al-Alaq told the Iraqi News Agency (INA).
Al-Alaq also indicated that during a recent visit by a senior Iraqi delegation to the United States, Washington expressed its seriousness in assisting Iraq to develop effective medium and long-term strategic solutions to invest these resources.
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On 23 January 2023, the Iraqi Oil Ministry announced that its public companies had discovered 6 billion barrels of proven oil reserves in the western Iraqi desert of Anbar, as well as other areas of Nineveh, Najaf, Muthana, and Dhikar. The ministry also announced that proven natural gas reserves increased by 23 billion cubic feet.
“If Iraq is a successful state with a unified policy, does not mix oil and gas with revolutionary and sectarian discourse, and directs its establishment according to the constitution and laws, yes, it can be a pivotal discussion in global energy security,” Bahrooz Jaafar, founder and director of the Mediterranean Institute for Regional Studies told The New Arab.
“However, unfortunately, Iraq has failed in the main ways: Iraq is an example of a state where corruption is rampant. In the environmental catastrophe, sectarian and political parties distrust each other. However, Iranian interference is unlikely to allow Iraq to export gas…Iran never wants Kurdistan's gas to enter the regional cooperation system or regional competition.”
The absence of a hydrocarbon law
Sudani has the backing of the 'Coalition for the Administration of the State', which includes the Coordination Framework, an alliance of powerful pro-Iran Shia factions that hold 138 out of 329 seats in parliament.
The Iraqi Federal Supreme Court, the highest court in the country, in mid-February declared the Kurdistan region's oil and gas law as void.
The law had been passed by the region's parliament in 2007 and regulates the oil and gas sector in Iraqi Kurdistan.
The court also described all contracts signed between the KRG and international oil companies for extraction and importing oil and gas from the region as 'illegal'.
Ali Saedun al-Lami, a member of the oil and energy committee in the Iraqi parliament, recently told INA that the committee had asked Sudani's cabinet to amend Iraq’s hydrocarbon bill, which has stalled since 2007 due to political disagreements, and ensure that it is sent back to parliament for discussion.
The bill stipulates that the extraction of oil and gas would fall under the jurisdiction of Iraq's federal government. The Kurdistan Regional Government (KRG) has signed contracts with multiple international oil companies to explore, dig, produce, and export oil and gas without the permission of the federal government in Baghdad.
Iraqi Kurdistan started exporting its oil independently to Turkey without the consent of the federal government in Baghdad in 2014.
The Iraqi government has since sued Ankara at the International Court of Arbitration over permitting the KRG to export oil through Turkey’s territories without Baghdad’s agreement.
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"After repeated delays due to the pandemic, the death of arbitrators, and requests by the Turkish and KRG governments that Baghdad halt the proceedings, the arbitrators passed a ruling in early 2023," Bilal Wahab, the Wagner Fellow at The Washington Institute, wrote in a recent analysis.
"Although the details of the ruling are not yet finalized or made public, it is expected to favor Iraq, which had demanded US$36 billion in damages. Although Turkey is a defendant in the suit and not the KRG, the latter is slated to lose the most.”
A senior KRG delegation recently visited Baghdad and discussed the bill with senior Iraqi officials.
When passing the law there are several key considerations, such as how the oil and gas sectors are administered, the fate of the KRG's contracts with international companies, and which government will oversee future projects.
These differences have yet to be settled between Baghdad and the KRG.
A senior Iraqi delegation, led by Deputy Prime Minister and Foreign Minister Fuad Hussein, has been in the US since 9 February and conducted several meetings with senior officials in the US Federal Reserve, Treasury, and the State Department.
“The United States welcomed positive developments in relations between the Iraqi federal government and the Kurdistan Regional Government and the ongoing negotiations over the 2023 federal budget and the hydrocarbons law,” the Iraqi and the US government said in a joint statement on 15 February.
“The United States reiterated to the Iraqi delegation the U.S. private sector’s best-in-class technology and its unique ability to address Iraq’s energy challenges. The U.S. Chamber of Commerce’s U.S.-Iraq Business Council hosted a roundtable for the Iraqi delegation with 40 U.S. companies, industry leaders with expertise in gas capture, electricity infrastructure modernization, and renewables.”
The US government’s resolve to end Iraq’s reliance on gas imports from Iran for producing electricity, the drying up of dollar flows into Iran and Syria, as well as the new investment missions outlined in the statement, would certainly raise the ire of Tehran. Iran would soon press Sudani’s cabinet- via its proxies in Iraq - to either choose Tehran or Washington.
If Sudani takes sides with Iran, then Washington would show its teeth again by denying Iraq its own dollars from oil sales. As a result, Iraq’s economy would shrink further.
The national currency would plummet, the government wouldn't be able to pay its civil servants, and any ensuing public rage could weaken the government to the point of collapse.
If Iraq chooses Washington, then the Iraqi parliament could be expected, with a pro-Iran Shia majority, to withdraw their support from Sudani. If this happens, plans for turning Iraq into a major gas exporter might not see the light of day either.
Dana Taib Menmy is The New Arab's Iraq Correspondent, writing on issues of politics, society, human rights, security, and minorities.
Follow him on Twitter: @danataibmenmy