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Table of contents
Table of contents ............................................................................................................................................. 2
List of tables .................................................................................................................................................. 6
List of figures ................................................................................................................................................... 9
1.
Preface .................................................................................................................................................. 12
2.
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
3.5
Key challenges for Iraq ..................................................................................................................24
3.5.1
The challenge of regionalism ................................................................................................ 24
4.
3.5.2
3.5.3
3.5.4
Security ................................................................................................................................. 28
3.5.5
Corruption .............................................................................................................................. 33
4.2.3
4.2.4
Transparency ........................................................................................................................ 42
4.3
Oil revenues ...................................................................................................................................43
4.3.1
Iraqs dependence on oil revenues ....................................................................................... 43
4.3.2
4.3.3
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
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
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4.10.2
Saipem .................................................................................................................................. 63
4.10.3
4.10.4
Technip .................................................................................................................................. 65
4.10.5
5.1.3
5.2
Upstream gas .................................................................................................................................74
5.3
Developing Iraqs 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
5.4.3
Missan ................................................................................................................................... 84
5.4.4
Rumaila ................................................................................................................................. 86
5.4.5
5.4.6
Zubair .................................................................................................................................... 89
5.5
Bid round two .................................................................................................................................90
5.5.1
Contract terms ....................................................................................................................... 91
5.5.2
5.5.3
Badra ..................................................................................................................................... 92
5.5.4
Gharraf .................................................................................................................................. 93
5.5.5
Halfaya .................................................................................................................................. 94
5.5.6
Majnoon ................................................................................................................................. 96
5.5.7
5.5.8
5.6
Bid round three .............................................................................................................................100
5.6.1
Akkaz gas field .................................................................................................................... 102
5.6.2
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
5.9
Challenges around increased production ....................................................................................122
5.9.1
Southern oil reservoirs ........................................................................................................ 122
5.9.2
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5.10.2
5.10.3
5.10.4
5.10.5
6.
5.13.2
5.13.3
6.2.3
6.3
Crude oil export terminals ............................................................................................................153
6.3.1
Al-Basra Oil Terminal .......................................................................................................... 153
6.3.2
6.3.3
6.4
Midstream projects .......................................................................................................................155
6.4.1
Domestic pipeline projects .................................................................................................. 155
6.4.2
6.4.3
6.4.4
6.4.5
6.4.6
6.4.7
6.4.8
6.4.9
6.5
Midstream gas ..............................................................................................................................174
6.5.1
Existing gas pipelines .......................................................................................................... 174
6.5.2
6.5.3
6.5.4
6.5.5
6.6
Midstream gas projects ................................................................................................................180
6.6.1
Gas processing ................................................................................................................... 183
6.6.2
6.6.3
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6.6.4
6.6.5
6.6.6
6.7
Kurdish pipelines ..........................................................................................................................200
6.8
KRG pipeline projects ..................................................................................................................201
6.8.1
Kurdistan Iraq crude export pipeline ................................................................................... 201
7.
6.8.2
6.8.3
6.8.4
7.5.3
7.5.4
7.6
Downstream projects ...................................................................................................................222
7.6.1
Greenfield refinery projects ................................................................................................. 223
7.6.2
7.6.3
7.6.4
7.6.5
7.6.6
7.7
Benefits and challenges for greenfield refinery projects ..............................................................235
7.7.1
Legal framework for investors ............................................................................................. 237
7.7.2
7.8
Brownfield refinery projects ..........................................................................................................240
7.8.1
North refinery expansion ..................................................................................................... 241
7.8.2
7.9
Petrochemicals .............................................................................................................................246
7.9.1
Existing facilities .................................................................................................................. 246
7.9.2
7.10.3
7.10.4
7.10.5
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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: Iraqs 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: Iraqs crude oil reserves growth, 1989-2010 ................................................................................. 67
Table 16: Distribution of Iraqs oil reserves, 2010 ......................................................................................... 68
Table 17: Iraqs major producing oil fields prior to the concession agreements ........................................... 70
Table 18: Total gas reserves......................................................................................................................... 77
Table 19: Iraqs 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: Lukoils 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: Iraqs fourth licensing round summary ........................................................................................ 112
Table 39: State-funded field developments, 2011-14 ................................................................................. 114
Table 40: Iraqs 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: Iraqs current pipeline network .................................................................................................... 145
Table 46: Selected existing major pipelines................................................................................................ 147
Table 47: Summary of Iraqs current southern pipeline network ................................................................ 148
Table 48: Existing oil export pipelines ......................................................................................................... 151
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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 IEAs 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: Iraqs 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: Iraqs 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: Iraqs 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: Iraqs 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: Iraqs 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
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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
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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.
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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 countrys 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. Iraqs 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 countrys ability to deliver on its potential.
One critical factor for the upstream sector is Iraqs 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 governments budget value over the last
few years, enabling greater spending on reconstruction and expansion.
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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 countrys poor track record in pushing
ahead with major projects.
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.
Iraqs 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 Ministrys 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.
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The absence of an overarching oil law has been a major problem for the
sectors development. It will be critical to the long-term success of the
industry, along with the re-establishment of the Iraq National Oil Company.
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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
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
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Figure 6: Well requirements and rig count under IEAs 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 Iraqs total production,
its reserves are significant, and the KRGs production sharing contracts have
attracted 50 operators to the region. However, given the relative youth of the
regions 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.
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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, Iraqs 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.
Iraq
Saudi Arabia
Execution
FEED
UAE
Kuwait
Oman
Qatar
Main Contract PQ
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Figure 18: Iraqs major producing fields prior to the licensing rounds
The scale of the task facing the Oil Ministry as it tries to revive the countrys 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.
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Shaw has also completed the studies and designs for another 150,000 b/d refinery in
the Missan province on Iraqs 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
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By 2030, the study forecasts total capacity reaching 16.8 million t/y. By comparison,
Saudi Arabias 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 Iraqs 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.
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.
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