Author: H.E. Abdililah al-Amir
H.E. Abdililah al-Amir at IEF 2014
Senior Advisor to the Deputy-PM for Energy Affairs,
The Republish of Iraq
2nd Iraq Energy Forum, 18th May 2014
Le Méridien Hotel, Amman, Jordan
Iraq Energy Institute (IEI)
Excellencies, Distinguished Guests, Ladies and Gentlemen,
Iraq "INTEGRATED NATIONAL ENERGY STRATEGY" implementation
After some (20) months of extensive works and investigation, a combined team of Iraqi experts, and an International Consultant (Booz & Co.) issued the INES final Report on 25th sept. 2012, and was approved the Iraqi Government on 16th April 2013.
INES defines a vision and a set of national policy objectives for Iraq's energy future. It further defines out a long-term plan for investments, infrastructure development and institutional reforms designated to achieve that vision. It includes upstream and downstream oil, natural gas, power and linked industries. It aims at:
-Meeting domestic energy demand with special attention to the electricity sector and the gas needed for its production.
-Minimizing adverse impact of the energy sector on the environment, in particular eliminating gas flaring and capturing associated gas.
-Maximizing employment opportunities.
-Maximizing revenues for the government by setting oil production targets (4.5)mm bpd by 2015 and higher volumes later on to reach some (8-9) mm bpd by 2020
-Developing infrastructure by developing alternative oil and gas exporting routes.
-Building new high quality products, export oriented, refineries.
-Diversifying the economy by developing industries in the petrochemical and the fertilizers sectors.
-Placing Iraq as a reliable partner to meet growing global demand for oil and gas.
The rehabilitation efforts of the hydrocarbon sector in Iraq, began few years earlier than the (INES), between 2009-2010, with the licencing rounds that saw the return of the major international oil companies (IOC's) back into the country on terms that were viewed as unfavorable for oil companies, still the relatively low remuneration fees did not deter oil companies, given the large reserves at stake.
In general, the first (3) years of contracts implementation, and the field performance, and IOC's huge world experience, financial and technical capabilities have given us confidence that IOC's will meet and maintain the plateau production targets set for them.
Since Iraq held its first licencing round at the end of 2009, oil production has been growing at an exponential rate and has surpassed (3) mm bpd as an average during 2013,which brought revenues to Iraq in excess of (89) billion USD for the same year; and the road is paved for a production of some (4.5) mm bpd during 2015. This is compared with only (1.3) mm bpd oil production during 2003.
Meeting oil production targets by IOC's will in turn generate revenues sufficient to finance the planned infrastructure investments and will help to develop industries and services that will diversify the economy.
Iraq, in which the oil and gas industry is fully state owned considers focusing on the impact of the Extractive Industries Transparency Initiative (EITI) to help to ensure that natural resources bring more benefits to all citizens. In May 2008, the Government of Iraq formally committed itself to implementing the (EITI), and in Dec. 2012. The EITI Board announced Iraq as an EITI compliant country.
The following are some of the present main landmarks in the implementation of the strategy.
1- For oil production, there has been an increase in the oil production rates from (1.6) mm bpd at the time of signature of the first contract to over (3.0) mm bpd in 2013. This year 2014 target production is (3.75) mm bpd and export (3.5) mm bpd. The actual average oil production for the first quarter of 2014 was (3.116) mm bpd and the average export rate was (2.474) mm bpd, being the highest production and export rates from Iraq for over (34) years. Oil production is expected to reach (4.5) mm bpd in 2015, then increasing to some (8-9) mm bpd in 2020,together with all required infrastructure for surface production installations, adequate storage facilities, adequate oil transport pipelines to different terminals, in addition to modern export terminals. The increase in production shall come from the full development of the existing producing oilfields in addition to the start of exploitation of new oilfields. The target plateau level of production for all the oilfields will be in accordance with good oilfields, production practices.
The refining capacity is planned to be (700,000) bpd in 2014, compared to less than (450,000) bpd in 2008. Four (4) large refineries of total capacity of some (750,000) bpd are planned(and may be more in future, especially for export). One refinery contract (Kerbala refinery)of a capacity of 140,000 bpd have already been signed. The second contract (Amara refinery) of a capacity of 150,000 bpd is being negotiated now.The third one, which is(Nasiriya Export refinery) of capacity 300,000 bpd together with full development of Nasiriya oilfield will be signed during the second half of this year 2014.
2- As for Associated gas production and exploitation. For a (4.5) mm bpd oil production target for 2015, the associated gas volume is expected to be around (3.0) bscfd, will be consumed for electric power generation and the rest for local and oil industry purposes; But there shall still be a need for a further (1.3) bscfd to satisfy the full need for electric power generation. Even at higher rates of oil production, all the associated gas is needed locally and there will be no surplus of associated gas for export purposes.
To meet gas shortages for power generation requirements, the Government of Iraq has signed an agreement with Iran for gas imports in order to meet needs; the agreement will be in force until Iraq will be self- sufficient with its own gas.
A fast and assured solution to the problem will be (in addition to the exploitation of Akkas Gas field) the fast exploration and development of the vast gas reserves at the western desert of Iraq. A licencing round for the exploration and exploitation of gas fields in Iraq is hoped to be issued and finalized this year 2014.
3- For Electricity, A major investment programme has been underway whereby, several power plants projects, mainly gas turbines have been constructed and put in operation. A sizeable progress have been achieved so far. The average generation capacity during 2013 was 11000 MW, compared to only 3000 MW in 2003. Today's sustained generation is over 13000 MW (including some 2000 MW imported), which is sufficient to provide 24 hours a day supply. During the coming summer season, the demand will be more, but there shall be more electricity generated from new power plants, and/ or from the currently idle ones due to shortage of fuel.
In order to fill up the gap between electricity generation and the expanding demand, Iraq has considered and implemented the following feasible options:
-Grid interconnection with neighboring countries
-Denationalizing some part of the electrical system, which is at present fully nationalized, by initiating a process for privatizing the distribution system in the governorates.
-The government has developed a policy to attract investors, through guaranteeing and securing foreign investments, in the generation system. However, transmission will remain in the hands of the government.
-The gradual adaptation of renewable energy, especially solar/ wind energy in the rural areas which are not connected to the National Grid.
4- For Petrochemicals and Fertilizers.
The objective of establishing Petrochemical and Fertilizers industries, which require significant investment in infrastructure and associated utilities, in Iraq is to have higher valve than for use of gas in power generation, in addition to job creation and industrial sector development to grow the local economy
Six industries in Iraq fall into the category of linked industries:
Petrochemicals, fertilizers, steel, aluminum, cement and bricks.
Each of these industries consumes large quantities of energy in the form of power or heating fuel for its production processes, and two of these industries (petrochemicals and fertilizers) require large quantities of natural gas components as feedstock for their products.
The Ministry of Industry and Minerals is discussing with several capable international specialized companies for the execution of mega projects, especially for petrochemicals and fertilizers in the south of Iraq, on an investment basis.
The process of technical and economical negotiations is going on well, and some of these negotiations have reached an advanced stage.
Agreements conclusion is pending key decisions on long term guaranteed allocation of gas volumes (methane and ethane) needed for both Processing and for an integrated power and water desalination and the arrival at a reasonably competitive price of the gas, in addition to the allocation of LPG, natural gasoline and other necessary products.
5- Institutional Reforms
Along with managing large immediate growth in infrastructure, Iraq's Ministries also need to foster rapid growth in institutional capabilities.
Implementation of INES requires a strong INES governance mechanism that sets benchmarks, monitors progress, addresses obstacles, adopts plans to new circumstances, and insures continual co-ordination among ministries.
So far, Five(5) specialized companies have been established in the Ministry of Oil; which will take some time to be in full independent operation:
-WASIT PETROLEUM Co.
-DHIQAR. PETROLEUM Co.
-Iraq Oilfield services Co.
-Iraq Oil Transport Co.
-Iraq Gas Transport Co.
The completion of the other requirements of Institutional Reforms are presently at the formulation stage.
Before ending my presentation on INES implementation, I would like to stress the fact that the road to the achievement of the full INES objectives is not smooth, nor it is easy. Although several obstacles have already been overcome, there are still many others that need be solved. I think the most important among them are:
-Termination of terrorism, and all activities affecting smooth exploration and exploitation of hydrocarbons.
-Agreement on authorities between Central Government and KRG related to exploration /exploitation and export/ pricing of hydrocarbons / control of revenues.
-Execution of the Common Seawater Supply Project CSSP. In 2013, MoO have awarded a Project Management Consulting Contract to CH2M HILL.
-Early completion of Fao storage Depot, together with the required export facilities in the southern area.
-Timely execution of Iraq-Jordan export pipeline.