Asri Mousa, a former senior official at the Iraqi Ministry of Oil, led negotiations on behalf of the Iraqi government in the creation of the $17 billion Royal Dutch Shell gas gathering joint venture. As the first construction contracts for the project are handed out, Mousa talks to Interfax about the long-term gas potential in Iraq.
Interfax: What is the opinion of the Iraqi people towards Shell’s gas gathering project? Is it now appreciated as a venture that will improve power supply in Iraq or still as a case of foreign operators seeking to capitalise on Iraq’s resources?
Asri Mousa: That is a good question. When we signed the memorandum of understanding in September 2008 we had so much fire, even from members of government and inside the ministry, and of course the public was misled by the opinions of people who opposed the deal. But, with time, people have started to understand the deal, and realised its importance.
Interfax: At what price will the Basra Gas Company (BGC) sell gas to the South Gas Company (SGC)?
AM: The joint venture will sell gas at almost cost price, whatever it is year-to-year, but this is not going to affect consumers because the current price, which is something like $1.2 per million Btu, is going to continue and the government will just subsidise it. Maybe they will reform the price later in parliament, but that has nothing to do with BGC.
Interfax: By the end of 2012 how much gas will the project be capturing and processing?
AM: The project will reach somewhere between 2 and 3 billion cubic feet per day (Bcf/d) [56.6-85 thousand cubic metres per day] before 2020. It will hit that capacity by 2018 or 2017 and could stay at that level for at least 10 years. The company is already processing around 400 MMcf/d [11.3 million cubic metres per day: MMcm/d], and LPG also. The project will build on this and the plan is for LPG to be exported next year. Iraq imports some LPG, but the imports and getting less and less.
Interfax: It has been mentioned several times at this conference that Iraq’s power infrastructure is inadequate. What will happen if the joint venture increases its processing capacity but there isn’t the associated power infrastructure to feed it into? Will the gas be exported?
AM: The gas processed by the joint venture will have enough consumers all the time because some of the power plants now are running on liquid fuels, so those power stations are in need of the gas and there are some power stations under construction that are making good progress and are on track. This problem will not arise because the joint venture is only processing about 20-25% of gas out of Iraq’s total volume. The more mature work is in progress now. I think the joint venture is going to be the first to deliver gas to the system and it will be the first to get all of its product marketed.
Interfax: The Shell contract deals with the associated gas at three of the major oilfields in the south, but are there other oilfields this model could be applied to? Are other companies looking into similar gas-gathering joint ventures elsewhere in Iraq?
AM: The government has a four track strategy. One is joint ventures, one is developing the gas within the development of the oil [fields] tendered in the second round. In the second round major oilfields, such as Majnoon and West Qurna 2, [were tendered] and the development of associated gas facilities was included within the scope of work of those contracts, together with the oil facilities. And the third round, of course, offered pure gas fields for development. So we are only left with the gas which is not within those licensing round contracts from small oilfields in Basra. The major gas which is not in the licensed contracts and not in the BGC contracts in the province of Misan. The associated gas from these three oilfields could come to something like 200-250 MMcf/d [5.7-7 MMcm/d] and this should be contracted by the government in the same model as the BGC. Some companies have already approached the ministry to maybe negotiate and finally sign a contract on the Misan gas project.
Interfax: Seven fields of 12 fields in the fourth licensing round are considered to be gas prone. What interest has there been so far in those seven blocks?
AM: Companies were interested in the third round, which was only gas, and I think there will be more interested with this because it is exploration and maybe they hope for a better opportunity for business.
Interfax: Are companies interested in exploring and developing gas to feed the domestic market or are they ultimately looking for export opportunities? Will Iraq be happy to allow gas exports?
AM: Companies are interested in both. But I don’t think Iraq will be able to export substantial amounts of gas before 2020.
Interfax: Why does Iraq not want to use the production sharing contract model, even for exploration licences?
AM: It is political. There is an article in the constitution which says oil and gas is the property of the Iraqi people so the majority of politicians interpret this to mean if they have production sharing they will be violating this article. It is very difficult to cross this legal barrier.
Interfax: The country is still waiting for an agreement on a federal oil and gas law. When do you think this is likely to be signed? Has there been progress towards an agreement?
AM: I don’t know, maybe it won’t be signed. There hasn’t been any progress. In fact, the distance between the two sides is getting bigger and bigger every month. It is an issue of power and wealth, even between some of the politicians in the north; they are benefitting from it and they don’t want to give it up and this is really making the situation very grave.
Interfax: Is the government softening in its stance towards the contracts signed between ExxonMobil and the Kurdistan Regional Government (KRG)?
AM: There is no softening. That is what the media said, but actually the last interview with [Deputy Prime Minister for Energy Hussain al] Shahristani did not show the ministry had changed its position. The ministry has always said any contract signed by the Kurdistan government should be sent to the ministry to study, and they may accept it if they amend it to make it compatible with the ministry’s model, so they are not softening.
Interfax: Has Exxon’s move north improved the situation at all by forcing the KRG and Baghdad to readdress their stalemate over the federal oil law?
AM: I don’t think so. The Iraqi federal government and the Kurdistan government had an agreement earlier in the year on delivering some of the oil and getting paid, and companies were getting paid and in October they were supposed to improve on this another step. But in October, Exxon and the KRG signed those contracts and everything went back to square one. Even the oil that was delivered now has stopped. The Exxon contracts were really damaging to something that was under discussion between the two governments. It broke everything.