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Iraq has not had the same success in developing its associated and non-associated natural gas resources. As oil production soared, so has the amount of associated gas produced, but the capacity to capture and process this gas has not kept pace. |
The situation with non-associated gas is mixed. The war against ISIL meant that the operators of Akkas had to call for force majeure before production began. The government is now in talks with the companies to return. In the Kurdistan Region, however, the Pearl Consortium, which operates the Khor Mor gas field, now produces 4 bcm, which facilitates a power generation surplus for the Kurdistan Regional Government. |
Electricity supply is a standard by which progress across Iraq can be measured. Significant additions to the generation fleet have been made since the Iraq Energy Outlook 2012, with available capacity expanding by 8 gigawatts (GW) (or 90%) between 2012 and 2018. |
The significant difference between installed and effective capacity reflects deferred maintenance and fuel switching. |
Two shifts since 2012 are notable. Oil and liquid fuels like heavy fuel oil accounted for about 70% of power generation in 2012. Owing to an aggressive rollout of multi-fuel generation units (that can burn oil or gas), natural gas-fired generation has increased significantly: in 2018, it accounted for over 55% of generation, compared with just 20% in 2012. |
However, as gas flaring in the fields in the south continues to be a pronounced issue, there is a general shortage of natural gas and some of generating units have been burning liquids rather than gas. This reduces the plant efficiency and increases wear-and-tear on equipment that requires increased maintenance. |
The second shift has been increased dependence on neighbourhood generators, which we estimate provide 20% of demand. At a tariff that amounts to USD 600-1,200 per megawatt-hour, this option is several times more expensive than the conventional grid power supply. |
Continued expansion in power generation capacity has not shown signs of slowing. At the start of 2018, more than 7 GW of power generation capacity were under construction. These are predominantly gas-fired, but also 1 GW of oil-based generation. There are plans for additional 16 GW of capacity additions. |
Although welcome, increasing generation capacity alone cannot solve the problem of power shortages in Iraq. |
Power cuts (including scheduled brownouts to manage supply) are frequent and reflect the poor state of the transmission and distribution networks. |
This is the source of significant frustration in the summer months when demand for cooling peaks and supply is inadequate. |
In summer 2018, anger at the paucity of public services, including electricity and clean water, led to unrest in Basra. |
The oil sector is integral to the wellbeing of the entire Iraqi economy and will remain so well into the future Iraq's long-established competence in managing this sector bodes well The country can build on the already significant growth it has achieved over the last decade – under extraordinarily challenging circumstances – to become again one of the fastest-growing oil producers in the world Iraq's potential is huge but the road to increased production is not without obstacles from making sure that water is available for reinjection to ensuring that oil is efficiently produced and consumed |
Iraq is also in urgent need of overhauling its refining sector to make rising oil production serve growing appetite for refined products The anticipated increase in oil production will bring with it a commensurate increase in associated natural gas The amount of attention Iraq has paid to gas in the past as well as the volumes that have been produced has sorely lagged behind that of oil There have been some notable improvements in the rate of gas capture recently but still more gas is flared today than is brought to market |
As well as being essential to industry natural gas can underpin a more reliable efficient and affordable electricity sector which in itself is can be the single most powerful catalyst for economic diversification growth and job creation across the country Despite the formidable challenges it has faced Iraq has nearly doubled its oil production over the past decade to 4.7 million barrels per day (mb/d) alone accounting for a fifth of the net increase in global supply Today it ranks as the fifth-largest source of global oil supply |
The next stage will depend largely on four core issues sufficient water availability to inject into reservoirs to boost production international oil market conditions attracting investment including foreign capital and expertise and maintaining and strengthening political stability In reaching almost 6 mb/d of production in 2030 Iraq would overtake Canada as the world's fourth-largest producer |
Myriad above-ground hurdles can add significantly to the cost and difficulty of executing hydrocarbon projects in Iraq. However, this does not diminish the fact that, from a technical perspective, oil projects in Iraq are among the lowest-cost in the world. |
Iraq's production is expected to grow by around 1.2 mb/d over the next ten years. This is slower than the 2.4 mb/d increase delivered since 2010, but it would still provide world markets with the third-largest increment of additional oil over the period, after the United States and Brazil (Figure 6). If achieved, production in 2030 would represent around 6% of global oil output, up from 5% now and less than 3% in 2010. |
This is partly because of the reductions in plateau targets for many of Iraq's main fields and partly because of the greater level of competition for capital in other countries (such as tight oil in the United States). There are also a number of domestic challenges, such as adequate water supply and transport infrastructure, which need to be resolved to achieve further production growth. |
Proven reserves alone are sufficient to support a major expansion in production. Reported reserves were steady at around 115 billion barrels throughout the 2000s (despite ongoing production) and in 2010 Iraq’s Ministry of Oil increased proven reserves by around 25% to 143 billion barrels. There have been a number of minor revisions since and the most recent estimate of proven reserves is just under 150 billion barrels. |
Iraq’s share of global proven reserves has fallen marginally since the 1990s, given larger revisions elsewhere, but it is still the fifth-largest proven reserves holder and the third-largest holder of conventional oil reserves. According to data from the Ministry of Oil, Iraq’s proven reserves are spread across more than 70 fields. |
Much of Iraq remains unexplored or significantly under-explored compared with other major oil-producing countries and so there remains a large potential for future discoveries. |
Iraq has relied on water injection since the early 1960s, especially in fields in the South and Centre where the composition of most of the reservoirs is well suited to this method of secondary recovery. There are other advanced methods available that can boost recovery factors, such as enhanced oil recovery, but these are generally not suitable for the current conditions in Iraq's fields and tend only to be applied after secondary recovery techniques have been fully applied. |
The refore, the adequacy of water supply will be a key determinant of oil production growth in Iraq. But, increasing competition from other users for water resources, ongoing drought and reduced river flows from upstream dam building means that operators can no longer rely on river water for field injection purposes. To compensate, plans were drafted in 2011 to build the Common Seawater Supply Project (CSSP) that would process seawater from the Gulf and transport it to the largest oil fields in the South to be used for injection. |
Given the critical importance of water to maintaining (or increasing) production in so many of Iraq's oil fields and the delays in the CSSP, many IOCs have looked to alternative solutions. |
In many ways, the Rumaila field is illustrative of the importance of water for oil production and the challenges operators have in securing adequate supply. Future growth in Rumaila will come from the Mishrif reservoir in the South, which is comprised of medium-heavy oil and will likely have a steep decline rate (details in the following section). |
If the 5 mb/d of water from the CSSP project comes online as expected, Iraq should have enough water to support our projected oil production in 2030. It is unlikely, however, given the existing infrastructure and expected timeline of construction for the CSSP, that there will be enough water to meet the 2022 production plateau targets. |
Water availability will continue to be a challenge. Water is an important social and political issue and demand is increasing in all end-uses. It is critical for the oil industry to ensure the effective and efficient management of water, including making much better use of recycling and reusing produced water. |
Bringing the CSSP online in a timely manner will be critical to provide the water needed to expand oil production, but far more would be needed to meet official production targets. |
Rumaila, currently producing 1.5 mb/d, retains its dominant position in Iraq and its standing as the second-largest producing field in the world, after Saudi Arabia’s Ghawar. This 70-year-old field has a very productive main reservoir for which the recovery factor could surpass 50%. It also has a natural annual decline rate of more than 20%, so production has to be increased by around 300 kb/d each year to compensate. |
Our projection is for combined production to rise to just over 1 mb/d in 2030, reflecting lingering concerns over the availability of water for injection and transport infrastructure. |
Iraq's Energy Sector: A Roadmap to a Brighter Future Chapter 2: Prospects for the oil and gas sector Zubair was one of the first major discoveries in the region but it has remained in the shadow of its larger neighbour, Rumaila. |
Majnoon discovered by Petrobras in the 1970s has been transformed from a battlefield into an oil field and is now producing around 240 kb/d Development of Majnoon has been complicated by the large amount of unexploded ordnance in the area a legacy of the 1980s war with Iran. |
Exploration efforts are also gaining pace, with the federal government signing six preliminary deals with companies to explore for oil near the border with Iran and Kuwait. The contracts are pending approval by the cabinet's energy committee before submission to the full cabinet. |
North Just under a fifth of Iraq's production in 2018 came from the North, primarily from the Kirkuk and Bai Hassan fields. Efforts to tap the region's resources have been frustrated by the 2014-17 battles with ISIL, as well as the dispute between the federal government and the Kurdistan Regional Government (KRG) over the control of land and oil. |
Apart from the supergiant Kirkuk field, the oilfields in the North are smaller (although still large by international standards), often containing 0.5 - 1.0 billion barrels of recoverable oil. However, the cost of bringing the oil to market is higher than in the South because of the need for additional expenditure for infrastructure and supply logistics. Along with the agreement between the Ministry of Oil and BP to boost production at Kirkuk is a plan to develop the neighbouring fields of Bai Hassan, Jambour and Khabbaz. |
Besides the high level of non-operational capacity, the other major issue facing Iraq's refining sector is lack of upgrading and hydrotreating facilities. |
The natural consequence of this is very high yields of low-value outputs and low yields of high-value outputs: heavy fuel oil (HFO) accounts for around half of the refinery outputs while products in high demand – notably gasoline, diesel and kerosene – together represent only one-third. |
This contrasts with global average yields, where gasoline, diesel and kerosene together account for almost 70% of outputs and HFO for less than 10%. |
The most pressing issue for Iraqi refineries is to find a way to make use of their excess HFO that contains a high level of sulphur. |
Given the lack of storage capacity and transport pipelines for HFO, dealing with the surplus HFO that will likely emerge is a major challenge. |
Iraqi refineries produce significantly more low-value products such as heavy fuel oil and much less of high-value products such as gasoline, kerosene and diesel. |
One alternative is to use the excess HFO in power generation. While the use of HFO in the power sector has many negative environmental consequences (unless it displaces even more polluting crude oil burn), amid a lack of gas supply, HFO could contribute to alleviating Iraq’s acute electricity shortages, especially for peak demand in the summer months. |
The Iraqi government aims to boost refining capacity to 1.5 mb/d by 2021. There are many proposed projects for new refineries or upgrades to achieve this. |
We expect that as Iraq progressively improves the investment climate for refiners and as new refineries come online, refinery runs will double between 2018 and 2030. |
Beyond this small addition, however, Iraq’s potential for increasing exports is limited by the existing infrastructure. New pipelines, storage tanks, and export outlets are needed to expand volumes that can be sold to international markets. |
There are a number of plans underway to develop new infrastructure. Japan's Toyo Engineering Corporation is carrying out a study on raising storage capacity at Fao from its current 6 million barrels to 12 million. |
The global demand for petrochemical products is likely to rise robustly for many years, and so multiple countries in the Middle East are seeking to expand petrochemical operations. There are many potential advantages for those that do so. It improves prospects for higher and more resilient margins, and it contributes to economic diversification. In Saudi Arabia, for example, chemical products represented some 60% of non-oil export revenue in 2017 (IEA, 2018 b). Iraq's gas is naturally rich in ethane – a key feedstock for petrochemical production – and so Iraq also has the potential to build a major, competitive petrochemical industry. |
In 2015, Shell signed a USD 11 billion deal to build the Nebras petrochemical plant in the South oil hub around Basra. With a planned capacity of 1.8 million tonnes of petrochemical products, it is expected to be one of the world's largest petrochemical plants if completed. The project is part of a wider scheme to aggregate gas from fields in the South and build an integrated gas system. |
Accelerating progress on proposed projects would not only provide a sizeable non-oil revenue stream to Iraq, but also add significant value to schemes that aim to unlock its gas potential. The prospects for petrochemicals critically depend on Iraq's ability to reduce gas flaring and invest in gas processing facilities; the future for petrochemicals and natural gas therefore are closely interlinked. |
In 2017, proven reserves of gas were 3.5 trillion cubic metres (tcm), predominantly associated gas that is produced along with oil from the supergiant fields in the South hydrocarbon region. |
These reserves would be enough to supply nearly 200 years of Iraq’s current consumption of gas (as long as flaring is minimised). |
However, proven reserves do not provide an accurate picture of Iraq’s long-term production potential (and, too, today’s consumption is not a good guide to what Iraq might use in future). |
Our review suggests that the underlying resource base – ultimately recoverable resources – is significantly larger, at 8 tcm. |
The bulk of this is associated gas, but these estimates also include large volumes of non-associated gas in both the northern and western parts of Iraq. |
It is much less lucrative per unit of output than oil, it is also more cumbersome to transport and its use requires a complex process of co-ordination along the value chain. |
The most common problem is that there is no infrastructure in place to allow for the productive use of associated gas, hence the persistence of large-scale flaring. |
But there are also examples of the reverse, where an end-user (typically a gas-fired power plant) is built and ready to operate, but no gas is available. |
However, production from this field has been delayed and instead the power plant runs on gas imported from Iran. |
Iraq continues to suffer power shortages and the unrest in Basra in mid-2018 underlined that social and economic risks that accompany unreliable power. |
Moreover, importing gas from Iran is expensive and politically sensitive, costs that are difficult to justify given Iraq’s gas resource wealth. |
As examined in Outlook for Producer Economies: World Energy Outlook Special Report (IEA, 2018b), the potential significance of natural gas is broader than the direct income that it can bring; it can underpin an industrial strategy in a way that oil cannot, and in this sense can be an important conduit to economic diversification and employment. |
Iraq's energy sector faces challenges in developing non-associated gas fields, mainly from oil fields in the South, and successfully capturing more associated gas. |
Associated gas production rises from the current 11 bcm to nearly 40 bcm in 2030. This is partly a reflection of the oil outlook, notably the steady rise in output from large southern fields. However, it also indicates marked progress with efforts to capture and process more associated gas. |
By late 2018, the Basrah Gas Company (BGC) was processing and producing the equivalent of around 10 bcm of gas per year. In January 2019, BGC's shareholders announced their intention to increase the volume to around 14 bcm by 2021. The initial investment efforts were focused on rehabilitating existing infrastructure, but investment in new facilities will be essential to reach the target. |
Flares are particularly wasteful in a country that remains short of electricity: the volumes that are currently flared could fuel around 4.5 GW of gas-fired power generation, enough to power three million homes. Furthermore, flares are not 100% efficient and so a small portion of the gas is often not combusted and is released to the atmosphere as methane. |
Along with other sources of fugitive and vented methane emissions that occur during oil production, these add substantially to the emissions intensity of the oil sector in Iraq. Consumers around the world are starting to pay attention to this issue: while fossil fuels will remain in the energy system for some time, oil and gas that is produced in a clean and environmentally conscious manner is likely to enjoy advantages over other sources of supply. |
If Iraq were to eliminate flaring and venting, the emissions intensity of its oil production could be one of the lowest in the world. |
the KAR Group is looking to more than double gas output from the northern Khurmala oil field in 2019, along with the announcements by the BGC. Based on our assessment of existing political, regulatory, market, infrastructure and financial conditions, the volume of gas flared could fall markedly within the next few years and drop to less than 10 bcm in 2030 (Figure 13). These volumes can be brought to market and lead to a much greater role for associated gas in overall gas production in Iraq. |
Apart from Siba, development of most of these fields has been plagued with setbacks; highlighting the difficulty of non-associated gas development in Iraq. In our projections, non-associ ated gas output rises quickly in the next few years (from the current low level of 3.5 bcm to 8 bcm by 2022), but production growth stagnates thereafter. |
A more market-oriented electricity sector and a higher domestic gas price would provide stronger incentives for investment in gas for domestic use and could spur further non-associated gas projects. |
Iraq’s Energy Sector: A Roadmap to a Brighter Future Chapter 2: Prospects for the oil and gas sector development work on the field in 2014 The authorities have been eager for work to resume and eventually announced in 2018 that the contract with the consortium was being cancelled and that state-owned companies would develop the field on their own There has been a strong political push to start gas output from the field in order to supply local power plants and bolster electricity security |
The Pearl Consortium would be well placed to benefit if such an export route were available The Miran and Bina Bawi fields contracted to Genel Energy have also been prominent in discussions about exports although field development plans have yet to be agreed with the KRG In addition to multiple political uncertainties there are also questions concerning the extent of demand for gas exports from Iraq |
Despite the gap between the supply and demand of water desalination currently plays a limited role in Iraq Many of the desalination plants it does have are in a state of disrepair – 13 built during reconstruction have not worked since they were finished in 2006 – and new plants that are under construction are years behind schedule For example a new 1.3 mb/d reverse osmosis RO plant that is under construction in Basra which would be the largest of its kind in Iraq was supposed to be complete in early 2017 but has been delayed due to payment issues |
By 2030 we estimate that desalination will provide around 10% of Iraq’s total water supply Desalination is an energy-intensive process and energy demand for desalination rises to over 5 million tonnes of oil equivalent in 2030 from negligible levels today |
Iraq's energy sector needs a roadmap for a brighter future, especially when it comes to desalination. While natural gas is used for desalination, there are ways to increase the share of renewables in power generation and use co-generation plants with RO technologies. |
Additionally, Iraq will likely require more mobile small-scale desalination units to deal with the deteriorating quality of its rivers. A combination of declining freshwater flows, increasing salinization, industrial wastewater, and agricultural runoff has reduced the water quality beyond World Health Organization safe drinking water standards. |
Investment in oil and gas has been directly affected by the last decade's oil price cycle. Investment levels peaked in 2014 at around USD 20 billion but have since fallen significantly to average around USD 12 billion per year. |
Looking forward, annual upstream investment in oil and gas between 2018 and 2030 averages USD 15 billion, with a rising share directed towards gas projects, facilitating the 35 bcm increase in production over the period. One priority is investing in large-scale water treatment projects to supply water for reinjection in the oilfields in the South region. |
Iraq's power sector faces significant challenges. Outages remain a daily occurrence for most households, as increasing generating capacity has been outrun by increasing demand for electricity, spurred in particular by high demand for cooling in the hot summer months. Over the past five years, the size of the gap between peak electricity demand and maximum grid supply of power has widened, even though available supply has increased by one-third. |
Investment in infrastructure, particularly the distribution networks, has lagged behind what is required, as budgets were constrained due to periods of low oil prices. Meanwhile, tariff collection, where it exists, has not been sufficient to supplement the capital budget. This creates a negative cycle whereby lower revenues lead to lower capital investment, which in turn limits available supply and revenues. |
The gap is widening between peak demand and grid supply, even with recent expansion of generation capacity. |
Small-scale oil-based generators play a critical role in supplementing grid supply, helping to alleviate some of the most acute shortages in the peak summer months. |
households and businesses. About one-third of the small generators are owned by government entities, mainly to meet their own electricity needs.10 Together, these assets close half of the gap between peak demand and grid supply. But they are an extremely expensive option for consumers. |
The grid supplied more than 80% of the electricity consumed by households in 2018, yet makes up a tiny share of consumer’s electricity bills. Consider the example of an upper-middle class household in an urban centre (Figure 15). Such a household might consume around 16 000 kilowatt-hours (kWh) of electricity per year, with three-quarters of it to provide cooling in the summer months. |
Neighbourhood generator charges are as much as IQD 25 000 per ampere of capacity despite regulations in place that call for lower charges.13 These fixed charges translate to around USD 1 000 per MWh for the example household, putting them among the most costly sources of electricity anywhere in the world. |
A similar situation applies to all households in Iraq. Despite efforts to provide a progressive tariff scheme to households – intended to make electricity more affordable for low-income households – the average electricity price paid per kWh of consumption is relatively constant across consumption levels due to the large role of expensive neighbourhood generation. |
Without immediate and concerted action, these pressures are likely to inflate, as rapid population growth and economic development bring increased demand for electricity. Achieving stable, affordable and reliable electricity supply is vital not just to serve the basic needs of the Iraqi households and to improve living conditions, but also to stimulate economic growth. |
For a given household in Iraq, the grid provides the majority of electricity, but more than 90% of the consumer's electricity bill goes to expensive neighbourhood generation. |
Addressing the immediate needs alleviating the power shortages to meet peak demand in the summer months is a significant priority of the Iraqi government. |
Before considering supply-side options, programmes to encourage energy conservation and efficiency should be given due priority, as they can deliver immediate benefits and are consistent with long-term goals. |
Identifying the weakest parts of the grid, and concentrating efforts on improving the state of distribution network s could provide returns even in the short term. |
Losses in the electrical system are astronomical. Technical losses are estimated at about 40%, with the vast majority in distribution networks. |
If these losses were reduced to levels similar to the regional average, the total electricity supply of 125 TWh in 2018 (split between domestic generation, imports and neighbourhood generation) would have been sufficient to meet nearly all electricity demand except for the hottest months of the year. |
Non-technical losses refer to electricity that is delivered to consumers but is not metered, accounting for an estimated 20 TWh of electricity consumption. |
Improving the state of distribution systems should be the top priority for Iraq’s power supply in the immediate, medium and long term, as it is critical to make the best use of the available power assets. |
Any work that temporarily reduces the capabilities of the networks, however, should take place outside of the peak summer period to ensure the maximum available grid supply during times of high demand. |
The available capacity of the existing power plant fleet should be maximised, as some improvements can be made in short order. |
the abundance of HFO in Iraq, (and the constrained international market for this product) means that the opportunity cost of burning HFO is lower than it otherwise would have been. |
Even at attractive terms for developers, this would reduce the financial burden of addressing the immediate needs. The locational and operational flexibility of these units also means that they will be useful for years to come under a wide range of development pathways. |