The Middle East: A petchem industry in Iraq?

24 March 2003 00:00  [Source: ACN]

If you were to list the petrochemical industries in the Middle East you would, obviously, start with Saudi Arabia followed by the other Gulf Co-operation Council countries with Iran seemingly set to join the list in the next few years.

But might it be possible that eventually you would have to include Iraq in the list?

As the US and the UK teetered on the brink of launching a huge military assault on the country, the consequence of which could be 500 000 dead or seriously injured, according to the United Nations, and substantial damage to already very weak infrastructure, it might seem a little premature to even suggest that Iraq could one day join the ranks of the Saudis. (It seemed certain as this feature went to press that the assault would have begun as you read this article).

Plus, Saddam Hussein might destroy Iraq's oil wells as he retreats. Even if this does not happen, the country could easily fall into political and economic chaos post -Saddam and as a result fragment, unless the Americans install some kind of military-backed civilian government that would pay lip service to real democracy. If this latter scenario comes about, the hostile reaction from the rest of the Middle East could be so strong that the region could be just too unstable for substantial investment.

What we are talking about is investment firstly in oil which would be followed by investment in other industries, including petrochemicals that could make use of all the associated gas. Plus, as new power stations are built, non-associated gas could become available.

The potential is enormous. Iraq has proven oil reserves of 112.5bn barrels.

However, Iraqi oil officials believe that Iraq is capable of producing 300bn barrels. The country could, therefore, if this were the case surpass Saudi Arabia to become the world's biggest oil producer.

The UK-based consultancy, Bayphase, is even more bullish over Iraq's oil and with it natural-gas potential. It estimates that its oil reserves could eventually total 330bn bbl and its gas reserves 324 tscf(trillion standard cu ft).

'Iraq's oil and gas industry since nationalisation in 1975 has suffered from a severe lack of investment and technology integration,' says Bayphase. 

'The reasons are inadequate management, isolation, and lack of central funding due to the wars waged (during 1980-90) and UN sanctions imposed from 1990 to date. Iraq will, therefore, sooner or later emerge as major frontier for oil and gas investment.' Bayphase estimates that the investment opportunities total US$150-200bn.

The sooner or the later could be determined by demand growth. According to the International Energy Agency, non-Opec supply will increase sufficiently to meet global oil demand growth of 1.3% /year between 2000 and 2005.

And the agency predicts that there will be fairly abundant supply up until 2010, after which it might make sense to loosen the Iraqi tap.

On the other hand, though, the whole point of the impending war, say many cynics, is not about long-term oil demand growth projections, alleged weapons of mass destruction and the 'two-faced' soundbites about freeing the Iraqis from tyranny.

What it's really about, regardless of the cost of first repairing what might be left of Iraq's existing oil infrastructure and then investing in exploration, is breaking the US dependence on the Saudis for supply. Relations between the two countries have deteriorated as a result of 11 September.

And even if relations were to improve, the US wants its 'own' Middle East oil supply in order to break its dependence on other countries. I put 'own' in inverted commas because the reality is that if the US prevails in a war, the reward for all the US, and also perhaps UK, companies could be lucrative oil repair and exploration contracts.

Plans for rebuilding Iraq, which are being co-ordinated by the US Agency for International Development are already in place, according to recent media reports.

The agency is said to have discreetly sent out requests for tenders from at least five infrastructure and engineering companies.

Among the companies invited to tender is Hallibur-ton, where US vice-president Dick Cheney served as chief executive from 1995 to 2000.

As for the UK oil companies, they are very anxious that investment in a post-Saddam Iraq should be on a level playing field - in other words, they should be given opportunities equal to those of their US counterparts. Tony Blair's staunch support for George W Bush is surely likely to help their cause.

What prompted this article is a meeting between ACN and a senior petrochemicals industry source working with a Middle Eastern producer. He was unequivocal in his belief that Iraq would become a major petrochemicals player.

He argues: 'As long as Bush is president, the oil companies that are currently not allowed to invest in Iran will be encouraged to invest in Iraq after Saddam has gone.

'Iraq has a bigger domestic market than all the Gulf states and Saudi Arabia put together. That would mean that a petrochemicals industry coming off the back of associated gas would not have to depend on exports.

'Because the economy is relatively large and because Iraq has a fairly sophisticated and a large middle class, plus, of course, the oil reserves, public and private investment would be much larger than the US$10bn committed to Afghanistan.

'The size of the middle class would increase after Saddam as some of the wealthy, overseas Iraqis would return home. Iraq could benefit from something similar to the Marshall Plan which involved huge investment to rebuild post-World War II Europe.'

And interestingly, he adds that there is a gas pipeline already in place between Iraq and Kuwait that has been shut down since the Iraq invasion and the subsequent 1990-91 Gulf War. Perhaps Iraq could become an important exporter of petrochemicals feedstock.

And he adds: 'Iran could be the next target on Bush's axis of evil and so maybe you could see investment dollars into Iran drying up in favour of investment in Iraq, which is likely to be governed by a pro-US government.'

Two petrochemicals consultants, however, caution that any Iraqi petrochemicals industry is a long way off, if it is going to happen at all.

The first consultant says: 'This is at best a very long-term scenario. First would have to come intensive gas exploration, investment in infrastructure and Group Sponsored Projects, assuming wet gas can be found.

'Major new developments in integrated fuel usage, for example, power stations, would have to be mounted and, possibly, investment in new refineries. And strong opposition can be expected to any US investment in Iraq from Saudi Arabia, Qatar, Abu Dhabi, Egypt, Kuwait and, not least, Iran, just for a start.'

The second consultant makes the very obvious point that the first priority would have to be power, water, road, health and education provision followed by the expansion of the industrial base.

And also, given all the current uncertainties is it far- fetched nonsense to be even thinking about an Iraqi petrochemicals industry?

What do you think? Contact the editor John Richardson on john.richardson@acnmagazine.com.sg

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly