INSIGHT: Iraq - the new frontier

04 September 2007 17:09  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--For oil and gas and petrochemical players Iraq is a long-term prize but a potentially tough and costly frontier.

As the security situation teeters on the brink the prospects of constructing and operating new oil wells, gas extraction and petrochemicals plants appears daunting to say the least.

But the strife-riven country has the potential to be one of the top four global oil producers and a major petrochemicals player.

Even last month it reportedly pumped more than 2m barrels of crude a day which, according to Reuters, made it the Middle East’s fifth largest producer. Potentially Iraq could make good use of significant quantities of associated gas and ethane.

A daily crude oil output of 2.5m barrels a day seems achievable and possibly 4m bbl/day attainable. The lower level could support close to two world-scale ethane crackers or the production of 1.5m tonnes of ethylene. The big question, however, has to be at what cost?

Reports this year have suggested that Iraqi planners are looking to re-vitalise the country’s ailing petrochemicals complex in Basra in the south and at the potential for a separate project in the centre or the north of the country.

A long-considered law to ban the flaring of associated gas would give particular impetus to petrochemicals.

To most, Iraq’s petrochemicals development seems a long way off but according to Iraq industry minister Fawzi al-Hariri a decision on new plants should be made soon.

Speaking to reporters this week he suggested that regional petrochemical industry development means that delay only makes possible Iraqi projects less attractive.

Talks about possible Basra plans were held earlier this year with ExxonMobil and Chevron. Both oil companies, Chevron through its Chevron Phillips business, have a considerable petrochemicals footprint in the Middle East.

Al-Hariri said late last month that talks about a potential $2bn Basra venture had been held with Shell and Dow Chemical.

Not surprisingly the companies are not keen to discuss these talks widely.

Interest in Iraq has been significant but the deteriorating security situation suggests that project plans would be even more difficult to advance now than just a couple of years ago.

For the oil and gas majors, however, Iraq has to be a possible and sought after long-term play.

New oil production will be promoted under production sharing agreements giving companies more direct access to Iraq’s significant oil reserves.

Iraq could produce 4m bbl/day plus of crude putting it in oil’s global big player league, consultants say. The county’s oil production previously peaked at 3.5m bbl/day in 1979.

The step from oil to chemicals is desirable to help lift an economy based on oil and agriculture. But the sector’s development depends on the construction of the infrastructure and facilities to gather and process associated gas.

The industry minister suggested that a 1m tonne/year ethylene and derivatives complex in the centre or north of the country could cost $2bn which seems cheap by today’s standards of sky-rocketing Middle East project costs. He also said security costs could account for as much as 40% of the total.

A northern complex appears most feasible as a second project given the oil and refining infrastructure around Kirkuk but its markets less so. It is a long way between Kirkuk in the north and Basra in the south.

A project in the centre of the country looks less likely given that development of the gas gathering and processing infrastructure to support petrochemicals would cost billions of dollars.

For the oil and gas majors seeking new reserves and frontiers, however, Iraq must appear as a strategic option. For a player like Dow Chemical, looking to supplement its under-weight Middle East presence and seemingly costed out of its venture in Oman, Iraq looks like another possible play.

Talk of world-scale petrochemical projects in Iraq seems premature but plans could advance quickly.

By: Nigel Davis
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