[[{“value”:”
- Iraq approved BP’s $25B contract to develop key Kirkuk oil fields.
- The Western megadeals may stabilize Iraq’s oil ambitions and play a role in softening Baghdad–Erbil tensions.
- The BP deal signals a potential resurgence of Western influence in Iraq’s energy sector.
Iraq’s Council of Ministers last week approved the final version of BP’s US$25 billion+ contract with the Oil Ministry to develop the Kirkuk oil fields of Baba and Avana, and the neighbouring sites of Bai Hassan, Jumboor and Khabaz. This is the second huge deal signed by Western firms recently, with the other being the US$27 billion four-pronged project of France’s TotalEnergies. It is a remarkable achievement so far, given the steady erosion of the West’s influence across the country in the years following the removal of Saddam Hussein from the presidential office in April 2003. That said, China still controls more than a third of Iraq’s proven oil and gas reserves and over two-thirds of its current production. And Russia’s Rosneft said recently that it will restart its key oil and gas operations in the country’s northern semi-autonomous Kurdistan Region. The oil and gas giant effectively took control of the region’s oil sector in 2017, as analysed in full in my latest book on the new global oil market order. So, can the West sustain its new-found momentum in Iraq’s energy sector, or will China – and Russia – continue to assert their dominance on the ground?
A key factor currently working in the West’s favour is the breath and depth involved in both of its recent key projects. This affords roles for BP and TotalEnergies that neither Chinese nor Russian firms could substitute for. In both cases – but especially Russia’s – direct and indirect sanctions have reduced access to some of the latest equipment and technology required to complete each part of the project’s optimally. And in both cases, neither of the countries’ firms boasts the range of on-the-ground experience and skillsets that are needed to achieve success in several of the most complex aspects of the work involved. A recent prime case of this still-present discrepancy between the capabilities of the top Western oil and gas firms and those from China and Russia was the failure of the China National Petroleum Corporation (CNPC) to take over the country’s crucial Common Seawater Supply Project (CSSP) from ExxonMobil. The project involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities to maintain pressure in oil reservoirs to optimise the longevity and output of fields. To reach and then sustain the higher levels of Iraq’s increased oil production profiles, it will need water injection equating to around 2% of the combined average flows of the Tigris and Euphrates rivers or 6% of their combined flow during the low season. The Chinese firm assured Iraq’s Oil Ministry that the withdrawal of the U.S. powerhouse would not affect the implementation schedule of the CSSP. However, months later nothing of consequence had been achieved, a senior source who works closely with the Ministry exclusively told OilPrice.com at the time.
Interestingly for the future of the West in Iraq, this failure finally clarified to Iraq’s Oil Ministry that if they wanted these critical projects to be completed, they had little choice but to turn to Western firms, according to the source. From these firms’ perspective, this realisation on the part of the Ministry meant that they were able to strike deals that did not involve the questionable practices that have characterised Iraq’s oil and gas sector for so long, as repeatedly highlighted by multiple sources, as also detailed in my latest book. Although the Oil Ministry did its best to obfuscate the terms of the CSSP element of TotalEnergies’ four-pronged deal, the Iraq source added, it was ultimately the French firm’s insistence on clarity across the board that prevailed. Moreover, such is the scale and scope of the deal that TotalEnergies is likely to be an active and growing presence across southern Iraq for years to come. Indeed, the CSSP is crucial to Iraq’s ambitions to finally realise its oil production potential, as was laid out in a 2012 confidential ‘Integrated National Energy Strategy’ (INES) report sent to then-Prime Minister Nouri al-Maliki. This showed exactly how Iraq could increase its oil output from just over 3 million bpd at that point to a plateau of 13 million bpd in the ‘High Production’ scenario by 2017. The ‘Medium Production’ scenario plotted a course to 9 million bpd plateau by 2020, while the ‘Low Production’ scenario planned for 6 million bpd by 2025. Around a year later, a limited-circulation report by the International Energy Agency (IEA) reached similar conclusions about Iraq’s oil production potential.
Other elements of the French firm’s project are equally critical to Iraq’s long-term future, especially its Gas Growth Integrated Project’, as also examined in full in my latest book on the new global oil market order. This is broadly aimed at making Iraq self-sufficient in gas, which it is more than capable of becoming. Official estimates being that it has proven reserves of conventional natural gas amounting to 3.5 trillion cubic metres (Tcm) or about 1.5% of the world total, placing it 12th among global reserve-holders. However, the IEA estimates that ultimately recoverable resources are 8.0 Tcm. Aside from the huge financial benefits of monetising its full gas reserves, becoming gas independent would also prevent it from being further sanctioned by the U.S. for continuing to import around 40% of its power requirements through gas and electricity from Iran.
BP’s new deal in and around the Kirkuk area of Iraq is no less significant than TotalEnergies’ in several key respects. In practical oil terms, the five domes it is due to develop have around 20 billion barrels of oil reserves and Iraq has the joint lowest lifting cost of any country in the world – at US$1 to US$2 per barrel – alongside Iran and Saudi Arabia. Production from these sites in conjunction with TotalEnergies’ CSSP work should do a lot to bring Iraq’s oil production closer to the potential laid out in the 2012 INES study. More broadly, the two firms’ work and the West’s growing presence in the north and south of Iraq might help to dampen down tensions between the Federal Government of Iraq (FGI) centred in the southern Iraqi capital of Baghdad and the government of the semi-autonomous region of Kurdistan (the KRG) based in Erbil in Iraq’s north. According to several accredited historical sources, the Kurds settled in Kirkuk long before any other ethnic groups, and the site has been referred to by various Kurdish leaders as ‘the Jerusalem of Kurdistan’. As such, the KRG has long claimed implicit jurisdiction over the city and region of Kirkuk, over which it exercised effective administrative control from 2014 to 2017. During this period, the KRG’s fearsome Peshmerga army safeguarded Kirkuk from the then-rampant Islamic State (IS). In return for the force’s exceptional success in dealing with IS across much of Iraq, the KRG was quietly assured by Washington that the U.S. would back the Kurds’ wishes for full independence from Iraq once the IS threat was over, as also detailed in my latest book on the new global oil market order. On 25 September 2017 a vote on independence for the northern Iraq Kurds from the rest of Iraq took place and 92 percent of the 3.3 million population eligible to vote cast their ballots in favour of a new independent Kurdish country being formed to the north of the rest of Iraq. At that point, all hell broke loose, with the upshot being that the Kurdistan Region of Iraq is still not independent.
Chinese- and Russian-sponsored moves have been afoot for some time to persuade the FGI to remove the last vestiges of the KRI’s independence by cutting off its main source of financing — oil exports – before simply rolling it into the rest of Iraq as a regular region. As a senior political source in Moscow exclusively told OilPrice.com many months ago: “Iraq will be one unified country and by keeping the West out of energy deals there, the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise.” This ultimate objective was clearly laid out on 3 August last year when Iraqi Prime Minister, Mohammed Al-Sudani said the new unified oil law — run in every way that matters out of Baghdad — will govern all oil and gas production and investments in both the FGI and KRI areas and will constitute “a strong factor for Iraq’s unity”. However, the current broad policy of the West is to target investments in the KRI such that it persuades the KRI government to terminate all links with Chinese, Russian and Iranian companies connected to the Islamic Revolutionary Guards Corps over the long term, a senior source who works closely with the European Union’s (E.U.) energy security complex exclusively told OilPrice.com recently. Given their importance and longevity, BP’s deal and that of TotalEnergies could well prove pivotal to the success of these ambitions.
By Simon Watkins for Oilprice.com
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The post With BP’s Megadeal Approved, Is the West Back in Iraq? appeared first on Energy News Beat.
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