Iraq’s oil and gas projects market is holding steady despite facing a variety of political and economic challenges.
Iraq oil & gas 2019
As of 4 June 2019, the total value of all active oil, gas and chemical projects in Iraq stood at $130 billion, according to the project-tracking website MEED Projects.
The total is slightly lower than at the beginning of the year when the value of all projects in execution or pre-execution phases was worth $137 billion. The drop is mainly the result of projects being successfully completed – and the total value of active projects remains far higher than activity levels three years ago, in June 2016, when the value declined to just $75 billion.
The bulk of the current value of active energy projects comes from oil projects, which make up $96 billion of the total.
Chemical projects and gas projects make up just $11 billion and $23 billion respectively.
The majority of the active oil projects in Iraq are in the execution phase. Oil projects under execution are worth a total of $53.5 billion.
Although more than half of all active oil projects in Iraq are currently in the execution phase, there is a healthy pipeline of projects in pre-execution, which bodes well for contractors looking to win new contracts over the coming years.
The value of projects in the study phase has risen from just $4.4 billion in August 2018 to $21.8 billion.
The value of oil projects in the design, bid evaluation and main contract bid phases has also increased, rising from $11.5 billion in August 2018 to $20.8 billion. This positive picture comes a year and a half after Baghdad announced that the Islamic State in Iraq & Syria (Isis) was defeated in Iraq.
Improvements in the security situation since Isis lost its territorial foothold in Iraq have boosted business confidence within the country, but several factors are holding Iraq back from boosting investment and increasing project activity in the oil and gas sector.
Iraq’s relationship with both the US and Iran has added uncertainty to the county’s project market. Both the US oil major Exxon Mobil and the US embassy pulled staff from the country in May due to security concerns about attacks on US interests from militant groups loyal to Iran.
The move was condemned by Baghdad, and Exxon has said that staff are going to be returned to the country. However, it is likely that repercussions from this incident will linger. Any disputes between international oil companies and Baghdad could be a potential block to oil and gas projects being successfully developed and executed.
Failure to properly execute key infrastructure projects could also hinder oil and gas projects in the country over the medium term.
CSSP scaled down
Iraq’s common seawater supply project (CSSP) has been delayed and the scale of the mega project has been dramatically reduced. The Basra Oil Company (BOC) scheme was initially announced in 2011 with a budget of $13 billion and the capacity to deliver 12.5 million barrels a day (b/d) of seawater through 426 kilometres of pipeline, including eight interconnecting stations and 10 delivery stations.
This has been reduced to a capacity of 5 million barrels of water a day, and so far only one of the major packages has been awarded.
This is the $2.45 billion contract for the project’s water treatment plant that was awarded to Hyundai Engineering & Construction last month. The CSSP was designed to bring water from the sea to oil fields in central Basra for injection into the fields, allowing ageing fields to increase pressure in their wells.
Uncertainty over when the CSSP will be completed and whether there will be enough water to meet demands is likely to make oil companies wary about long-term investment in oil field development projects in the Basra area.
The shortage of water in Basra has led to anger among the local population and there were small protests targeting oil facilities in Basra in June. Although these protests were easily dispersed, there are fears that disruption could increase over the coming months.
Ongoing tensions between Baghdad and the autonomous region of Iraqi Kurdistan are also weighing on business optimism in the Iraqi oil and gas sector.
Last month, the regional newspaper Asharq al-Awsat reported that Iraqi Prime Minister Abdul Mahdi had threatened to slash the Kurdistan Regional Government (KRG) budget if it did not deliver 250,000 b/d of oil to the State Organisation for Marketing of Oil (Somo).
The KRG is required to supply Somo with the oil for export in order to get its allotted 7 per cent of the budget under the 2019 federal budget law. Both sides say that the other has failed to keep to the bargain and the KRG has not received its share of the state budget since 2014 when it began exporting oil independently of Baghdad.
This continuing tension between the KRG and Baghdad is another factor undermining business confidence in Iraq and a resolution to this impasse.
This article is sourced from Power Technology sister publication www.meed.com, a leading source of high-value business intelligence and economic analysis about the Middle East and North Africa. To access more MEED content register for the 30-day Free Guest User Programme.