Iraq needs $10 bil to meet US conditions

Iraq needs $10 bil to meet US conditions

With just three days remaining to the expiry of a 30-day US waiver to import Iranian gas and electricity, Iraq will struggle to drum up some $10 billion in investments over a four-year period to stop these imports at a time when US patience with OPEC's second-largest oil producer is wearing thin, S&P Global Platts writes in the article Iraq seen struggling to invest $10 bil to wean itself off Iranian gas and electricity imports.

"We need three to four years allowance in time for the ministry of oil to develop the key projects that it is working on to increase the gas capability and provide the necessary feedstock for the gas to power stations," Electricity Minister Luay al-Khatteeb told S&P Global Platts. "Those three to four years need to be an uninterrupted timeline with a government that enjoys full executive authority and no interferences from political entities and in an environment that is welcoming to investments and multinational participations." The country can import up to 1,200 MW of electricity per year and up to about 1.2 Bscf/d during peak usage in the hot summer months when temperatures in the southern part of the country can soar to 50 Celsius. Electricity supply was estimated at 19 GW in 2019 and forecast to reach 20 GW in 2020, while power demand in peak time is around 25 GW, the minister said.

"Absent massive investment to provide a sizable leap in supply and transmission, in a world without geopolitical pressure, Iraq would use the waivers indefinitely, with imports from Iran part of a diversified portfolio of domestic and imported supply," Patrick Osgood, senior Iraq analyst at Control Risks, said. "But this is not sustainable with the US expectation of Iraqi plans to wean themselves off Iranian energy, and the waivers could end shortly, especially if Prime Minister designate Mustafa Kadhimi fails to form a government."

A US State Department spokesperson declined to comment whether there will be another waiver and its duration and scope. "The United States engages regularly with the Iraqi government on energy security, and we support measures that reduce Iraq's energy dependence on Iran," the spokesperson said. "The granting of a waiver is at the secretary's discretion as is the scope and duration."

To replace Iranian gas and electricity, the country needs to generate around 1.3 Bscf/d of gas at a cost of up to $10 billion, Harry Istepanian, a senior fellow at the Iraq Energy Institute, said, citing a World Bank study.

The country's reliance on gas and other imports cost as much as $8 billion annually and on top of that electricity subsidies in 2017 were estimated at over $11 billion, according to a 2018 World Bank report.

Iraq recently announced a series of measures to increase its gas capacity by capturing associated gas from oil fields, a big percentage of which is flared. Oil Minister Thamer al-Ghadhban last year signed two agreements to capture associated gas from Halfaya and Ratawi oil fields in the south that can produce 750 million scf/d. Other projects can bring total captured associated gas to 1 Bscf/d.

More recently, Ghadhban and a Kurdistan Regional Government delegation agreed to study a proposal to use gas from the semi-autonomous region in the north to use as feedstock in power plants across the country. Baghdad is also interested in investing in gas fields in the Kurdish region, the minister added. "The proposal suggests that Iraq may develop a stabler, less politicized domestic energy policy," Osgood of Control Risks said.

"The Kurdistan region has vast amounts of discovered gas already under contract in a more secure environment for external investors than federal Iraq, and within two years should have enough supply to meet domestic regional demand. It makes sense to develop the excess and sell it to federal Iraq, which has some proximate power plants and has no comparable gas assets ready for development."

For the time being, Iraq will need to keep boosting power generation that is growing annually at a time when any investment depends on many unknowns including future government energy policy, oil prices, and security, Istepanian said. "Iraq will keep needing to import Iranian gas on the longer-term even if it managed to achieve zero flaring, as the demand for electricity will continue to rise," he said. "It is expected Iraq will need to add around 1,500 – 2,000 MW (roughly equivalent to 300 – 400 million scf/d) every year to cope with the increasing demand for electricity (in addition to current deficit)."