Kurdistan has been exporting oil independently from the central government in Baghdad since 2014 and Kremlin-controlled Rosneft joined the list of buyers this year, lending the semi-autonomous region hundreds of millions of dollars in loans guaranteed by future oil sales.
Now Rosneft is widening its investments to gas by agreeing to fund a natural gas pipeline in Kurdistan, Rosneft and the Kurdistan Regional Government (KRG) said on Monday. Two sources close to the deal said the investments would amount to more than $1 billion.
Kurdistan is holding an independence vote on Sept. 25 as it seeks to part ways from Baghdad after years of disputes over budget revenues and the sharing of oil exports.
Erbil, the seat of the KRG in northern Iraq, needs money to fund the fight against Islamic state and a budget crisis caused by low oil prices.
Kurdistan has relied on oil pre-finance deals to improve its fiscal position but has struggled to develop its large gas reserves, which can require more investment to develop on a longer-term scale.
The arrival of Rosneft will speed up gas development, which has so far largely been driven by mid-sized companies.
For Rosneft, the world’s largest publicly listed oil company by production, the deal is a major boost to its international gas ambitions. Rosneft has long sought to challenge Gazprom, Russia’s gas export monopoly, in supplying gas to Europe.
For Turkey, it means the arrival of new supplies for its energy-hungry economy and the potential to become a major center for gas supplies to Europe.
The pipeline’s capacity is expected to handle up to 30 billion cubic meters (bcm) of gas exports a year, in addition to supplying domestic users. Kurdistan sits on some of the largest untapped gas deposits on Europe’s doorstep.
The volumes that Rosneft wants to help Kurdistan supply to export markets are big — they represent 6 percent of total European gas demand and one-sixth of current gas export volumes by Russia — by far the largest supplier of gas to Europe.
The pipeline will be constructed in 2019 for Kurdish domestic use, with exports due to begin in 2020.
Rosneft has previously loaned money to Kurdistan guaranteed by future oil sales and has also agreed to help the region expand its pipeline infrastructure.
Kurdistan is seeking to boost oil exports to one million barrels per day (bpd) by the end of this decade from the current 0.65 million bpd.