Unlike two oil licensing auctions last year that opened
up Iraq's vast oil reserves and drew strong interest by foreign firms, only 13
out of 45 companies pre-qualified for this week's event paid participation
fees. The meager showing highlights not only prevailing concerns about Iraq's
security situation, but also the challenges of attracting interest in a
commodity in which the world is currently awash.
"Gas is a bit different than oil," said Samuel
Ciszuk, a London-based Mideast energy analyst with IHS Global Insight.
"It's tougher to commoditize,... hence companies are bit more uncertain
about whether the Iraqi terms are good enough, and whether the long-term
stability required is really there." Iraqis already are disappointed.
The number of companies competing for the fields "is
not at the level that we aspired for," Senior Deputy Oil Minister
Abdul-Karim Elaibi told The Associated Press.
For Iraq, the stakes are clear. The nation, home to the
world's third largest proven reserves of conventional crude oil, needs to
attract international interest - and capital - to develop a resource on which
its reconstruction depends after decades of sanction, neglect and war.
The three gas fields on offer have a combined reserve
base of 11.2 trillion cubic feet, or about 10 percent of the country's total
gas reserves. The biggest among them is the 5.6 trillion cubic foot Akkas near
the border with Syria, followed by the 4.5 trillion cubic foot Mansouriya in
Diyala province. The third is the 1.1 trillion cubic foot Siba near Kuwait and
Iran. Akkas and Mansouriya were offered during the earlier auctions but were
not awarded.
When Iraq offered its oil fields last year, interest was
stronger, in part because its oil reserves are among the cheapest to exploit
and there was the expectation that crude demand would continue to climb. But
even then, it met with mixed results as only 13 of the 21 oil fields offered
were awarded.
The same factors that raised concern among the companies
during those auctions remain true today.
Security is uncertain - perhaps more so since the withdrawal
of US combat forces in August. The political process remains fragmented, with
no government yet in place months after the March elections. A national oil law
in the works for over three years has yet to be approved.
But when it comes to gas, other worries also factor in.
"I think the main reason behind the reluctance of
companies is that most of them have had enough deals in Iraq now and want to
see how they are going to go forward with their development plans and how they
are going to deal with the exist challenges.," said Kamel A. Al-Harami, an
independent oil analyst based in Kuwait and former president of Q8, the retail
arm of the Kuwait Petroleum Co.
Also, "there are abundant gas resources, especially
after recent huge gas discoveries in the region and the United States which
forced gas prices to go down," he said.
Iraq faces competition from others in the region,
including Iran and Qatar, as well as non-Mideast heavyweights such as Russia
that are all eager to develop their own ample reserves.
While the focus on boosting oil production is to increase
exports and revenues, much of Iraq's near-term plans for gas, however, are
domestic. Put simply, it needs the gas to fuel power plants at a time when
electricity demand far exceeds output, leaving Iraqis with just five to seven
hours of power per day.
According to Oil Ministry figures, power stations and
industrial enterprises need 1.05 billion standard cubit feet per day for their
operations, but receive only 670 million cubic feet per day.
Meanwhile, overall gas demand in Iraq is expected to
climb to 2.46 billion standard cubic feet per day by 2014 and 5 billion
standard cubic feet per day by 2018.
Those figures are troubling for a nation that sits on an
estimated 112 trillion cubic feet of natural gas, but where frequent power
outages have sparked protests and are seen as among the worst and most enduring
legacies of the post-2003 US led invasion to topple Saddam Hussein.
Even as it looks to boost gas output, Iraq is struggling
to harness the full potential of its current production.
Of the roughly 950 million standard cubic feet it
produces daily, about 40 percent is burned off at the well because of
inadequate gas capture and sequestration facilities that would allow it to make
use of the gas in industry or utilities. A joint venture deal with Royal Dutch
Shell PLC and Japan's Mitsubishi Corp. to capture gas in four southern oil
fields is still pending because of legal issues.
Like other two bidding rounds, the companies will be
vying for the 20-year service contracts in which they will be paid a flat fee
for their services versus the more lucrative production-sharing contracts. The
contracts can be extended for five more years.
Aside from the disappointing turnout by the companies,
the latest auction was off to a rocky start even before it began.
It was first scheduled for Sept. 1, but was twice
postponed to alter the terms to drum up more interest.
The main change were dropping a condition that winning
companies should find an export client for 50 percent of the output. Other
changes including dropping signature bonuses and reducing the annual training
commitment to $1 million from $5 million.
Elaibi, the deputy oil minister, said Iraq will be
responsible for building a national gas pipeline network for the new output.
Initially, the gas will be used for power generation while exports are not
slated to begin for at least four years.
The companies that paid the participation fees are
France's Total SA, Italy's Eni SpA and Edison SpA, Norway's Statoil ASA,
Kazakhstan's KazMunaiGas EP JSC, Turkish Petroleum International Co., or TPAO,
Japan's Oil, Gas and Metals National Corp., or JOGMEC, Itochu Corp.,
Mitsubishi, Kuwait Energy, India's Oil and Natural Gas Corporation Ltd., or
ONGC, Korea Gas Corp., or KOGAS and TNK-BP, BP PLC's Russian joint venture.
