Gulf News: Iraq’s Shortsighted Approach on its Gas Needs
Last week I discussed the natural gas situation in the south of Iraq where the Basra Gas Company (BGC) is making slow progress rehabilitating the gas processing plants or building new ones after more than three years of its establishment in late 2011.
The result is the continued flaring of natural gas to the extent of an average 1,035 million cubic feet a day (mcfd) in the third quarter of 2014, and which could be more now.
Given the growing need for fuels for power generation, Iraq resorted to burning more expensive liquid fuels while the diesel part is mostly imported. But natural gas is the preferred fuel of the Ministry of Electricity, which then resorted to importing gas from Iran, and the Ministry of Oil only kept quiet about this to relieve the pressure on it for failing to supply enough natural gas.
The deal, signed in July 2011, involved the construction of a 227-kilometre, 46-inch diameter pipeline from the border with Iran through the Diyala province to Baghdad to feed the Mansuriya power station midway and two power stations on the Baghdad outskirts, at the cost of $365 million (Dh1.34 billion). The quantity of gas is said to be around 850 mcfd for a period of four years, which was later extended to 10 years without explanation.
The Ministry of Electricity said: “Iraq will buy the contracted gas according to international prices each day from Iran under the four-year deal, which could be extended, generating 2,500 megawatts.” But there are no “international” prices for natural gas and no indication is given as to how to calculate the price of gas when market conditions change.
The only indication we have is that the deal is worth $3.7 billion a year which makes the gas price close to $11 per million British Thermal Unit (Btu). That is very expensive compared to the LNG delivered in 2011 to Germany at $10.48 a million Btu and to Japan at $14.73 a million Btu.
Now that the price of oil almost halved, these prices will be much lower. The current Minster of Electricity, Qassim Al Fahdawi, “attributed the dependence on imported Iranian gas for its cheap price” without giving the basis of his statement. He also said that the Ministry of Oil will “not be able to meet Iraqi demands before 6-10 years”. MORE