Iraq turns to Kazakhstan for natural gas amid shortage

Iraq will look to Kazakhstan to supply it with gas as a shortage in gasoil production has left petrol stations in the central provinces dry.

"The Ministry of Electricity is going to contract with Kazakhstan to supply Iraq with gas in the future in quantities reaching 20 million cubic meters,” Ali Shaddad, spokesperson for the parliamentary oil, gas and natural resources committee, said in a statement carried by state news agency INA on Oct. 16. OPEC's second-largest producer also struggled with electricity shortages this summer as a summer heat wave saw power consumption shoot up 20% which put untenable pressure on Iraq’s electricity grid. Iraq's oil distribution company’s director general announced in mid-October that the supply of gasoil to power plants had caused its large stockpiles to be depleted as the Karbala refinery was down for annual maintenance and fixing technical issues.

This spurred a gasoil shortage in the central provinces and kickstarted an ongoing crisis at fuel stations. Sources in the oil ministry and state oil marketer SOMO told S&P Global Commodity Insights that the ministry had ordered SOMO to issue an urgent tender for 150,000 mt of gasoil to be imported, in three batches of 50,000 mt each.

Iraq has now turned to Kazakhstan to fill this supply crunch, but Kazakhstan itself has a tight gas balance, according to analysis from S&P Global Commodity Insights. Gas industry development plans laid out in 2021 have reduced the amount of gas available for export by 60%. In 2023, Kazakhstan’s gross gas production was reported as 59.1 Bcm, 10% higher than in 2022.

“Commercial gas production has remained essentially stagnant for the past eight years or so, and 2024 is going to be no different,” Commodity Insights analysts said. China is an important, revenue-generating export market for Kazakh gas, but in the first half of 2024, exports to China were down year on year by about a third, to 1.08 Bcm, with revenue falling from $420.5 million to $273.3 million, Commodity Insights analysis finds.

Iraq’s electricity crisis is the result of numerous factors, including persistent technical and commercial losses, financial challenges, high levels of corruption, the aging of some power plants and efficiency deterioration. But the country is working to add additional capacity to the grid and address more systemic issues, including aging infrastructure.

At the end of 2023, the Karbala refinery project was completed, which has been key to reducing reliance on imports.

“Operating the Karbala refinery and completing the refining projects in the northern region reduced the import of petroleum derivatives and ended the import of gasoil and kerosene, as well as reducing the import of improved gasoline from 15 million liters to 7 million liters per day, i.e. 50%,” Talib was quoted as saying.

Currently, Iraq is reliant on gas imports from Iran, which are subject to US sanctions waivers. Iran was the third-largest dry natural gas producer in the world in 2022, according to the EIA, but still suffers from its own power outages.

At the start of the year, Iraq stopped gasoil imports and reduced gasoline imports by 50%. Now, it is working to completely end imports of refined products by 2025, Hussein Talib, director general of oil products distribution company said in a separate statement carried by INA the same day.

“Most power stations operate on gasoil and this is because of the fluctuation in the import of gas from the Iranian side,” Shaddad said. “There were crises during the peak months, accompanied by the Iranian side's failure to commit to exporting gas to Iraq to operate the power stations, which led to turning to alternative fuel, and this had a negative impact on the citizens.”