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Iraq approves delayed gas contracts, aiming to avoid sanctions

Highlights

Projects in six blocks to produce up to 750 MMcf/d

Sanctions waiver expires in mid-February

UAE's Crescent Petroleum strengthens presence

Amman, Jordan — Iraq's cabinet has greenlighted the drilling of several gas blocks nearly two years after the contracts were first awarded, as the country seeks to lessen its energy dependence on Iranian supplies and stave off potential US sanctions.

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The developments, all near Iraq's borders with Iran and Kuwait, are capable of producing more than 750 MMcf/d of gas within three years, the prime minister's office said in a statement.

That should reduce Iraq's imports from Iran, currently amounting to 1.25 Bcf/d of gas and 1,000 MW/d of electricity. The US has pressured Iraq to stop relying on those imports, given the Trump administration's maximum pressure campaign on the Iranian regime.

The US has granted Iraq several 90-day waivers to continue its Iranian imports, with Iraqi officials contending the country lacks the infrastructure and generating capacity to meet its domestic needs.

But US officials appear to be losing patience. The current waiver expires in February, and Francis Fannon, assistant secretary in the US State Department's Bureau of Energy Resources, told S&P Global Platts this month that for the waiver to be extended, "Iraq must demonstrate credible steps that it is taking to reduce its dependency on Iran."

According to the prime minister's statement, the Iraqi cabinet signed contracts with six companies that had won drilling rights in the country's fifth licensing round in April 2018 for 11 fields and exploration blocks. The recipients are mainly independent companies from the UAE and China. One, the UAE's Crescent Petroleum, was awarded licenses north of Baghdad, relatively close to Kirkuk and the semiautonomous Kurdistan region, where Crescent is in a partnership with Dana Gas at the Khor Mor gas field.

Government initiative

The cabinet also formed a specialized committee to follow up on all gas projects with international and local companies to increase production, develop the pipeline network and ensure funding for governmental projects in the next year, as a "first step to solving the lack of gas fuel for power stations and ending the flaring of gas, and utilize it to ensure self-sufficiency," the statement said.

In addition, it called on the oil ministry to provide alternative fuels to power stations and to "satisfy their demand until the crisis is solved and the performance of the power system is improved in all its sectors."

Crescent Petroleum won three contracts for the blocks of Gilabat-Qumar and Khashm al-Ahmner in Diyala province near the Iranian border and Khidr al-Mai in Basrah near the Kuwaiti border.

Chinese company Geo Jade won the contract for the Naft Khana field near the Iranian border and Hong Kong-based United Energy Group won two contracts for the Huwaiza field on the Iranian border and the Sindibad field in Basrah, also near Iran.

There were no bids for the remaining five border blocks — the onshore Zurbatiya, Shihabi, Fao and Jebel Sanam blocks and the offshore Gulf block.

The contracts were awarded during the first week of April 2018, during the tenure of then-oil minister Jabbar al-Luaibi and were sent to the Energy Ministerial Council to be signed off for cabinet approval. But they had lain dormant due to changes in the cabinet, including a new oil minister, Thamir al-Ghadhban, who indicated he wanted to revise and amend the terms.