Is The U.S. Going To Bring This Multi-Billion Iraq Project To Fruition?

Among the many projects in Iraq’s energy sector that could each make it much-needed billions of dollars a year in profits, the Nebras Petrochemical Plant is around the top of the list in terms of its potential. British supermajor Shell signed the original memorandum of understanding to develop the idea back in 2012 and then signed the official deal to do so in January 2015, with high hopes on both sides for the project. For Shell, it would offer the opportunity to build out its then-upstream operations in Majnoon and West Qurna 1 into a flagship value-added downstream capability. These massive fields offered huge additional oil and associated gas feedstock to add to that which could come from Shell’s 44 percent stake in the US$17 billion 25-year Basrah Gas Company project. Shell’s design plans for Nebras were for a project that could produce at least 1.8 million metric tonnes per year (mtpa) of various petrochemicals. This would make it Iraq’s first major petrochemicals project since the early 1990s and one of only four major petrochemicals complexes across the entire country at that point. Following years of wrangling with the various Iraqi governments since 2012, Shell finally withdrew from the Nebras project in February this year. News emerged last week that U.S. powerhouse engineering and energy consultancy KBR has now begun a comprehensive technical and economic review to map an optimal implementation path for the project, building on previous studies.

To save our friends at KBR some time, OilPrice.com has summarised all the key points (they are always the same) from all the previous major studies of the Nebras project as follows (using specific elements from a major Russian oil and gas firm’s petrochemical division’s all-encompassing study a few years ago to illustrate each). The first point is that Iraq has vast oil and gas resources, which can be used to feed a petrochemical plant. Specifically, it holds an estimated 145 billion barrels of proven crude oil reserves – around 9 percent of world’s total – although this is a very conservative estimate, as analysed in full in my latest book on the new global oil market order. Its proven natural gas reserves total around 131 trillion cubic feet – the 12th largest in the world – but again there may be a lot more. The rate of exploration for non-associated (with oil drilling) gas reserves has not matched that for oil, and the associated gas resources it might have may also be massive but remain largely untapped. The second point is that there is every benefit to Iraq using these energy flows in the production of high-value petrochemicals rather than low-value oil and gas exports or — as happens now for a huge proportion of its associated (with oil) gas flows – rather than being flared (essentially, burning money). At the time of the Russian analysis, Iraq was flaring 12.4-16.4 billion cubic metres a year (Bcm/y) of associated gas at a then-oil production rate of around 4.1 million barrels per day (bpd). In 2023, it burned off 17.7 Bcm.

The third key part of the studies focus on the technical needs for optimising flows of feedstock for a fully-functioning Nebras Petrochemical Plant. This would require increasing (as it was at the time of the big Russian study) gas volumes up to an average of one billion standard cubic feet per day (Bscf/d) so that ethane can be extracted on a sustainable and reliable basis and that would give sufficient volume for a major petrochemicals plant to be viable. Even by 2019/2020, Shell’s gas project with the Basrah Gas Company had reached a peak production rate of over this required level (1.035 Bscf/d to be exact). The Russian oil and gas giant’s petrochemical division highlighted that ethane – not naphtha, as Iraq’s Oil Ministry has often suggested – be used, as it was in the development of Saudi Arabia’s master gas system that captured associated gas, which was then fractionated and supplied as primary feedstock to the flagship Jubail Industrial City. This is also advantageous in Iraq, as the highest concentration of ethane (up to 10 percent and slightly over) is usually found in associated gas streams (which Iraq has a lot of), and processing ethane produces the highly-bankable ethylene with few by-products (mainly fuel gas) to process and manage. Additionally, this reduces the capital required for construction and minimises the complexity of the logistics and distribution requirements. Later, as the industry and corresponding infrastructure grows, heavier feed streams can be utilised, as happened with the use of propane, butane and naphtha in Jubail. Overall, according to the previous major feasibility reports on the Nebras Petrochemical Plant, a world-class petrochemicals sector in Iraq would require around US$40-50 billion to develop but would yield exponentially more than that in pure profits over the years.

In the grand scale of the world’s oil and gas sector, this is a snip at the price, so why has it not already happened? “Iraq is among the worst countries on corruption and governance indicators, with corruption risks exacerbated by lack of experience in the public administration, weak capacity to absorb the influx of aid money, sectarian issues and lack of political will for anti-corruption efforts,” according to previous entries in the ‘Corruption Perceptions Index’ by the independent non-governmental organisation, Transparency International. It added: “Massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic bribery that have led the country to the bottom of international corruption rankings, fuelled political violence and hampered effective state-building and service delivery.” It concluded: “Political interference in anti-corruption bodies and politicization of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government’s capacity to efficiently curb soaring corruption.”

Consequently, when the latest Iraqi government paid its regular yearly visit to Washington recently to ask for money in exchange for the same promises it never has any intention of keeping, Washington made it very clear that the U.S. would only consider working with Iraq in the field of oil and gas provided that certain conditions were met. The first part of this risk-reward matrix involves ‘cohesion’, which aims to ensure that Iraq guarantees that each key element in a project will be completed in full, regardless of whether there is a change of government during the lifetime of a project. The second part is ‘security’, relating to the safety of U.S. personnel on the ground and to the legal and accounting soundness of the business and legal practices involved in any agreement. And the third factor is ‘streamlining’, which involves the decision-making and work-implementation processes in any project functioning seamlessly throughout its lifetime. According to a senior figure working closely with the U.S.’s sanctions complex for Iraqi and Iranian issues exclusively spoken to by OilPrice.com, any major agreements signed by big U.S. oil and gas firms in Iraq will have to be agreed in full by U.S. lawyers, all accounts will have to be checked by U.S. accounting firms, working processes will have to be checked by U.S. project consultancy firms, and security issues of any nature will have to be worked through and then monitored on an ongoing basis with U.S. security organisations. Whether KBR reaches all the same conclusions remains to be seen, of course.

Source: By Simon Watkins for Oilprice.com