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The Iraq Oil and Gas

Projects Market Report 2013
A comprehensive overview of Iraqs upstream oil and
gas, downstream refining and petrochemical sectors,
with a particular focus on the projects market
A MEED Insight report

Table of contents
Table of contents ............................................................................................................................................. 2
List of tables .................................................................................................................................................. 6
List of figures ................................................................................................................................................... 9
1.

Preface .................................................................................................................................................. 12

2.

Executive Summary .............................................................................................................................. 13

3.

Introduction............................................................................................................................................ 16
3.1
Geography and demographics .......................................................................................................16
3.2
Recent history ................................................................................................................................18
3.3
Economy ........................................................................................................................................19
3.4
Government structure ....................................................................................................................21
3.4.1
Federal government .............................................................................................................. 21
3.4.2

Government of the Kurdistan region ..................................................................................... 23

3.5
Key challenges for Iraq ..................................................................................................................24
3.5.1
The challenge of regionalism ................................................................................................ 24

4.

3.5.2

2014 parliamentary elections ................................................................................................ 26

3.5.3

Relations with Iran ................................................................................................................. 27

3.5.4

Security ................................................................................................................................. 28

3.5.5

Corruption .............................................................................................................................. 33

Overview of the Iraq oil industry ............................................................................................................ 35

4.1
Brief history of the oil sector ...........................................................................................................35
4.2
Oil Industry structure ......................................................................................................................37
4.2.1
The Kurdish exception .......................................................................................................... 38
4.2.2

The status of Kirkuk............................................................................................................... 39

4.2.3

Oil exports and the State Oil Marketing Organisation ........................................................... 41

4.2.4

Transparency ........................................................................................................................ 42

4.3
Oil revenues ...................................................................................................................................43
4.3.1
Iraqs dependence on oil revenues ....................................................................................... 43
4.3.2

Restoring control over oil revenues....................................................................................... 44

4.3.3

Revenue sharing between the KRG and Baghdad ............................................................... 45

4.4
Legal framework .............................................................................................................................46
4.5
The procurement process ..............................................................................................................48
4.5.1
The challenge for contractors ................................................................................................ 49
4.6
Logistical obstacles ........................................................................................................................51
4.6.1
Drilling rigs ............................................................................................................................. 51
4.6.2

Customs and equipment ....................................................................................................... 52

4.8
The Iraq National Energy Strategy (INES) .....................................................................................54
4.9
Construction opportunities .............................................................................................................57
4.10 The contractor market ....................................................................................................................60
4.10.1
Petrofac ................................................................................................................................. 62

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5.

4.10.2

Saipem .................................................................................................................................. 63

4.10.3

Samsung Engineering ........................................................................................................... 64

4.10.4

Technip .................................................................................................................................. 65

4.10.5

Chinese contractors .............................................................................................................. 66

Upstream Oil & Gas .............................................................................................................................. 67

5.1
Upstream Oil ..................................................................................................................................67
5.1.1
Oil reserves ........................................................................................................................... 67
5.1.2

Oil production ........................................................................................................................ 68

5.1.3

Regional comparison ............................................................................................................ 71

5.2
Upstream gas .................................................................................................................................74
5.3
Developing Iraqs oil and gas reserves ..........................................................................................81
5.3.1
Al-Ahdab ................................................................................................................................ 81
5.4
Bid round one .................................................................................................................................82
5.4.1
Controversy over the Rumaila contract ................................................................................. 83
5.4.2

Progress since bidding round one......................................................................................... 84

5.4.3

Missan ................................................................................................................................... 84

5.4.4

Rumaila ................................................................................................................................. 86

5.4.5

West Qurna-1 ........................................................................................................................ 88

5.4.6

Zubair .................................................................................................................................... 89

5.5
Bid round two .................................................................................................................................90
5.5.1
Contract terms ....................................................................................................................... 91
5.5.2

Progress since bidding round two ......................................................................................... 92

5.5.3

Badra ..................................................................................................................................... 92

5.5.4

Gharraf .................................................................................................................................. 93

5.5.5

Halfaya .................................................................................................................................. 94

5.5.6

Majnoon ................................................................................................................................. 96

5.5.7

Najma and Qayara ................................................................................................................ 97

5.5.8

West Qurna-2 ........................................................................................................................ 98

5.6
Bid round three .............................................................................................................................100
5.6.1
Akkaz gas field .................................................................................................................... 102
5.6.2

Mansouriya gas field ........................................................................................................... 106

5.7
Bid round four ...............................................................................................................................108
5.7.1
Blocks awarded in round four .............................................................................................. 110
5.8
Future Oil Ministry plans for upstream sector ..............................................................................112
5.8.1
Future production levels ...................................................................................................... 115
5.8.2

Pressure to revise contracts ................................................................................................ 120

5.9
Challenges around increased production ....................................................................................122
5.9.1
Southern oil reservoirs ........................................................................................................ 122
5.9.2

Water injection..................................................................................................................... 125

5.10 Upstream oil in the Kurdistan region ............................................................................................129

5.10.1
Production sharing contracts ............................................................................................... 130

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5.10.2

Tawke .................................................................................................................................. 131

5.10.3

Taq Taq ............................................................................................................................... 132

5.10.4

Khurmala Dome .................................................................................................................. 133

5.10.5

Shaikan ............................................................................................................................... 134

5.11 Kurdish discoveries ......................................................................................................................135

5.12 Turkish investment in Kurdistans upstream sector .....................................................................138
5.13 Upstream gas in the Kurdistan region ..........................................................................................140
5.13.1
Khor Mor and Chemchemaal .............................................................................................. 140

6.

5.13.2

Miran West and Miran East fields ....................................................................................... 142

5.13.3

Sumail field .......................................................................................................................... 142

Midstream Oil & Gas ........................................................................................................................... 144

6.1
Pipeline security ...........................................................................................................................145
6.2
Oil pipelines and storage ..............................................................................................................146
6.2.1
Domestic pipelines and pumping stations ........................................................................... 146
6.2.2

Export pipelines ................................................................................................................... 150

6.2.3

Storage facilities .................................................................................................................. 151

6.3
Crude oil export terminals ............................................................................................................153
6.3.1
Al-Basra Oil Terminal .......................................................................................................... 153
6.3.2

Khor al-Amaya Oil Terminal ................................................................................................ 154

6.3.3

Umm Qasr and Khor al-Zubair ............................................................................................ 154

6.4
Midstream projects .......................................................................................................................155
6.4.1
Domestic pipeline projects .................................................................................................. 155
6.4.2

Export pipeline projects ....................................................................................................... 158

6.4.3

Iraq crude oil export expansion project ............................................................................... 158

6.4.4

Other expansion plans in the south..................................................................................... 159

6.4.5

Refined products import project .......................................................................................... 160

6.4.6

Syriaexport pipelines ........................................................................................................... 162

6.4.7

Jordan export pipeline ......................................................................................................... 163

6.4.8

Storage facility projects ....................................................................................................... 168

6.4.9

Pumping station projects ..................................................................................................... 171

6.5
Midstream gas ..............................................................................................................................174
6.5.1
Existing gas pipelines .......................................................................................................... 174
6.5.2

Gas export pipeline to Kuwait ............................................................................................. 176

6.5.3

Current gas treatment facilities ........................................................................................... 176

6.5.4

North Gas Company ........................................................................................................... 177

6.5.5

South Gas Company ........................................................................................................... 178

6.6
Midstream gas projects ................................................................................................................180
6.6.1
Gas processing ................................................................................................................... 183
6.6.2

Gas pipeline projects ........................................................................................................... 186

6.6.3

South Gas project (Basra Gas Company) .......................................................................... 192

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6.6.4

Further criticisms of the Shell deal ...................................................................................... 198

6.6.5

Missan gas projects............................................................................................................. 199

6.6.6

Gas export options .............................................................................................................. 199

6.7
Kurdish pipelines ..........................................................................................................................200
6.8
KRG pipeline projects ..................................................................................................................201
6.8.1
Kurdistan Iraq crude export pipeline ................................................................................... 201

7.

6.8.2

Shaikan pipeline .................................................................................................................. 202

6.8.3

Kurdistan-Turkey pipeline ................................................................................................... 203

6.8.4

Nabucco gas pipeline .......................................................................................................... 204

Downstream Oil & Gas ........................................................................................................................ 207

7.1
Rising demand for refined products .............................................................................................207
7.2
The rehabilitation challenge .........................................................................................................210
7.3
Antiquated design and production................................................................................................211
7.4
Irregular crude oil supplies ...........................................................................................................212
7.5
Iraqs existing refineries ...............................................................................................................214
7.5.1
North Refineries Company .................................................................................................. 215
7.5.2

Midland Refineries Company .............................................................................................. 218

7.5.3

South Refineries Company ................................................................................................. 220

7.5.4

Nasiriyah and other smaller refineries................................................................................. 221

7.6
Downstream projects ...................................................................................................................222
7.6.1
Greenfield refinery projects ................................................................................................. 223
7.6.2

Nasiriyah Integrated Project ................................................................................................ 225

7.6.3

Karbala refinery ................................................................................................................... 229

7.6.4

Kirkuk refinery ..................................................................................................................... 231

7.6.5

Missan refinery .................................................................................................................... 233

7.6.6

Other planned refineries: Ninevah and Mosul ..................................................................... 235

7.7
Benefits and challenges for greenfield refinery projects ..............................................................235
7.7.1
Legal framework for investors ............................................................................................. 237
7.7.2

Financial challenges ............................................................................................................ 238

7.8
Brownfield refinery projects ..........................................................................................................240
7.8.1
North refinery expansion ..................................................................................................... 241
7.8.2

Daura refinery expansion and rehabilitation ....................................................................... 242

7.9
Petrochemicals .............................................................................................................................246
7.9.1
Existing facilities .................................................................................................................. 246
7.9.2

Petrochemicals projects ...................................................................................................... 249

7.10 Downstream oil in the Kurdistan region .......................................................................................250

7.10.1
Erbil refinery ........................................................................................................................ 252
7.10.2

Bazian refinery .................................................................................................................... 252

7.10.3

Other refineries.................................................................................................................... 253

7.10.4

Kurdish refinery projects ..................................................................................................... 253

7.10.5

Kurdistan petrochemicals .................................................................................................... 254

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List of tables
Table 1: Snapshot of demographics by province .......................................................................................... 17
Table 2: Iraq economic indicators, 2002-12 .................................................................................................. 19
Table 3: Key indicators 2012......................................................................................................................... 21
Table 4: Branches of government ................................................................................................................. 22
Table 5: Iraqi government ............................................................................................................................. 23
Table 6: Kurdistan Regional Government ..................................................................................................... 24
Table 7: Regionalism in Iraq ......................................................................................................................... 25
Table 8: Iraqs security forces ....................................................................................................................... 33
Table 9: Iraq oil sector historical timeline ...................................................................................................... 35
Table 10: Iraq's key NOCs ............................................................................................................................ 40
Table 11: Government budget for state-funded oil and gas projects, 2011-14 ($m)*................................... 56
Table 12: Leading contractors in Iraq ........................................................................................................... 61
Table 13: Middle East market share for European and South Korean contractors ...................................... 62
Table 14: Chinese state-owned EPC firms contract awards ........................................................................ 66
Table 15: Iraqs crude oil reserves growth, 1989-2010 ................................................................................. 67
Table 16: Distribution of Iraqs oil reserves, 2010 ......................................................................................... 68
Table 17: Iraqs major producing oil fields prior to the concession agreements ........................................... 70
Table 18: Total gas reserves......................................................................................................................... 77
Table 19: Iraqs proven gas reserves ............................................................................................................ 77
Table 20: Al-Ahdab field contractual commitments ...................................................................................... 82
Table 21: Licensing round one ...................................................................................................................... 83
Table 22: Missan field projects...................................................................................................................... 85
Table 23: BP/CNPC Rumaila field contractual commitments ....................................................................... 87
Table 24: Licensing round two ...................................................................................................................... 90
Table 25: Summary of licensing rounds one and two ................................................................................... 91
Table 26: Planned wells ................................................................................................................................ 92
Table 27: Badra field projects ....................................................................................................................... 93
Table 28: Gharraf field projects ..................................................................................................................... 94
Table 29: Petrochina second-phase development EPC tenders .................................................................. 95
Table 30: Lukoils major EPC projects in Iraq ............................................................................................. 100
Table 31: Gas fields signed under the third licensing round ....................................................................... 101
Table 32: Gas fields signed under the third licensing round ....................................................................... 102
Table 33: Akkaz contractual commitments and timeline ............................................................................. 103
Table 34: Mansouriyah contractual commitments and timeline .................................................................. 107
Table 35: Siba contractual commitments and timeline ............................................................................... 107
Table 36: Exploration block sizes and prospects ........................................................................................ 109
Table 37: Oil and gas prospects ................................................................................................................. 110
Table 38: Iraqs fourth licensing round summary ........................................................................................ 112
Table 39: State-funded field developments, 2011-14 ................................................................................. 114
Table 40: Iraqs budgeted oil production for 2012 ...................................................................................... 117
Table 41: Government oil price assumptions, 2010-14 .............................................................................. 117
Table 42: Southern oil field reserves and production ................................................................................. 124
Table 43: KRG oil field production .............................................................................................................. 130
Table 44: Selected Kurdistan region discoveries ........................................................................................ 137
Table 45: Iraqs current pipeline network .................................................................................................... 145
Table 46: Selected existing major pipelines................................................................................................ 147
Table 47: Summary of Iraqs current southern pipeline network ................................................................ 148
Table 48: Existing oil export pipelines ......................................................................................................... 151

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Table 49: Iraq pipeline projects, 2011-14.................................................................................................... 156

Table 50: Planned pipelines ........................................................................................................................ 157
Table 51: International oil company pipelines ............................................................................................. 157
Table 52: Pipelines currently under construction ........................................................................................ 157
Table 53: Government crude export pipeline budget, 2011-14 ($m) .......................................................... 158
Table 54: Iraq southern oil export terminal capacity expansion projects .................................................... 160
Table 55: Iraq-Jordan export pipeline infrastructure project ....................................................................... 165
Table 56: Parties to the BOOT project ....................................................................................................... 166
Table 57: Iraq crude oil storage capacity .................................................................................................... 168
Table 58: Iraq tank farm projects ................................................................................................................ 169
Table 59: Selected pipeline and pumping station projects ......................................................................... 171
Table 60: Government pumping station budgeted rehabilitation projects, 2011-14 ................................... 171
Table 61: Iraqs crude oil and product pipelines ......................................................................................... 173
Table 62: Iraqs gas pipeline network ......................................................................................................... 175
Table 63: Selected existing gas pipelines ................................................................................................... 176
Table 64: Iraqs main gas processing plants ............................................................................................... 177
Table 65: North Gas Company degassing stations .................................................................................... 178
Table 66: South Gas Company degassing and compressor stations ......................................................... 179
Table 67: Planned processing plants .......................................................................................................... 184
Table 68: Gas pipeline projects, 2011-14 ................................................................................................... 188
Table 69: Government gas feedstock pipeline budget, 2005-14 ($m) ........................................................ 188
Table 70: Planned gas pipelines and processing plants ............................................................................. 190
Table 71: Possible KRG pipelines .............................................................................................................. 204
Table 72: Oil product imports, 2010 ............................................................................................................ 209
Table 73: Output of petroleum products, 2006-10 ('000 b/d) ...................................................................... 210
Table 74: Consumption of petroleum products, 2006-10 ('000 b/d) ........................................................... 211
Table 75: Opec refining capacity complexity .............................................................................................. 212
Table 76: Current installed refineries in Iraq ............................................................................................... 215
Table 77: North Refineries Company facilities ............................................................................................ 215
Table 78: North refinery process units ........................................................................................................ 216
Table 79: Salahuddin-1 refinery process units............................................................................................ 217
Table 80: Salahuddin-2 refinery process units............................................................................................ 217
Table 81: North Refineries Companys smaller refineries .......................................................................... 217
Table 82: Midland Refineries Company facilities ........................................................................................ 218
Table 83: Daura refinery production units ................................................................................................... 220
Table 84: South Refineries Company facilities ........................................................................................... 220
Table 85: Government allocated budget for downstream projects, 2005-14 ($m) ..................................... 224
Table 86: Announced grassroot refinery projects ....................................................................................... 225
Table 87: Nasiriyah refinery product slate (using Configuration-3) ............................................................ 226
Table 88: Prequalified firms for Nasiriyah Integrated Project ..................................................................... 227
Table 89: Nasiriyah refinery technology providers ...................................................................................... 228
Table 90: Karbala refinery units under Technip design .............................................................................. 230
Table 91: Karbala refinery product slate ..................................................................................................... 230
Table 92: Kirkuk refinery units..................................................................................................................... 231
Table 93: Kirkuk refinery product slate ....................................................................................................... 232
Table 94: Missan refinery units ................................................................................................................... 233
Table 95: Missan refinery product slate ...................................................................................................... 234
Table 96: Refinery principles and challenges ............................................................................................. 236
Table 97: Iraq refinery upgrade prgramme, 2012-2019 .............................................................................. 240
Table 98: Government budgeted refinery upgrade programme, 2011-15 .................................................. 240
Table 99: North refinery expansion projects ............................................................................................... 241
Table 100: Daura refinery in 2010 .............................................................................................................. 242

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Table 101: Daura refinery projects .............................................................................................................. 243

Table 102: Status of Iraqs brownfield refinery projects .............................................................................. 244
Table 103: Existing petrochemical facilities ................................................................................................ 247
Table 104: Iraq fertiliser plants .................................................................................................................... 248
Table 105: TTOPCO revenue, 2010-11 ...................................................................................................... 251
Table 106: Kurdistan region refining projects ............................................................................................. 254
Table 107: Iraq petrochemical projects ....................................................................................................... 255

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List of figures
Figure 1: Nominal GDP, 2002-12 .................................................................................................................. 19
Figure 2: Estimated average Iraqi civilian fatalities a year, 2003-11 ............................................................ 30
Figure 3: Iraq estimated weekly fatalities, 2011 to mid-2013....................................................................... 31
Figure 4: Oil Ministry organisation ................................................................................................................ 41
Figure 5: Iraq government revenues versus oil prices, Jan 2010-May 2013 ................................................ 44
Figure 6: Well requirements and rig count under IEAs central production scenario .................................... 52
Figure 7: Iraq government capital expenditure forecast (2012-2030) ........................................................... 55
Figure 8: Government capital spending, 2008-2015 ..................................................................................... 55
Figure 9: Government expenditure, 2011-2015 ............................................................................................ 56
Figure 10: Comparative value of energy projects in the Gulf region, 2005-12 ............................................. 57
Figure 11: Iraq contract awards (2005-2013)................................................................................................ 58
Figure 12: Status of Iraq projects (%) ........................................................................................................... 58
Figure 13: Oil sector contract awards due in 2013 and 2014 ....................................................................... 59
Figure 14: Gas sector contract awards due in 2013 and 2014 ..................................................................... 59
Figure 15: Value of contracts for selected EPC firms ................................................................................... 60
Figure 16: Reserves, 1980-2010 (billion barrels) .......................................................................................... 68
Figure 17: Oil production, 1982-2012 (000 b/d) ........................................................................................... 69
Figure 18: Iraqs major producing fields prior to the licensing rounds .......................................................... 71
Figure 19: Oil production in Iraq, Saudi Arabia and Iran, 1982-2012 ........................................................... 72
Figure 20: Number of active rigs, 2006-10.................................................................................................... 72
Figure 21: Producing wells: comparison between Iran, Iraq and Saudi Arabia, 2006-10 ............................. 73
Figure 22: Opec reserves and production by country ................................................................................... 73
Figure 23: Iraq gas reserves map ................................................................................................................. 75
Figure 24: Natural gas reserves, 1980-2010 ................................................................................................ 76
Figure 25: Total gas reserves (%) ................................................................................................................. 77
Figure 26: Iraqs major gas fields .................................................................................................................. 80
Figure 27: Rumaila oil production profile, 2010-15 (000 b/d) ....................................................................... 86
Figure 28: West Qurna-1 oil production profile, 2010-15 (000 b/d) ............................................................. 88
Figure 29: Zubair oil production profile, 2010-16 (000 b/d) .......................................................................... 89
Figure 30: Majnoon oil production profile, 2010-17 (000 b/d) ...................................................................... 96
Figure 31: Other fields of first and second round production, 2010-17 (000 b/d) ........................................ 98
Figure 32: West Qurna-2 oil production profile, 2010-17 (000 b/d) ............................................................. 98
Figure 33: Iraqs gas field licensing auction ................................................................................................ 101
Figure 34: Akkas gas production plan 2012-2036 ...................................................................................... 104
Figure 35: Akkas field drilling requirements 2012-2035 .............................................................................. 104
Figure 36: Akkas field facilities and pipeline plans ..................................................................................... 105
Figure 37: Akkas field preliminary development plan ................................................................................ 106
Figure 38: Fourth bid round exploration blocks........................................................................................... 109
Figure 39: Government budget for state-funded oil and gas projects, 2010-14 ......................................... 113
Figure 40: Northern oil field production expansion ..................................................................................... 114
Figure 41: Iraqs short term maximum production target, 2014 .................................................................. 115
Figure 42: Iraq crude oil production scenarios ............................................................................................ 116
Figure 43: Iraq's four-year production plan, 2011-14 .................................................................................. 119
Figure 44: Iraqs contracted capacity expansion......................................................................................... 120
Figure 45: Projected oil production, 2010-29 (million b/d) .......................................................................... 120
Figure 46: Ines oil production scenarios (million b/d) ................................................................................. 121
Figure 47: Southern oil field reserves and production ................................................................................ 125

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Figure 48: Water injection requirements ..................................................................................................... 126

Figure 49: Proposed pipeline routes for CSSF ........................................................................................... 128
Figure 50: Common seawater supply facility project concept ..................................................................... 129
Figure 51: KRG production sharing contract structure ............................................................................... 131
Figure 52: The KRGs major producing fields ............................................................................................. 133
Figure 53: Shaikan field proposed development plan ................................................................................. 135
Figure 54: Estimated oil and gas reserves at Kurdish discoveries ............................................................. 135
Figure 55: Chemchamaal field .................................................................................................................... 141
Figure 56: Iraqs oil flows, 2011 .................................................................................................................. 144
Figure 57: Kirkuk to Baiji pipeline exclusion zone (PEZ) ............................................................................ 145
Figure 58:Iraqs south oil pipeline network .................................................................................................. 148
Figure 59: Iraqs current crude oil pipelines and pumping stations............................................................. 152
Figure 60: Iraqs ports ................................................................................................................................. 153
Figure 61: Iraqs southern oil export terminal expansion ............................................................................ 161
Figure 62: Southern export storage and pumping stations ......................................................................... 162
Figure 63: Planned export pipelines to Syria .............................................................................................. 163
Figure 64: Proposed Iraq-Jordan crude oil export project .......................................................................... 164
Figure 65: Iraqs BOOT pipeline structure .................................................................................................. 167
Figure 66: Iraqs oil storage projects ........................................................................................................... 170
Figure 67: Iraqs southern storage and export system expansion .............................................................. 172
Figure 68: Iraq gas production and transportation, 2012 ............................................................................ 174
Figure 69: Associated gas gathering, treatment and processing infrastructure in southern Iraq ............... 179
Figure 70: Gas sector capital expenditure .................................................................................................. 180
Figure 71: Iraqs current dry gas pipelines .................................................................................................. 181
Figure 72: Projected gas volumes from licensed oil and gas fields, 2010-16 ............................................. 182
Figure 73: Associated gas production plan, 2012-17 ................................................................................. 182
Figure 74: Iraq gas production (2011) ......................................................................................................... 183
Figure 75: Iraqs dry gas and LPGdemand (2012-2030) ............................................................................ 184
Figure 76: Gas supply and processing capacity (billion cf/d) ...................................................................... 185
Figure 77: Gas value chain ......................................................................................................................... 186
Figure 78: Iraqs gas transmission grid and proposed power plants .......................................................... 187
Figure 79: Proposed gas pipeline network .................................................................................................. 189
Figure 80: Proposed gas infrastructure network ......................................................................................... 190
Figure 81: Proposed LPG transport infrastructure ...................................................................................... 191
Figure 82: South Gas project: fields and facilities ....................................................................................... 193
Figure 83: South Gas project: sour gas system .......................................................................................... 195
Figure 84: South Gas project: overview of units required ........................................................................... 197
Figure 85: South Gas Project: overview of capacity expansion.................................................................. 198
Figure 86: Gas export opportunities ............................................................................................................ 199
Figure 87: Kurdistan Iraq crude export (KICE) pipeline .............................................................................. 202
Figure 88: Planned route for the Nabucco pipeline .................................................................................... 206
Figure 89: Domestic refined product consumption, 2006 to 2011 .............................................................. 207
Figure 90: Refined production consumption by province, October 2011 .................................................... 208
Figure 91: Iraqs refined product supply and demand balance ................................................................... 209
Figure 92: Iraqs refined product balance (2011) ........................................................................................ 209
Figure 93: Output of petroleum products ('000 b/d) .................................................................................... 210
Figure 94: Consumption of petroleum products, 2006-11 .......................................................................... 211
Figure 95: Crude oil supplies to refineries, Jan 2009-Mar 2013 ................................................................. 213
Figure 96: Existing pipelines and major refineries ...................................................................................... 214
Figure 97: Iraq refineries and grassroot projects ........................................................................................ 222
Figure 98: Comparison of regional downstream projects ........................................................................... 223
Figure 99: Oil Ministry refinery expansion plan ........................................................................................... 224

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Figure 100: Nasiriyah refinery configuration chosen by Oil Ministry ........................................................... 228
Figure 101: Nasiriyah refinery production mix (%) ...................................................................................... 229
Figure 102: Karbala refinery production mix (%) ........................................................................................ 231
Figure 103: Kirkuk refinery production mix (%) ........................................................................................... 232
Figure 104: Kirkuk refinery configuration .................................................................................................... 233
Figure 105: Missan refinery production mix (%) ......................................................................................... 234
Figure 106: INES recommended refinery plan............................................................................................ 237
Figure 107: Forecast downstream and midstream capital expenditure (2012-2030) ................................. 239
Figure 108: Gasoil and gasoline production under the Oil Ministry plan .................................................... 241
Figure 109: Daura refinery configuration .................................................................................................... 244
Figure 110: Iraq basic petrochmicals capacity build up plan (2012 -2030) ................................................ 248
Figure 111: Urea capacity build up (2012-2030)......................................................................................... 250

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1. Preface
Since 2003, Iraq has been talked about as the next big opportunity for the oil and
gas industry. With some of the largest and largely untapped oil and gas reserves
on the planet, it has long been held up as the one market that could act as a
game-changer for the sector.
But it has only really been over the past three years that this potential has begun
to be realised. As peace and stability return to the country and the international oil
companies ramp up their spending on their field concessions, there has been a
marked increase in project activity since 2010.
In this latest MEED Insight report, we assess the various opportunities in the Iraqi
oil and gas sector across the value chain from the wellhead to the export terminal.
These opportunities and their challenges are analysed along with the history,
policy, targets, projects and key clients.
This report, an expansion and update to the best-selling 2012 version, has been
written by Adal Mirza, energy reporter and Iraq specialist at MEED. It is the
product of several months work and thanks go to everyone who made it possible.

Ed James, Head of MEED Insight, Dubai, August 2013

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2. Executive Summary
With its enormous reserves, and equally big ambitions, the Iraqi oil and gas sector
is now opening up for business. In 2009, Iraq set itself on the road to an
unprecedented expansion of its oil and gas production, with plans to lift output to
more than 12 million barrels a day (b/d) by 2017 with the help of more than a
dozen international oil companies (IOCs).
The upstream expansion, matching in under a decade what Saudi Arabia
achieved in 70 years, will be accompanied by an overhaul of the countrys decrepit
oil and gas infrastructure. After years of conflict, with an estimated $300bn-worth
of energy projects planned over the next decade, the country will be the focus of
attention for investors in the region. Few other countries across the globe offer
such an opportunity.
But it also comes with considerable risks. Iraqs political instability and tense
security situation are just the most apparent of the obstacles ahead for the
projects market. In addition to this, there are a number of important questions over
the countrys ability to deliver on its potential.
One critical factor for the upstream sector is Iraqs own commitment to the
ambitious 12 million b/d target. More than three years into the plan, Iraq is now in
the midst of renegotiating its production targets with the IOCs and is expected to
make a decision on its long term production plans by the end of 2014. It is
expected to choose between the more realistic figures of 9 million b/d by 2020 or 6
million b/d by 2025.
Whichever target the Oil Ministry pursues, the challenges remain considerable.
Reaching 9 million b/d will require approximately $600bn in capital expenditure up
to 2030, with the Iraq government bearing the majority of the costs. This is in
addition to the logistical challenges of sourcing and deploying hundreds of drilling
rigs and thousands of trained staff to man the new facilities.
Nonetheless, Iraq is making progress. Production currently stands at more than 3
million b/d and is heading upwards. Iraq earned about $94bn from oil exports in
2012 and this is the critical source of government revenue. Further export capacity
growth, through pipelines and terminals will be fundamental to allow upstream
production growth over the next few years.
The key findings of the report are:

Iraq was the third largest overall project market in the region, after Saudi
Arabia and the UAE. Iraq is currently the fifth largest market for energy
projects in the Gulf region after Saudi Arabia, the UAE, Qatar and Kuwait.

The main driver of the projects market has been oil prices, which have
been consistently above the Iraq governments budget value over the last
few years, enabling greater spending on reconstruction and expansion.

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This has been aided by the opening up of the oil sector, with the
participation of IOCs again since 2009.

Iraq set its highest ever budget in 2013 at $118bn, but it is unclear how
much will be disbursed given the countrys poor track record in pushing
ahead with major projects.

The largest portion of projects in the energy sector to be awarded will go

towards oil production worth an estimated $84bn in 2012 and 2013
planned. This is followed by some $18bn in the downstream oil sector and
$17bn in gas production.

So far, spending has been limited and focused on meeting the short-term
oil production capacity increases at the licensed fields. Longer-term
spending on permanent infrastructure such as processing facilities has
only just begun, and will soon be followed by full field developments in the
coming years.

Reaching the medium level of production set out by the Iraq National
Energy Strategy document will require approximately $600bn in capital
expenditure up to 2030, the majority of which will be borne by the Iraqi
government.

But these investments could generate more than $6 trillion worth of

revenues for the government up to 2030, mostly from the export of crude
oil.

Iraqs aged oil infrastructure will struggle to keep up with increases in oil
production, with the potential for significant bottlenecks. Transport, storage
and export facilities all need to be upgraded to cope with the increased
production or Iraq will simply be adding idle capacity.
Many of these problems are not particularly challenging or technically
complex, but collectively place a huge burden on the Oil Ministrys limited
project handling capacity. Concerns are being addressed, but not at the
same time or pace.

While Iraq is making progress, there are a number of major projects that
will determine its oil production in 2015 which have yet to be sanctioned.
The best example of this is the Common Seawater Supply Facility (CSSF)
project, which remains in the early stages of design.

2012 was considered the break out year for Iraq oil and gas projects,
which a great number and value of projects awarded and now under
execution, such as for the West Qurna-2, Zubair and Badra oil fields,
facilities which are expected to come on stream at the year.

The scale of projects from 2010 to 2012 is consistent with output levels
reaching around 6 million b/d by 2020. Achieving sustained growth in
investment will be a constant battle, which will be affected by numerous
factors from politics and security to logistics.
Legal and political obstacles remain critical challenges to the oil sector.

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The downstream sector represents a $45bn-plus opportunity for

investment in several new refineries and the rehabilitation of Iraqs existing
plants. Despite its massive oil reserves, the country is still reliant on
imports for the majority of its refined products, a significant drain on the
state purse. Iraq has ambitions to become a major refined product
exporter, increasing throughput to 900,000 b/d by 2017, but so far, the
government has failed to provide the right incentives for foreign investors.

The absence of an overarching oil law has been a major problem for the
sectors development. It will be critical to the long-term success of the
industry, along with the re-establishment of the Iraq National Oil Company.

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3.3 Economy
Figure 1: Nominal GDP, 2002-12
140
120
100

$bn

80
60
40
20
0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011e 2012e

e=estimate; na=not available

Source: IMF

Table 2: Iraq economic indicators, 2002-12

Indicator
Nominal GDP
($bn)
of which nonoil GDP
Per capita
GDP ($)
Consumer
price inflation
(%)

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011e

2012e

20.5

13.6

25.8

31.4

45.1

57.0

86.6

65.2

82.2

108.4

128.1

32.0

32.0

30.4

30.6

33.1

na

na

na

na

na

na

802

518

951

1,124

1,568

1,926

2,845

2,087

2,564

3,301

3,808

-7.8

-41.4

46.5

3.7

5.9

4.1

9.5

4.2

0.8

9.6

12.6

e=estimate; na=not available

Source: IMF

Historically, Iraq's economy has been characterised by a heavy dependence on oil

exports and an emphasis on development through central planning.
Crude oil exports represent about 90 per cent of foreign exchange earnings and,
helped by a recent revival in oil exports and high crude prices, the economy is now
growing rapidly. According to the IMF, Iraqs nominal gross domestic product
(GDP) is set to double by 2015/16.
Increasing oil production has contributed to a rise in GDP per capita from $1,300
in 2004 to $6,300 in 2012. The economy is dominated by the oil sector which

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Figure 4: Oil Ministry organisation

Source: Oil Ministry

4.2.3 Oil exports and the State Oil Marketing

Organisation
Iraqs only official exporter of crude oil, refined products and natural gas is the
State Oil Marketing Organisation (Somo), which was created in 1997 as an Oil
Ministry subsidiary. It is responsible for all crude oil sales via export terminals in
the south, trucks to Jordan and pipeline sales through Turkey.
After the needs of the domestic refining and power market have been met, Somo
sells Iraqi crude according to global price formulas to achieve a maximum return.
In terms of its customers, priority is given to companies that have large refining
capacities, on the basis that they are better placed to withstand sudden price
fluctuations and to maintain demand for Iraqi crude oil over the longer term.
Contracts are based on semi-annual, annual or longer-term contracts. Since it was
nationalised in the early 1970s, Iraq has had a relatively stable list of some 26
customers. Attempts to expand this client list have never been seriously pursued,
at least in part because of outdated marketing practices by Somo and corruption.

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Figure 6: Well requirements and rig count under IEAs central production scenario

Source: IEA

Two parallel markets have been developing with the Big-Four service companies
offering large integrated service packages in the south and more fragmentation in
the exploration-oriented Kurdistan region in the north.
Although the Kurdish region represents only 5 per cent of Iraqs total production,
its reserves are significant, and the KRGs production sharing contracts have
attracted 50 operators to the region. However, given the relative youth of the
regions oil sector, the majority of wells are exploration and appraisal wells. Some
30 exploration wells have been drilled and completed in the Kurdish region in the
last five years, resulting in more than 20 discoveries so far.
The region is getting to the stage where significant finds have been made, and are
now moving from exploration to production. As such, the outlook for rigs will be
similarly positive.

4.6.2 Customs and equipment

However, the biggest challenge will be bringing the rigs into the country. There is
only one real sea route. There is also the long wait for approvals at customs.

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Many major projects are due to come to the market in the near future. Shell is
expected to issue a major set of tenders in 2013 or early 2014 for a second phase
of central processing facilities at the Majnoon oil field. This will include a 200,000b/d oil separation plant, a 250,000-cf/d gas treatment plant, as well as a 42-inch,
160km export pipeline, along with storage tank farms, enabling works, roads and
bridges.
BP is also expected to issue to tenders for new production facilities at the giant
Rumaila oil field, Iraqs largest producing field. There will also be major
opportunities in the downstream sectors, where Iraq is making progress on two of
its planned grassroot refineries.

4.9 Construction opportunities

The key feature of Iraq is the need to move ahead with numerous large projects
over a short period of time when both experience and infrastructure is scarce.
Bottlenecks in infrastructure, labour and capital, along with Iraqs political
instability, are all major issues.
According to regional projects tracker, MEED Projects, Iraq has a total of $8.45bn
worth of engineering, procurement and construction (EPC) projects under
execution. The regions largest EPC market, Saudi Arabia, by comparison has
awarded an estimated $53bn worth of projects.
However, a comparison of the two countries planned projects is revealing. Iraq has
a total of $78.5bn worth of projects currently in the design, prequalification or
bidding stage, compared to $41.2bn in Kuwait and only $12.8bn in Saudi Arabia.
Figure 10: Comparative value of energy projects in the Gulf region, 2005-12
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-

Iraq

Saudi Arabia

Execution

FEED

UAE

Kuwait

Main Contract Bid

Oman

Qatar

Main Contract PQ

Source: MEED Projects

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Figure 18: Iraqs major producing fields prior to the licensing rounds

*fields now operated in joint venture with international oil companies

Source: MEED Insight. Note the map can be zoomed to make it more readable

5.1.3 Regional comparison

The scale of the task facing the Oil Ministry as it tries to revive the countrys oil and
gas industry becomes clear when Iraq is compared with its two key regional rivals
of Iran and Saudi Arabia.
In the mid-1960s, all three countries were producing close to 2 million b/d of oil.
Since then, Saudi Arabia has increased its capacity fivefold and Iran has doubled
its output, while Iraq has lost ground to both. Iraq is also languishing behind both
Iran and Saudi Arabia on the basis of three other key measures of the health of its
oil sector: the number of active rigs, the number of completed wells and the
number of producing wells.

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7.5 Iraqs existing refineries

Iraqi refining capacity is divided into three operating companies. The North
Refinery Company is headquartered at the Baiji Oil Refinery, the Midland Refinery
Company is headquartered at the Daura Refinery, while the South Refinery
Company is headquartered at the Basra refinery. All of these companies fall under
the control of the Deputy oil minister Ahmed al-Shamma.
Figure 96: Existing pipelines and major refineries

Source: MEED Insight

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Figure 104: Kirkuk refinery configuration

Source: North Oil Company

7.6.5 Missan refinery

Shaw has also completed the studies and designs for another 150,000 b/d refinery in
the Missan province on Iraqs southeastern border with Iran. The refinery is also
estimated to cost $5bn.
Table 94: Missan refinery units
Process units
Atmospheric distillation unit
Vacuum distillation unit
Naphtha HDS unit
Reforming unit (CCR)
C5/C6 isomerisation unit
Saturated LPG treatment unit
Kerosene HDS unit
Gas-oil hydrotreating unit
Vacuum gas-oil hydrotreating unit
Solvent de-asphalting unit
De-asphalted oil HDT unit
Fluid catalytic cracking unit
Unsaturated LPG treatment unit

The Iraq Oil & Gas Projects Market 2013

Capacity (b/d)

150,000
82,300
31,800
22,500
11,600
2,200
16,700
30,300
56,300
46,700
27,600
42,300
9,800

Process technology licensor

Shaw Energy & Chemicals
Axens
Axens
Axens
UOP
Axens
Haldor Topsoe
Haldor Topsoe
KBR
Axens
Axens
KBR
Axens

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233

By 2030, the study forecasts total capacity reaching 16.8 million t/y. By comparison,
Saudi Arabias capacity in 2011 was 22 million t/y, and Iran stood at 9 million t/y.
Domestic demand is not expected to reach more than 1 million b/d, leaving the
majority of production for export.
Methane-based urea fertilizer production is another possibility. In 2009, Iraq spent
more than $100m on importing 293,000 tonnes of fertilizers. INES suggests
increasing production to meet local demand of around 2 million t/y through the
rehabilitation of Iraqs existing plants and addition of 700,000 t/y by 2017 with small
short term facilities located near domestic demand centers. In the longer term this
would then be ramped up to 8.3 million t/y by 2028 as greater volumes of methane
become available, with around 6 million t/y for export.

Figure 111: Urea capacity build up (2012-2030)

9
8
7
6
5
4
3
2
1
0

Existing urea capacity

Rehabilitated capacity

New capacity

Source: Ines
Both urea and petrochemical production will require significant volues of gas
feedstock, rising to as much as 2 billion cf/d by 2030.

7.10 Downstream oil in the Kurdistan region

The Kurdistan region is a net importer of refined products, despite having excess
crude oil production. To counter that, the Kurdistan Regional Government (KRG) is
planning to raise its refining capacity. The KRG says its refining capacity is around
114,000 b/d from two refineries; Bazian and Erbil. Add to this numerous topping
plants and refining units at the producing fields and Genel Energy estimates that the

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Iraq Oil and Gas Projects

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