Iraq Forum Debates Fixing Oil Policy Priorities

Iraq Forum Debates Fixing Oil Policy Priorities

The Iraqi Forum of Intellectuals and Academics, which was established last year in Istanbul, recently held a seminar on industry, oil and electricity in Iraq. I was asked to give a presentation on Iraqi refineries and gas processing plants and for that purpose I found it necessary to review development since the occupation in 2003.

The history of the country’s refining industry goes back to 1927 when a small one was set up close to the Iraq-Iran border. But the industry took off in the 1950s when the Daura refinery was built, and in the 1970s when Basra refinery came on stream.

Finally, in the 1980s, the large Baiji with its three production lines was commissioned to bring overall refining capacity to almost 700,000 b/d. The industry with its lubricants production became one of the best in the region.

But the wars and sanctions set the industry back, especially with the destruction suffered in the 1991 aggression on Iraq. The recovery was of a heroic scale and quick, but product quality suffered. From that time to 2003, Iraq could not go ahead with a well thought plan to modernise and expand the industry due to the severe sanctions on it.

Yet, in 2002 and just before the invasion and occupation of Iraq, the industry was running at 88% of its nameplate capacity and exporting 150,000 barrels a day, which helped to finance the running of the country and the industry.

Supposedly all the impediments were no more after 2003 and Iraq could have gone forward to modernise the refineries in addition to building the Central Refinery close to Baghdad where construction work started in the late 1980s.

But this was not done and refinery utilisation suffered as the rate hovered between 60 and 70%. Product specifications remained low, especially with gasoline octane and sulphur level in the diesel. The lube oil industry on average worked at 14% of capacity.

All this led Iraq to import increasing quantities of light petroleum products (LPG, gasoline, kerosene and diesel) in an inadequate makeshift terminal that leaves a lot to be desired. The average import throughout these years were 88,000 b/d, and which since 2004 probably cost Iraq close to $40 billion (Dh147 billion), sufficient to modernise the refineries and build additional ones and remove all constrictions in the distribution system.

Instead, Iraq resorted to two things. First it increased the distillation capacity of Daura and Basra refineries without increasing further downstream

processes to improve product quality. These projects remain inadequate and were slow in coming.

The other idea was the announcement in 2010 that Iraq would build four large-scale refineries with a combined capacity of 740,000 barrels a day at four locations selected even before a feasibility study was done. Some of the locations were far from satisfactory, because consumption in the area was low and it would cost a lot to deliver the products to higher consumption regions or as exports.

Iraq also tried in vain to attract investors to these refineries. In spite of the good terms it offered, no serious interest was shown and, therefore, Iraq awarded only one refinery early in 2014 at Karbala.

This is likely to be completed in 2018 if all goes well. Unfortunately, Baiji is now a battleground and no one knows the extent of damage.

The same dilapidated conditions apply to the two major gas processing plants in the north and south. The available capacity of the two plants is close to 16.5 bcm a year, which would have been sufficient to process all the gas associated with oil production.

Instead, average utilisation is about 44% only and on average over 9 bcm a year is flared. In 2014, estimated gas flared in the south was over 12 bcm, equivalent to 208,000 b/d of oil, at a time when in 2012, power stations were using 15,000 b/d of exportable liquid fuels.

The Basra Gas Company — a joint venture between Iraq, Shell and Mitsubishi established in 2011 — has been slow in performing its mandate to salvage gas. It only recently announced the design of one plant, which is not sufficient for the required increase in gas production.

It is unfortunate and one finds it difficult where to start except to go all out in all directions to review the plans, modernise the plants, build new ones, stop gas flaring and reduce imports as much as possible. The task is huge but it can be done.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.

Source: Gulf News


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