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Cash Crunch Halts Iraq Gas Projects

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A lack of funding has forced Iraq to suspend two major gas projects with a combined capacity of 700 million cubic feet per day, according to the Chinese contractor carrying out the work. The suspensions jeopardize Baghdad's efforts to curb gas flaring in its southern oil heartlands and end its imports of gas from neighboring Iran. China Petroleum Engineering & Construction Corp. (CPECC) and its parent company PetroChina signed a $1 billion contract with Iraq's oil ministry in May of last year to process 300 MMcf/d of associated gas from the giant Halfaya oil field. The Chinese contractor was also installing two new 200 MMcf/d processing trains under a contract signed three months earlier with the Royal Dutch Shell-led Basrah Gas Co. (BCG). The so-called Basrah Natural Gas Liquids (BNGL) project would raise the volume of associated gas that BGC captures from three giant oil fields in Basrah province to 1.4 billion cubic feet per day (IOD May1'19). But both projects have now been suspended because of the lack of funds and because the investments do not make sense at current low oil prices, the CPECC source told Energy Intelligence. Coronavirus restrictions, that have hampered the movement of equipment and staff, also played a small role in the suspensions. PetroChina, the listed arm of China National Petroleum Corp., operates Halfaya on behalf of the Iraqi state under a service contract. Shell receives payment in the form of natural gas liquids for its investment in BGC. There is no suggestion that either project has been canceled, but there is also no way of knowing when work will resume. As it seeks to isolate Tehran, the US has pressed Baghdad to break its dependence on imports of electricity and gas from Iran that help to plug its energy deficit, especially during the hot summer months. As a gesture of goodwill toward Iraq's newly appointed government, Washington extended by another four months a sanctions waiver that allows those imports to continue (IOD May8'20). Outgoing Electricity Minister Luay al-Khateeb took a swipe at US policy on Thursday, saying Iraq would need three to four years to achieve energy self-sufficiency, assuming it had a fully functioning government and was free from external pressures. Speaking at a conference hosted by US think tank the Atlantic Council, he said Washington was currently asking Baghdad every three or four months: "When are you going to achieve energy independence?" But more than anything else, it appears to be the massive hole in Iraq's budget caused by the oil price crash that has put the brakes on Baghdad's plan to eliminate gas flaring. Iraq is among the world's worst offenders in terms of gas flaring, ranking second after Russia, according to World Bank figures published last year (IOD Jun.13'19). Nonetheless, a concerted push by outgoing Oil Minister Thamer Ghadhban and progress by the BGC joint venture had yielded tangible results. The monthly volume of gas flared in March -- 1.46 Bcf/d -- was the lowest in five years, the latest official data show. A month ago, Shell admitted that the spread of the Covid-19 virus meant it was no longer possible to work safely on some of BGC's projects, causing non-critical work to be paused until further notice. It declined to comment on whether cash-flow problems had played a role in halting the gas projects, despite several requests by Energy Intelligence, saying only that the BNGL project was "under review." Simon Martelli, London, and Dawn Lee, Beijing

Topics:
Gas Demand, Gas Processing and Gathering, Earnings, NGL/LPG
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