Total Poised to Launch New Iraq Megaproject

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TotalEnergies is poised to kick off a multibillion-dollar integrated energy project in Iraq after the remaining contracts are finalized in the coming weeks, sources say.

The deal — agreed with Iraq's government in September — will be one of the largest foreign investments in the country's energy sector, with its various components rolled out over the next four to five years.

The French supermajor is expected to invest $10 billion, with total spending including operating expenses over the life of the project pegged at $27 billion.

There are four key components:

  • capture of 600 million cubic feet per day of associated gas at the Ratawi oil field
  • expansion of the field's oil production from 85,000 barrels per day to 210,000 b/d
  • construction of a 1 gigawatt solar power plant
  • a 5 million b/d seawater injection scheme to boost reservoir pressure at Iraq's southern oil fields

A source close to the project told Energy Intelligence that Total will pursue the different components simultaneously.

"The coming four to five years are really important to them in terms of commitment to Iraq, in terms of investment," the source said.

"There are a few preconditions to be met, which are about finalizing some contracts. Things are going well, and in the coming weeks, all those contracts will probably be finalized," the source added.

Political Uncertainty

After the positive signals that the Total deal has sent about investment in Iraq, the industry will be watching closely to gauge the pace at which the project progresses.

Iraq has been a frustrating environment for most of the foreign companies operating there, and other upstream projects are also being watched for signs of progress, notably the Mansuriyah gas development awarded to China's Sinopec last year.

Total's new investment will be made under the profit-sharing structure of Iraq's fifth licensing round that allows investors to capture some of the upside of rising oil prices, which are currently at a seven-year high.

But this is also a time of great political uncertainty in Iraq, and developments in Baghdad will play a role in determining how quickly Total can move forward.

Four months after parliamentary elections were held, the process of forming a new government was thrown into disarray this week when the Supreme Court blocked the front-runner for president, former Finance Minister Hoshyar Zebari, from running.

The court cited past allegations of corruption in its decision and parliament postponed the vote on the presidency, which had been scheduled for Monday.

Oil Minister Ihsan Ismael has stressed that the agreement with Total will have the full support of the country's next government.

The oil ministry says the agreement will enter into force in the first quarter of 2022 "after obtaining the necessary approvals by the regulatory authorities."

Energy Intelligence understands that Total already has a team on the ground for technical cooperation with state-controlled Basrah Oil Co. (BOC) and South Gas Co. (SGC), which will also participate in the project.

Potential Stumbling Blocks

But there could still be stumbling blocks ahead, as indicated by Ismael's sudden October announcement that Iraq National Oil Co. (INOC) will take a 40% stake in the project, even though the process of reviving that dormant company is still far from complete.

INOC's participation would seem to be at odds with Total's own plans — revealed just a few days earlier — to seek other international oil companies as co-investors in the project, and it could complicate the final negotiations.

Foreign operators in Iraq are all too familiar with their plans running into long delays.

One notable example is the main gas capture project in the south of the country. That is now being carried out by the Shell-led Basrah Gas Co, but it took several years for it to start moving forward after the joint venture was formed in May 2013.

Iraq itself would also lose out, of course, if the current political deadlock delays completion of the main components of the Total megaproject, which is currently envisaged in late 2025 or early 2026.

That is especially true of the gas portion of the agreement, because Iraq needs gas for power generation to alleviate the country's frequent power shortages.

The situation has deteriorated in recent months as domestic demand for gas continues to rise while imports from Iran have fallen.

The country's energy crisis prompted acting Electricity Minister Adel Karim to travel to Qatar on Monday to talk about gas imports.

Policy and Regulation, Elections, Military Conflict, Upstream Projects, Conventional Oil and Gas
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