Iraq is looking for a gas pipeline to Kuwait to contribute to the payment of compensation

Iraq is looking for a gas pipeline to Kuwait to contribute to the payment of compensation



22-11-2017 10:53 PM

The Euphrates -
 
Iraq has appointed Toyo for Japanese engineering to help build a gas pipeline to Kuwait and a related petrochemical plant as Baghdad seeks to reduce gas burn and pay compensation due to the invasion of Kuwait in 1990.

The project, which has not yet been announced, will allow Kuwait to diversify its gas importation in the wake of a political crisis between Gulf states and Qatar, the main supplier of gas.

It would also be a blow to Royal Dutch Shell, which sought to dominate Iraq's gas, before its relations with Baghdad were damaged following its withdrawal from major oil projects.

"Iraq needs an immediate reduction in gas burn as it pursues the goals it has committed to the World Bank," said a senior source in the oil and gas sector working on the project, but not authorized to speak about it publicly.

The World Bank, which repeatedly stipulated a reduction in the gas burn to lend to Baghdad, did not respond to a request for immediate comment.

Sources in the sector said Toyo proposed to build a gas pipeline and start deliveries after 2019.

"Talks on the pipeline and the petrochemical plant are continuing, but the final investment decision has not yet been made," Kinsuke Waki, chief financial officer of Toyota, told Reuters.

Kuwait is keen on the project and offered sovereign guarantees for up to 80 percent of the cost, sources said. The total cost has not yet been announced.

Kuwait's oil ministry did not respond to a request for an immediate suspension. Kuwaiti Oil Minister Essam al-Marzouq said last month talks between Kuwait and Iraq focused on a gas proposal to help Baghdad pay the remaining $ 4.6 billion in war reparations.

Iraqi Oil Ministry spokesman Assem Jihad said the talks focused on the price and stressed supplies could be used to help pay the compensation.

* Disputes over price and factory

Sources in the sector told Reuters that the talks stalled because of disagreement over the price.

Kuwait wants a price below $ 3 per million British thermal units, a price that is compatible with Henry Happ prices in the United States, but less than half of what Iraq pays in the north when it imports gas from neighboring Iran, the sources said.

"The price of gas has been a major sticking point so far," one source said.

He added that both countries wanted to set up a petrochemical plant at home to maximize the use of gas deliveries.

A senior Kuwaiti oil official familiar with the project said discussions with Iraq were still going on, adding that it was not yet clear whether the gas would come from the West Qurna 2 field run by Lukoil of Russia or from Rumaila, run by BP.

Iraq used to supply gas from Rumaila. The quantities amounted to about 400 million cubic feet per day, but stopped short after the invasion of Kuwait in 1990.

More than one million people in Kuwait have been paid compensation for the $ 52.4 billion Iraqi invasion. But Iraq, hit by falling oil prices in 2014 and its war against the Islamic state organization, has asked for a postponement of the payment of the last tranche and the largest of the compensation, due this year.

Shell's Challenge

Kuwait, though one of OPEC's oil producers, is struggling to meet growing domestic demand for gas. And suffers from a shortage of 500 million cubic meters per day, mainly covered by the import of liquefied natural gas from countries including Qatar.

Ten years ago, Kuwait tried to build a pipeline from Qatar, but Saudi Arabia blocked the plan. As relations between Riyadh and Doha deteriorate this year, Kuwait is looking to diversify its sources of gas imports.

Last year, Kuwait said it would be willing to buy up to 200 million cubic feet per day of gas from Baghdad.

Iraq ranks 12th in the world in terms of its 3.7 trillion cubic meters of gas reserves, but this figure is 10 times that of Iran, which has the world's largest reserves.

Iraq extracts large quantities of gas associated with the extracted oil, and yet, this gas is being burned now.

Iraq's long-term gas development plans have focused on Basra Gas Company, a 25-year $ 17 billion project in which Iraq has a 51 percent stake, Shell holds 44 percent and Japan's Mitsubishi Corp. has a 5 percent stake.

The project aims to collect gas from fields in southern Iraq, including West Qurna 1 operated by Exxon Mobil, Zubair, run by Eni, and Rumaila, run by BP.

"Shell's main objective has always been to develop a liquefied natural gas (LNG) terminal and eventually a petrochemical complex in Iraq," said a Shell source working on the gas project.

With Iraq refusing to agree to a gas price with Shell, the project has been strained, sources said. The talks were also complicated by Shell's withdrawal from the Majnoon oil field earlier this year.

"Iraq is angry with Shell and the prospects are not promising for Basra Gas Company," an Iraqi source in the sector said.

Asked about the negotiations, Shell and the Iraqi Oil Ministry said the discussions were continuing and both sides remained committed to the project.

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