Iraq’s Ambition - eprinc.org · Nabucco is contingent upon securing supplies from either Azeri gas and/or Iraqi gas -Expect 10 bcm from Iraq and 8 bcm from Shah Deniz – yet both

Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 1

Iraq’s AmbitionWhat is the Role of Natural Gas?

Lucian PugliaresiEnergy Policy Research Foundation, Inc.

Iraqi Petroleum 2010London

November 30, 2010

Key Points

Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 |

202.944.3339 | www.eprinc.org2

•Critical role of expectations in oil and gas markets

•Why forecasters should show humility

•Iraq’s role as a game changer (oil vs. gas)

•What should be done with the natural gas?

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A Series of Unfortunate Events Leading to New Expectations

World Oil Production (EIA) Expected Production (EIA 2001 Predictions)OPEC Excess Capacity (EIA) Crude Oil Price

Positive Expectations Expectations Shift Negative Expectations

Yukos -- Kremlin taking control of Russian oil

development

Oil development in

Iraq delayed

Russia takes over Sakhalin II, Chavez

Nationalizes Projects

Nigeriarebels hurt

output

Continuing civil strife in Sudan,

Nigeria

OPEC Excess Capacity remains limited

Congress continues ban on ANWR and offshore

development

Outlook positive for expanded output from

Nigeria, Mexico, Venez., Russia, North Slope


Forecasting and Humility (Hubbert’s Limitations)

Source: EPRINC Study

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1964 Estimate for Production

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Actual 2000 Production

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Cumulative Discoveries - Permian (red area - right axis)

Cumulative Discoveries - San Joaquin (blue area - right axis)

Projected Year 2000 Production -San Joaquin (blue line - left axis)

Projected Year 2000 Production -Permian (red line - left axis)


A Decoupling of Politics and Oilfields DevelopmentAlthough oil development is in an early stage it is moving forward, same cannot be said for politics and security


Estimated Gas Reserves (Tcf)

Akkas 5.6*Mansuriyah 4.5*Kashm al-Ahmar 2.2Siba 1.5*Tel Gazal 0.2

Oil Fields withAssociated Gas

West Qurna 13.7Majnoon 11.8Rumaila 9.8Zubair 2.9Nasiriyah 2.6Total 43.2

Gas Reserves and Location

*Gas in place

Source: Oil Ministry, Energy Intelligence


• Development of the Siba and Mansouriya gas fields has been initialed in Bagdad, but the Akkaz development has not been signed. They all await ratification by the cabinet which has yet to be formed.

• Total plateau production for three fields is 820 mn cfd, the anticipated was 685 mmcf/d

• Maximum total gas in place of 11.6 tcf, 7.4 is proven reserves, this implies a 63.8% recovery factor. 900 mmcf/d max daily production would give fields a life of 22.5 years.

• 700 mmcf/d of associated gas is flared in Iraq each day

Iraqi Gas


Provincial Opposition and Electricity Concerns• There is strong opposition by provincial governments for the Akkaz

field bidding.

• Electricity is a major issue within Iraq leading to unrest, security concerns, instability, and infrastructure stagnation.

• Iraq puts out just 4-5 hours of electricity each day from the national grid. While there is 50% more electricity generation than before the invasion of Iraq in 2003, the electricity is spread throughout the country rather than giving it all to Iraq.

• Energy consumption has doubled in the last 7 years.


• Allow companies to export 50 percent

• Costs are recoverable

• Iraqi government agreed to take or pay take it or pay 100 percent of gas production

• No signature bonus

• Commitment for TTSF (Training, Technology, and Scholarship Fund)– very important

•• Conversion factor for barrel of oil equivalent reduced from 8,000 to 6,000 cu ft.

(EPRINC Calculations are 5.75 for value estimate).

• Remuneration fee 90% of scoring formula and remuneration fee and cost recovery paid with 25% plateau target needed to be reached within 3 years.

Key Gas Contract Features ?


Bid Consortium (Participation %)

Winner Renumeration Fee ($/mcf)

Plateau Production Target(mmcf/d)

Plateau Period(Years)

Akkaz Kogas/KMG (50/50)

Total/TPAO(50/50)

Kogas/KMG $0.95

$3.30

400

375

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Mansouriya TPAO/KE/Kogas(50/30/20)

TPAO/KE/Kogas $1.22 320 13

Siba KE/TPAO(60/40)

KMG (100)

KE/TPAO $1.30

$2.78

100

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Iraqi Gas Field Awards

Source: MEES November 8, 2010


What are the best options for Iraqi natural gas?(some preliminary observations)

•Power generation, industrial, and residential

•Re-injection

•GTL

•Regional pipeline sales

•LNG

•Long haul pipeline sales (Nabucco)

Natural Gas and Crude Oil Prices Through 2030

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Imported Low-Sulfur Light Crude Oil ($ per million BTU)

Source: EIA Annual Energy Outlook 2009

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Japan Korea Marker Remains Well Above US and UK Spot Prices

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CoalCoal Supercritical: 10.554Coal Integrated Gasification Combined Cycle (IGCC): 11.481Coal IGCC with Carbon Capture & Storage (IGCC with CCS): 17.317

AlternativesBiogas: 8.552Wind: 8.910Gas Combined Cycle: 9.382 (assumes $5.50 to $6.50/MMBtu for gas)Geothermal: 10.182Hydroelectric: 10.527Concentrating solar thermal (CSP): 12.653Nuclear: 15.316Biomass: 16.485

Note: Busbar means the price of the power leaving the plant. All capital, fuel, and operating costs are taken into account in busbar costs.

Source: California Energy Commission, “Comparative Costs of California Central Station Electricity Generation Technologies,” CEC Staff Report, June 2007

Natural Gas Offers Lower Busbar Cost Escalation Risk(cents per kwh)

LPI Consulting, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.5082

Capital Costs and the Gas Crude Spread*

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Price of Oil - $ per barrel

Gross Margin - 80% discount to oil

Gross Margin ($ per barrel of Distillate, assumed to be the price of crude oil plus 10%) - left axis

Feedstock costs and operating costs ($5/bbl) per barrel of product output (Includes 40% energy penalty) - left axis

Break even capital cost per barrel of installed capacity at a given oil price (required to break even over 20 years | refined product value minus feedstock and operating costs of $5/bbl) - right axis

Break even capital cost per barrel of installed capacity - 80% discount to oil

Current capital costs ($200,000/bbl) atChevron's Escravos plant require $90 oil to break even.

To be competitive at current prices, capital costs would have to be reduced to $125,000/bbl

*EPRINC preliminary estimates 15


Nabucco is contingent upon securing supplies from either Azeri gas and/or Iraqi gas - Expect 10 bcm from Iraq and 8 bcm from Shah Deniz –yet both supplies are far from certain at the moment.

Nabucco would require a supply agreement from Shah Deniz phase II in Azerbaijan. But such supplies face competition from other pipelines and from the Russian government, which has been working to maintain control over Central Asian gas.

Other option is Iraq, but is not likely to be highest value for gas output

The Nabucco consortium has recently called Iraq the most likely supplier because of Russia’s influence over Central Asia (pipe dream

Nabucco Prospects

Documents

Iraq’s Ambition - eprinc.org · Nabucco is contingent upon securing supplies from either Azeri gas and/or Iraqi gas -Expect 10 bcm from Iraq and 8 bcm from Shah Deniz – yet both