IRAQ, U.S. ENERGY DEALS

PLATTS - 26 Aug 2020 - Iraq's recent energy deals with US companies were a mixed bag of loose agreements that need to be translated into firm commercial terms at a time when Washington failed to extend much-needed waivers for Iranian energy imports due to expire in September, analysts said this week.

US Secretary of Energy Dan Brouillette hailed deals valued at as much as $8 billion as "key to Iraq's energy future" and emphasized the need for the OPEC producer to be energy independent from Iran, without mentioning the waivers, according to an Aug. 19 statement from the US department of energy.

OPEC's second largest oil producer has been receiving waivers since the US reimposed sanctions on Iran's energy sector in 2018.

"The US is highly unlikely to end its sanctions' waivers, particularly with the degree of focus on the Gulf Cooperation Council Interconnection Authority connectivity for Iraq, which to US officials signals that Iraqi reliance on Iranian energy is temporary," said Patrick Osgood, senior Iraq analyst at Control Risks.

"The duration of the next waiver will signal the degree to which the US is confident of Baghdad's intent."

The GCCIA agreement was signed in 2019 but faced delays, particularly with the outbreak of COVID-19.

Iraq is under US pressure to wean itself off Iranian electricity and gas imports, which are needed due to power shortages and the flaring of associated gas, which is also bound by production limits due to the country's attempted adherence to OPEC+ cuts.

The US granted Iraq a 120-day waiver in May in a boost to the then recently appointed prime minister Mustafa al-Kadhimi.

"The MOUs signed during the trip are to maximize domestic Iraqi supply and facilitate improved energy independence," said Niamh McBurney, head of Middle East and North Africa, Verisk Maplecroft.

Not so new?

During Kadhimi's state visit to Washington last week, GE and the ministry of electricity signed agreements to boost power supply and strengthen interconnection with neighboring countries, according to the Aug. 19 statement.

According to an Aug. 19 GE statement, the company signed agreements with Iraq's ministry of electricity worth more than $1.2 billion.

The GE agreements are not so new, according to Harry Istepanian, senior fellow at the Iraq Energy Institute.

"In October 2019, the former council of ministers approved the GE proposal to rehabilitate the power grid and substations, including 750 km of HV transmission lines and 17 substations in the liberated areas of Mosul and Anbar provinces, and the provision of interconnectivity with Jordan with total cost of $727 million," he said.

"The former government also agreed with GE to undertake contracts valued at $500 million for the upgrade and maintenance of 6,000 MW of the ministry of electricity power generation turbines but signing the contract was delayed due to government resignation in November 2019."

Chevron deal

The $8 billion deals were the highlight of a trip that didn't witness any other multi-billion dollar deals, but analysts say they need to be transformed into agreements with firm dates and commercial terms.

"How significant they are on concrete terms is primarily a function of whether Iraq can actually finalize contracts," said Osgood.

One of the major agreements was a deal signed between Iraq's ministry of oil and Chevron, "a framework for entering into exclusive negotiating on an exploration, development, and production contract in the Dhi Qar Province," according to the Aug. 19 US department of energy statement.

"Iraq's oil administration has previously been extremely reluctant to embrace new commercial arrangements to secure IOC investments outside of the open tender, technical services contract framework under which most oil fields in the south were contracted," said Osgood.

"If the government can finalize a contractual arrangement that can capitalize oil development in a way that reduces the cash call on the Iraqi state, then it will have found a way to bring a rare exploration program to a province badly in need of foreign investment."

Ar Ratawi project

Honeywell and the oil ministry also "agreed to advance the development of the Ar Ratawi gas project, which will further enable Iraq to capture, process and utilize indigenous gas resources to meet domestic energy demand," according to the Aug. 19 statement.

Ar Ratawi, the country's biggest gas project, which has been delayed due to lack of financing, will initially produce 300 million scf/d and will ultimately reach 1 billion scf/d, oil minister Ihsan Ismaael said on Aug. 23.

Saudi Aramco and ACWA Power could be among the players in the Ar Ratawi project, deputy prime minister and finance minister Ali Allawi said Aug. 21.

"Saudi Aramco's expertise could have a lot to offer Iraq and the Ratawi gas project," said McBurney. "Any involvement by Saudi Aramco in Iraqi projects will be highly political and politicized; in an environment where Iraq could have new elections in less than a year, it may be challenging to move such cooperation forward."

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