Will Iraq Become A Petrochemicals Powerhouse?
There are three key reasons why the development of a world-class petrochemicals (petchems) sector is vital to Iraq’s future.
First, its heavy reliance on crude oil exports makes it extremely financially vulnerable both to downturns in the oil price and to the political whims of its fellow OPEC members, especially Saudi Arabia. Second, plain crude oil exports, particularly in the depressed pricing environment that is likely to endure for some time, do not provide the much higher export value that petchems do. Third, Iraq has the natural resources of both oil and gas that can make it a world leader in the petchems sector.
This in turn would allow it to develop major trade with the big buyers of petchems products in Asia relatively independent of Iran, which would allow it to put more political distance between Baghdad and Tehran and this would encourage more sustained investment from the U.S. Recent developments in Iraq may portend such development of the petchems sector, with the long-stalled Nebras project being a prime beneficiary at last.
The recent tentative deal with Total, if finalised, will provide a major boost to the equally long-delayed efforts to meaningfully make use of Iraq’s massive associated gas resources. Official estimates are that Iraq’s proven reserves of conventional natural gas amount to at least 3.5 trillion cubic meters (tcm), or about 1.5 percent of the world’s total, placing Iraq 13th among global reserve-holders, with around three-quarters of this figure comprising associated gas.
The International Energy Agency, though, estimates that ultimately recoverable resources will be considerably larger, at 8.0 tcm, of which around 30 percent is thought to be in the form of non-associated gas. Although at the moment it is only a ‘heads-of-agreement’ deal – alternatively known as a ‘letter of intent’ agreement – that is not binding, and may yet become derailed by the sort of concerns over corruption that have deterred many other foreign firms from doing business in Iraq, it may be that Total sees a growing presence in Iraq as a promising substitute for its forced withdrawal by the U.S. from Iran’s coveted Phase 11 project of the supergiant South Pars non-associated natural gas field. This deal, together with the 25-year deal just announced that the China Petroleum & Chemical Corp. (Sinopec) is to take a 49 percent stake in the Mansuriya non-associated natural gas site, provides Iraq with a solid base upon which to move the development of its petchems sector into the next phase.
The core project that allows for the development of the petchems industry in Iraq is the US$17 billion 25-year Basra Gas Company (BGC) project with Royal Dutch Shell that began in 2013. A joint venture between Iraq’s South Gas Company (SGC), holding 51 percent, Shell (44 percent), and Mitsubishi Corporation (5 percent), the BGC currently captures associated gas from the three major oil fields of Rumaila, West Qurna 1, and Zubair. In December 2018, BGC reached a peak production rate of 1035 mmscf/d, the highest in Iraq’s history and sufficient gas to generate approximately 3.5 gigawatts (GW) of electricity – enough to power three million homes. BGC currently supplies 70 percent of Iraq’s LPG, and through expansion of its export capabilities, helped turn Iraq from a net importer to a net exporter of LPG as from 2017. Interestingly, and a sign of what can be achieved in Iraq – given the country’s huge resources but without any of the usual dodgy dealings – BGC and CitiBank signed a first credit agreement in February 2019, the first commercial loan extended by CitiBank to an Iraqi corporate entity.
Given this, the focus of Iraq’s petchems push has long been the Nebras petrochemical complex. The original design plans for Nebras – formulated between Shell and the Iraq Ministry of Oil and Ministry of Industry and Minerals in 2012 – were for a project that could produce at least 1.8 million metric tonnes per year (mtpa) of various petrochemicals. This would make it Iraq’s first major petrochemicals project since the early 1990s and one of only four major petchems complexes across the entire country.
The others – Khor al-Zubair in the south, Musayeb near Baghdad, and the Baiji refinery complex in the north – are operated by Iraq’s State Company for Petrochemical Industries. In January 2015, Shell released the statement that Iraq’s cabinet had authorised the Nebras project and that the company would work ‘jointly with the Ministries of Oil and Transport to develop a joint investment model for a world-scale petrochemical cracker and derivatives complex in the south of Iraq’. The then-Industry Minister, Nasser al-Esawi, told a news conference at the time that the Shell-run Nebras petrochemical complex would come online within five to six years and would make Iraq the largest petrochemical producer in the Middle East.
From 2012, though, the head of petrochemicals projects for a major international oil company operating in Iraq exclusively told OilPrice.com: “The development of Iraq’s hydrocarbons chain stalled in the upstream – and mainly crude oil – sector, with little impetus on the next stage that’s critical for both the petrochemical and refining sectors, which is a focus on the midstream to attract sufficient capital with the strategic objective of developing an integrated master gas system.” However, he added, since then Shell’s efforts on the BGC in the past three to four years in particular have changed the basic landscape for the future development prospects for Nebras. “Shell has done a really good job so far with the BGC, especially in getting the gas volumes up to over a billion standard cubic feet per day, which means that the ethane can be extracted on a sustainable and reliable basis, and that allows for sufficient volume for a major petchems plant to be viable,” he said. “Ethane needs to be the initial feedstock for Iraq’s first few plants in the same way that it was in the development of Saudi Arabia’s master gas system that captured associated gas, which was then fractionated and supplied as primary feedstock to the flagship Jubail Industrial City,” he underlined.
“The highest concentration of ethane [10 percent plus] is usually found in associated gas streams, which Iraq has a lot of, and processing ethane produces ethylene with few by-products [mainly fuel gas] to process and manage,” he told OilPrice.com. “This reduces the capital required for construction and minimises the complexity of the logistics and distribution requirements, which will be important factors in Iraq’s early stage build-out of a viable petchems industry, but as the industry and corresponding infrastructure grows, heavier feed streams can be utilised, as happened with the use of propane, butane and naphtha in Jubail,” he said.
A world-scale facility for ethylene – one of the most in-demand petchems products in the world, especially from China – is in the range of 1.0 to 1.5 million tons of ethylene production and a 1.0 million ton per year ethylene facility would require a supply of roughly 1.3 million tons per year of ethane, he highlighted. “Additionally, this would need to be a sustainable and reliable supply for at least 20 to 25 years and, to build out all of the necessary parts for a functioning world-class petchems sector in Iraq would require around US$40-50 billion,” he concluded. As at the end of August, 2020, current Oil Minister, Ihsan Ismaael, stated that Iraq aims to ‘speed up plans’ for [Nebras] with Shell.
OilPrice, by Simon Watkins , May 10, 2021