Exclusive: Iraq looks to Kuwait gas pipeline to pay off
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[November 22, 2017]
By Rania El Gamal, Osamu Tsukimori and Dmitry Zhdannikov
DUBAI/TOKYO/LONDON (Reuters) - Iraq has
hired Japan's Toyo Engineering <6330.T> to help build a gas pipeline to
Kuwait and a related petrochemical plant as Baghdad looks to reduce
flaring and finish paying reparations owed for its 1990 invasion of its
The project, details of which have not been reported before, would allow
Kuwait to diversify its gas imports in the wake a political crisis
between Gulf states and major supplier Qatar.
It would also deal a blow to Royal Dutch Shell <RDSa.L>, which aimed to
be the dominant gas player in Iraq before relations with Baghdad soured
following Shell's exit from large oil projects.
"Iraq needs to urgently reduce gas flaring as it trails behind all
targets it has promised the World Bank," said a senior industry source
working on the project but not allowed to discuss it publicly.
"The Kuwaiti gas project is a quick fix and an easy way to monetize gas
The World Bank, which has repeatedly made reducing gas flaring a
condition of lending to Baghdad, did not respond to a request for
Toyo is proposing to construct a gas pipeline and start deliveries after
2019, industry sources said.
Toyo's chief financial officer, Kensuke Waki, told Reuters that talks
about a pipeline and a petrochemical plant were ongoing but a final
investment decision had not yet been made.
Kuwait is very keen on the project and has offered a sovereign guarantee
for up to 80 percent of the costs, industry sources said. No total cost
has been announced.
Kuwait's oil ministry did not respond to a request for immediate
comment. Oil minister Issam Al-Marzouq said last month that talks
between Kuwait and Iraq were focused on a proposal to use gas to help
pay Baghdad's final $4.6 billion in war compensation payments.
Iraqi oil ministry spokesman Asim Jihad said talks were focusing on
price and confirmed that supplies could be used to help pay off
DIFFERENCES OVER PRICE, PLANT
Industry sources told Reuters the talks have faltered over price,
They said Kuwait is pushing for a price of less than $3 per mbtu
(million British thermal unit), in line with U.S. Henry Hub prices. But
that is less than half what Iraq pays in the north when importing gas
from neighboring Iran.
"The price of gas remains the key sticking point for now," one of the
He also said both Iraq and Kuwait were pushing to have the petrochemical
plant built on their territory to further capitalize on gas deliveries.
Discussions with Iraq are ongoing, a senior Kuwaiti oil industry source
with knowledge of the project said, adding that it was not yet clear if
gas would come from West Qurna 2 operated by Russia's Lukoil <LKOH.MM>
or from Rumaila, operated by BP <BP.L>.
Iraq used to supply Kuwait with gas from Rumaila. Volumes reached as
much as 400 mcf per day but stopped shortly after the 1990 invasion.
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A worker walks at Nahr Bin Umar oil field, north of Basra, Iraq
December 21, 2015. REUTERS/Essam Al-Sudani/File Photo
More than a million claimants in Kuwait have been paid as part of Baghdad's
$52.4 billion reparations bill for the invasion. But Iraq, hurt by the 2014 fall
in oil prices and its war with Islamic State militants, requested a delay on the
last and largest tranche, which is due this year.
CHALLENGE TO SHELL
Kuwait, although one of OPEC's leading oil producers, has struggled to meet
growing domestic gas demand. The shortfall has been estimated at 500 million
cubic feet per day and is being covered mainly by LNG imports, including from
A decade ago Kuwait tried to build a pipeline from Qatar, but the move was
blocked by Saudi Arabia. With relations between Riyadh and Doha worsening this
year, Kuwait is looking to diversify its gas imports.
Last year, Kuwait said it would be ready to buy up to 200 mcf/day of gas from
Iraqi oil ministry spokesman Jihad said volumes could start at 50 mcf/d rising
gradually to 200 mcf/d.
Iraq's gas reserves of 3.7 trillion cubic meters rank as 12th largest in the
world but represent only a tenth of those of Iran, the world's largest.
It extracts large quantities of gas together with oil, however, and that gas is
currently being flared.
Iraq’s gas development plans have long focused on the Basra gas company, a $17
billion, 25-year project in which Iraq has 51 percent, Shell owns 44 percent and
Japan’s Mitsubishi Corp <8058.T> 5 percent.
The project was designed to aggregate gas from fields in the south including
West Qurna 1 operated by Exxon Mobil Corp <XOM.N>, Zubair operated by Italy's
ENI <ENI.MI> and BP's Rumaila.
"Shell's main aim was always to develop an LNG terminal and ultimately a petchem
complex in Iraq," said a Shell insider who worked on the gas project.
With Iraq refusing to agree on a gas price with Shell, the project has hit a
major impasse, industry sources said. Talks have also been complicated by Shell
pulling out of the Majnoon oil fields earlier this year.
"Iraq is furious at Shell and prospects don't look that great for the Basra gas
company," one Iraqi industry source said.
Asked about the negotiations, both Shell and the Iraqi oil ministry said
discussions were ongoing and both sides remained committed to the project.
(Additional reporting by Aaron Sheldrick and Ahmed Rasheed; writing by Dmitry
Zhdannikov; editing by Jason Neely)
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