Iraq looks to Kuwait gas pipeline to pay off reparations
22/11/2017 13:21
* Iraq under pressure from World Bank to cut gas flaring
* Kuwait offers state guarantees for the project -sources
* Kuwait looking for alternatives to Qatar gas
* Project a challenge to Shell's Iraqi gas projects
By Rania El Gamal, Osamu Tsukimori and Dmitry Zhdannikov
DUBAI/TOKYO/LONDON, Nov 22 (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 neighbour.
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
monetise gas resources."
The World Bank, which has repeatedly made reducing gas
flaring a condition of lending to Baghdad, did not respond to a
request for immediate comment.
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 reparations.
DIFFERENCES OVER PRICE, PLANT
Industry sources told Reuters the talks have faltered over
price, however.
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 neighbouring Iran.
"The price of gas remains the key sticking point for now,"
one of the sources said.
He also said both Iraq and Kuwait were pushing to have the
petrochemical plant built on their territory to further
capitalise 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.
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 Qatar.
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 Baghdad.
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 metres 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)
((Dmitri.Zhdannikov@thomsonreuters.com;))
Keywords: IRAQ KUWAIT/GAS