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Gas companies will not have to export Iraqi gas

Companies to be paid even if Iraq has no pipelines.

September 16, 2010 8:54 by



Gas companies bidding to develop three Iraqi gas fields up for auction next month will not have to develop export facilities or pipelines, an Iraqi oil official said on Wednesday.

The companies will also face little risk should Iraq fail to establish a national gas pipeline network in time to receive gas from the fields, as the Oil Ministry will pay the companies anyway so long as they have done the required work, he said.

Iraq plans to tender on Oct. 1 gas fields at Akkas in the western desert, Iraq’s Sunni heartland and once an al Qaeda stronghold, Mansuriyah in volatile Diyala province, and Siba in the relatively peaceful southern oil hub of Basra.

Officials at some of the 11 companies which have paid participation fees said at a workshop in Istanbul last month that they might have to cover the costs of developing export routes, given that Iraq has no functioning overseas pipelines.

They were also concerned they might have to help Iraq find customers overseas for its gas.

But Abdul-Mahdy al-Ameedi, director general of the Iraqi Oil Ministry’s Petroleum Contracts and Licensing Directorate, said that was not in the final model contracts sent out to companies.

“The contractor has no relation to exports or building export facilities,” he said in Baghdad at a commemoration of OPEC’s 50th anniversary.

Contractors will simply have to connect their gas fields to a national gas network the Oil Ministry hopes to build, he said.

“And if there is a surplus, the Oil Ministry will decide whether to export it through this network,” he said.

Ameedi added, “There is no article in the contract that states that companies should build export infrastructure. The contractor digs wells then produces gas and builds infrastructure to process and manufacture the natural gas.”

HOPES TO BOOST POWER GENERATION

Iraq hopes opening its gas sector to foreign investment will boost power generation. Exporting gas is controversial because Iraq is still unable to meet demand for electric power more than seven years after the U.S.-led invasion.

Companies expected to bid for the three fields include Total of France and Milan-based Edison.

Mansuriyah, located in a dangerous part of the country, failed to attract any offers in a tender last year, and Akkas received just one, which the government said was insufficient. Baghdad had previously planned to develop Siba itself.

If for any reason Iraq fails to build a national network to receive the gas produced, the companies will still get paid so long as they can prove that their wells are able to produce gas and they erected the infrastructure required, Ameedi said.

“If the Iraqi side can’t receive the produced gas then the companies will seal the producing gas wells and stop production, but the Iraqi side will pay the fees until the resumption of production and Iraq is ready to receive the produced gas.”

(Additional reporting by Rania El Gamal; Writing by Michael Christie; Editing by Sue Thomas)



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