As Iraq ramps up production in the coming years, it will need to invest heavily in its export infrastructure projects such as the proposed 1mbpd Iraq to Jordan pipeline
Iraq has announced that it plans to build a 1 million barrel per day pipeline from its southern oilfields in Basra to the Jordanian port of Aqaba.
As Iraq looks to increase its production levels, it will need to diversify its export strategies away from the port of Basra, through which the country currently exports the vast majority of its oil.
The proposed Iraq to Jordan pipeline will originate in Basra and terminate in the Jordanian port of Aqaba. The 1,680km pipeline will pump 1mbpd of oil and 258 million cubic feet (mct) of gas.
Of this 1mbpd, 150,000bpd will be consumed by Jordan, with the remaining 850,000bpd being exported from the port of Aqaba. Iraq has recently shortlisted 12 companies to submit bids to build the pipeline along with an export terminal in Aqaba. The pipeline and export terminal are expected to be completed by late 2017.
Whilst the pipeline offers good trade links to Africa and Europe, via the Suez Canal, some analysts believe that the project is somewhat less than ideal.
“The Iraq – Jordan pipeline route arrives at the Jordanian port of Aqaba. This is really a second best option. It’s not an ideal route logistically. You probably wouldn’t choose to end up in Aqaba if you had any other options,” said Mills.
The problem with the planned route is that large sections of the pipeline would need to pass through Western Iraq, which has had serious problems with terrorism and security as the conflict in neighbouring Syria spills over Iraq’s western border. This factor has been made all the more pertinent by recent terrorist activity by the Islamic State in Iraq and the Levant (ISIL).
Guaranteeing the safety of construction crews in the region would be a genuine challenge for Iraq, as would the task of safeguarding the pipeline after it was constructed.
Security is still a huge issue for Iraq, particularly in the West. In May 2014 more than 900 people were killed in Iraq, and 750 in April. In 2013 an estimated 8,800 people were killed in Iraq in violent attacks, the highest annual death toll in 5 years.
“Oil and gas infrastructure is a prime target for attacks because it’s high profile and it impacts the government and impacts on the international companies,” said Gibbins.
Security issues aside, there is also the suitability of Aqaba itself as a major export hub. The fact that an entirely new export terminal would need to be constructed is far from ideal.
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Despite these issues, Jordan is a country with which Iraq has good relations and Aqaba could grow to become a strategic export hub for oil and gas. This would depend, however, upon sustained investment from the Jordanian government, something that is beyond the control of the Iraqi authorities.
One significant advantage that the export pipeline and terminal in Aqaba has, is that it offers Iraq the opportunity to reduce its dependency on the port of Basra.
“I think Iraq is intensely dependant on Gulf export routes and it realises that those routes are pretty vulnerable security wise and certainly vulnerable to weather,” says Mills.
Iraq currently exports around 2.5mbpd from Basra, around 70% of the country’s total oil produced.
If Iraq is to meet its steep production increase targets, the improvement of the port of Basra will be absolutely critical.
However, the Iraq to Jordan pipeline will offer some relief to Iraq’s southerly port.
In reality, the expansion or redevelopment of Iraq’s existing pipelines would do more to boost export capacity than building of the proposed Iraq to Jordan Pipeline.
The country’s North to South pipeline has a hypothetical export capacity of 2.25mbpd. However, the Northern section of this line has been repeatedly sabotaged and now carries only small quanties of oil.
Production targets for Iraq in 2020 vary depending on the source, as Robin Mills, head of consulting at analyst firm Manaar, points out.
“The most realistic forecast I’ve seen is that production will build up from around 3.4mbpd today, to 6mbpd by 2020. Of course the original projections issued by the Iraqi government were in the range of 12-13 mbpd by 2020, but these projections have been broadly acknowledged as unachievable,”
he explained.
Even if Iraq achieved production levels of 6 mbpd by 2020, that would still make it the 4th biggest producer in the world and the 2nd biggest in OPEC.
This sharp rise in production will necessitate an expansion of Iraq’s export capacity, as Andy Gibbins, vice president for MENA at Euro Petroleum Consultants, points out.
“One thing is clear, Iraq is preparing for a significant increase in production levels. The potential is there, the oil is in the ground and it is going to be realised. Just how quickly it can be produced and exported depends on political will, investment in infrastructure, and how well the international companies can work with the state,” said Andy.
Iraq will need to insure that it improves its export infrastructure in lock step with production so that any increases in production levels are sustainable.
