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Total deal could lead to project boom in Iraq

10 April 2023

 

The finalisation of the latest $27bn project deal announced by TotalEnergies, QatarEnergy and Iraq has surprised many stakeholders in the country’s energy sector.

The announcement came after a long period of, at times dramatic, negotiations.

Since 2021, progress on the projects has stalled due to disputes over the terms of the agreement.

In January and February this year, as negotiations were entering their final stages, it was reported that Total had started to pull senior staff out of Iraq.

At the time, the Iraqi member of parliament Mustafa Jabbar Sanad said it was unclear whether the move was simply a negotiating tactic.

When negotiations blew past a 15 February deadline earlier this year and then another deadline a month later, many stakeholders in the country’s energy sector expected many more months to pass before common ground would be found, if it could be found at all. 

“I was very pessimistic about a deal being finalised,” said one industry source. “This was all meant to be tied up and finished in 2021, so after many years of failing to finalise the details, why would things change now?

“The fact that things appear to have been tied up so neatly in the end is very surprising.”

Positive signal

A key sticking point in the final phase of the negotiations was the stake that the Iraqi government would hold in the venture.

Iraq pressed hard for a 40 per cent stake, but this was reduced to just 30 per cent in the final deal.

After signing the deal, Total said it was: “A strong and positive signal for foreign investment in the country.”

The $27bn price tag attached to the deal is significant for Iraq. It is likely to increase optimism about the country’s project market, especially when seen in relation to other major economic announcements over recent months.

The fact that things appear to have been tied up so neatly in the end is very surprising

Industry source

So far this year, Iraq has tendered six major refinery contracts as part of a major downstream push.

If the drive to develop these refineries goes to plan, it could significantly boost the Iraqi economy by dramatically raising the volume and quality of the refined products that it can produce and export.

Another positive signal to investors and stakeholders was the finalisation of a three-year draft budget law that has been sent to parliament for approval.

For this year, the budget stands at ID197.82tn ($152.17bn) and it will be repeated for three years with the possibility of changing the numbers after the approval of the cabinet and parliament.

Strategically important projects

Taken together, the approval of Iraq’s first multi-year budget, along with a major downstream push, and the finalisation of the $27bn deal with TotalEnergies and QatarEnergy sets the scene for a potential explosion in infrastructure activity.

The four projects covered by the deal with TotalEnergies and QatarEnergy are not only large in scale, but are of significant strategic importance.

The four projects are:

  • The gas growth integrated project (GGIP)
  • The $4bn common seawater supply project (CSSP)
  • A project to develop the Artawi field
  • The establishment of a 1GW solar energy project for the Electricity Ministry

The GGIP has previously been described as the most important project of the four.

The facility is expected to process 300 million cubic feet a day (cf/d) of gas and double that after a second development phase.

Large volumes of gas are currently flared from these fields, causing significant environmental damage.

Collecting and processing this gas will generate increased hydrocarbons revenues and reduce environmental damage. The planned central gas complex will be located in Artawi.

The gas processing project will supply Iraq’s national gas network to generate electric power, as well as to increase the production of gas products, including liquefied petroleum gas and condensate.

The CSSP is also strategically important as it will address water shortages in Basra that are fuelling political instability and provide water for injection into oil fields to boost production at ageing fields.

The solar project will address electricity shortages, while developing the Artawi field will help Iraq boost upstream production capacity and capitalise on higher global oil prices.

After so many previous announcements falling through and promises being broken, the Iraqi government has lost a lot of trust

Senior figure at an international engineering company

Timing is everything

While the outlook for projects and investment in Iraq looks far better than it has for a long time, many stakeholders remain concerned that the promised developments will not occur as expected and are refraining from making significant investments to try to capitalise on the situation.

“After so many previous announcements falling through and promises being broken, the Iraqi government has lost a lot of trust,” said one senior figure at an international engineering company.

While recent announcements make it seem like an era of opportunity could be nearing for engineering companies looking to win big contracts, Iraq might struggle to find contractors willing to take on the projects at a favourable price.

“Timing is everything,” said one contractor. “Right now, there are also a lot of profitable engineering opportunities for engineering companies elsewhere in the region as well.”

Nations such as Saudi Arabia and the UAE are in the midst of large spending sprees as they drive to expand energy infrastructure projects.

Both nations are seen as far less risky locations for investment project work. It may be difficult to attract the best companies to work in Iraq over the coming years if the country is not willing to make favourable offers to make it worth their while.

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Wil Crisp

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