Gas that escapes during the production of crude oil can damage the environment. But it can also be turned into electricity, something Iraqis badly need. NIQASH spoke to Shell’s Mounir Bouaziz about his firm’s plans to do that.
Flared gas is a problem for Iraq. The term describes the natural gas that “flares” during the production of crude oil – and the oil-wealthy nation of Iraq has a lot of it. Flared gas causes atmospheric pollution – one expert estimates that Iraq, one of the worst offenders in the world, is emitting the equivalent of 15 million cars’ emissions in one year.
On an everyday level, the flared gas is also a waste for Iraq. It could actually be being converted into electrical power, something that locals desperately need. In an effort to solve these problems, the Iraqi government signed a contract with Anglo-Dutch energy giant Royal Dutch Shell and Japanese company Mitsubishi in November 2011. The deal was apparently three years in the making. Alongside the Iraqi-owned South Gas Company, the two multi-national corporations will endeavour to convert the flared gas into electrical power for Iraq. It is expected that by the end of that process there will also be a surplus available for export.
NIQASH spoke with Mounir Bouaziz, Shell’s Vice President for the Middle East and North Africa region, about what has been achieved in Basra so far and when locals will start seeing some results.
NIQASH: How much is Iraq’s daily loss resulting from gas emitted and burnt off in the air as a result of oil extraction operations?
Bouaziz: Iraq is losing approximately US$80 per second worth of gas - or about US$7 million a day, as a result of gas flared during the extraction of crude oil.
Currently there are some 700 million cubic feet a day of gas burning in the air. If we can use this amount properly we can cover the energy needs of 2.5 million consumers.
The amount [currently wasted] is expected to increase further too, to more than 1 million cubic feet of gas a day once more oil companies have been granted contracts and begin to increase their production.
NIQASH: What will be your first steps in this area?
Bouaziz: Our first achievement has been to capture 300,000 million cubic feet of gas every day, out of a total of 1 million cubic feet. IN the future we will get the rest and put an end to the wastage.
Our second achievement will be opening up the of Shatt al-Arab waterway to commercial traffic after 30 years. We have built a small port there at the cost of millions of dollars. Last week a shipment carrying heavy equipment arrived at this port.
NIQASH: When will this project be completed and when will most of this flared gas, which has so much potential but which is currently going to waste, be properly used?
Bouaziz: The project eventually aims to use all of the gas wasted by flaring. If we can utilise all of the flared gas then we’ll need to build storage facilities, both for the gas for export and for the gas that will be used locally. This takes time.
Additionally the amount of flared gas is expected to increase once oil production increases. That’s why we can’t estimate how much time everything will take.
NIQASH: How does Iraq as a nation benefit from this investment?
Bouaziz: The contract will more than double Iraq's natural gas production. The project also includes an investment of US$15 billion on the rehabilitation of existing infrastructure and the creation of new infrastructure.
For instance, US$4.4 billion has been allocated for a liquefied natural gas facility. And the gas that’s produced there will cover local needs and end electricity supply shortage.
I expect that Iraq’s revenue from this project - which covers three oil fields Rumaila, Zubair and West Qurna 1 – to rise to US$30 billion over a period of 25 years.
NIQASH: How has the investment been split between the three partners involved?
Bouaziz: The total value of the investment is around US$17 billion. The South Gas Company’s share is about US$5 billion and Shell and Mitsubishi shares are US$7 billion together. The remaining money will be raised through the project’s own revenues.
In terms of the project, the South Gas Company owns 51 percent, Shell has44 percent and Mitsubishi has 5 percent.
NIQASH: What’s going to happen to the gas: will it be exported or will it be used to supply local needs?
Bouaziz: According to the contract, flared gas that is currently just being wasted will be sold to the Iraqi company to meet local demand and any surplus can be exported.
NIQASH: Shell is also working on the Majnoon oil field in Basra. How is that going?
Bouaziz: It’s a work in progress. We’ve just started receiving heavy equipment and we’re digging for new oil. We’ve already drilled two oil fields and work continues on that. At the moment we don’t have a specific date for increasing output there but it will be soon.
NIQASH: As a result of ongoing EU sanctions, Shell has stopped all operations in Syria. How does this impact on Shell’s work in Iraq?
Bouaziz: What happened in Syria was a result of decisions made by the European Union – as a European company we need to abide by that. However this won’t have any impact on our work in Iraq, neither negative nor positive.
NIQASH: The next licensing round for oil industry companies wanting to work in Iraq is approaching. Will Shell be taking part in this round?
Bouaziz: We are actually still waiting for a contract and as yet the responsible ministry hasn’t formulated that contract. The company needs to discuss whether it wants to participate in this upcoming round – it’s too early to tell, as yet.