IRAQ - Gas Sales To Kuwait.

Agreement was reached early this year on the commercial terms for the Iraq-Kuwait gas supply deal, following a successful conclusion to negotiations between the Kuwaiti government and the Iraqi Oil Ministry. Both the contract and memorandum of understanding (MoU) are awaiting approval from Baghdad and should be signed once the recent formation of a new government has been completed. The MoU was signed last December.

MEED on Feb. 7 quoted Issa al-Oun, undersecretary at the Kuwaiti Ministry of Energy, as saying: "Basically we are waiting for the formation of the new government [in Iraq]. But total spending [of about $800m] and technical details have all been finalised, so it should be just a matter of time".

The supply deal, if approved by the Iraqi side, would be implemented in two phases. In Phase-1, Iraq will export to Kuwait 35 MCF/d of associated gas to Kuwait. The gas will be produced from Iraq's southern oilfields. It would be pumped through an existing, disused pipeline. In Phase-2, Kuwait will import 200 MCF/d.

The prospective agreement also allows for gas volumes to be increased through gas E&P involvement by state-owned Kuwait Foreign Petroleum Exploration Co. (KUFPEC). MEED quoted Oun as saying: "We are exploring future opportunities, possibly getting KUFPEC to develop Iraqi gas fields. We are hoping that we can increase the import deal to 400 million cf/d this way".

Kuwait is desperate to find a gas supply partner to meet its power generation requirements and increasing domestic demand. The state has other gas import deals pending with Qatar and Iran, and is also considering the possibility of building a liquefied natural gas (LNG) terminal should the pipeline option fail.

Iraq supplied Kuwait with 200 MCF/d of its southern associated gas through a 140-km pipeline from 1986 to mid-1990. However, the 40-inch-diameter link, which runs from the giant Rumaila field in southern Iraq, has remained idle since the Iraqi invasion of Kuwait in early August 1990.

Until mid-1990, the Iraqi gas was sold to Kuwait Petroleum Corp. (KPC) at $1/m BTU. It is unlikely that Iraq now would agree to such a price (see background in Vol. 60, Gas Market Trends No. 19).

As part of the gas agreement, Kuwait will also increase exports of refined products to Iraq, which is short of oil refining capacity. Shortages of gasoline and other fuels are costing Iraq $250m per month (see OMT & DT).