IRAQ - New Projects.

The Oil Ministry intends to tender two contracts for construction of two grassroots refineries in the central region near Baghdad. The first plant, with capacity of 440,000 b/d, will be tendered on an engineering, procurement and construction (EPC) basis, financed directly from the ministry's budget. The second refinery will have a capacity of 200,000-300,000 b/d.

The Oil Ministry has been negotiating with international contracting companies and investors on the possibility of developing the refinery on a build-own-operate (BOO) or build-operate-transfer (BOT) basis. Front-end engineering and design (FEED) work is being carried out by the ministry's engineering arm, State Company for Oil Projects (SCOP). SCOP will prepare the tender documents, evaluate technical offers and provide project management.

The Oil Ministry has been considering plans to build a completely new oil refinery in Mosul with a capacity of 70,000 b/d. This is in view of strong demand in that northern city and nearby areas.

Projects prepared by SCOP and under tender include upgrades to the Qayarah, Basra and Daura refineries. Tenders for upgraded at the Baiji refining centre and smaller refineries are expected over the coming months.

Gas utilisation is another key issue, not just for export, but for meeting spiralling domestic and power generation demands. A third of the 900 MCF/day of the country's gas output is wasted through flaring (see Gas Market Trends).

Privatisation: The scale of requirements to rehabilitate the downstream sector, including both the refineries and petrochemicals plants, is huge. This is compelling the newly formed Iraqi government, which has resulted from free elections held on Jan. 30, consider privatisation as an unavoidable option. Already the Electricity Ministry has adopted this option and now is preparing to sell off some of operating power generation plants.

The Oil Ministry is looking at private involvement in fuel distribution and petrol stations. (The state-owned Oil Products Distribution Co. is in charge of the fuel retail business). Other options under study include a possible sell off of some refineries and private operations and maintenance (O&M) contracts.

In the long run, Iraq could have a large export refining capacity on its Persian Gulf coast and in joint ventures on the Mediterranean, the Red Sea and Aqaba coasts, as US and Asian demand for oil products is expected to rise substantially in the next two decades. There have been proposals for Iraq to have a major crude oil pipeline built to Jordan's port of Aqaba, and to have an oil export refinery built there as a joint venture.

There is also a new proposal for the crude oil pipeline from Haditha to Syria's Mediterranean terminal of Banias to be revived (see OMT) and for a major refinery at Banias to be built as a joint venture. That pipeline system has a branch running to the North Lebanese city of Tripoli, the site of an old IPC oil refinery, where a new refining plant could be built as a joint venture. But such projects require major changes in Syria (see this week's APS Diplomat, news19bbSyriaLebanonMay9-05 & rim5bIraqGovtMay9-05).

Demand for clean fuels will be particularly strong in Asia, which is expected to become the world's biggest oil market by 2030. The IMF has forecast that the number of vehicles in China alone could increase from 21 million in 2002 to almost 390 million in 2030. China by the will have become the world biggest oil market (see OMT of this week).

Status Of The Refining Industry: Soon after the US-led war for the liberation of Kuwait ended on Feb. 28, 1991, Iraqi technicians worked around most problems faced by the refining sector due to the UN embargo. They managed to raise total refining capacity beyond 1990 levels of 550,000 b/d to reach 600,000 b/d in 1995. But it has since declined to less than 540,000 b/d.

During concentrated US-British air raids against Iraq on Dec. 16-20, 1998, the Basra refinery was hit badly and shortly thereafter the other refineries were closed as a precaution. Some of the other refineries received minor hits but were repaired in January 1999. The Basra refinery was repaired and it resumed full operations in mid-1999. In the latest war, in March/April 2003, the US-led forces made sure all petroleum-related installations were kept safe.

Before the 1991 war, exports of oil products stood at 140,000 b/d, mainly to Japan, France and Italy. Since then and until the latest war broke out in March 2003, small quantities of oil products used to be smuggled out. Limited exports of UN-approved oil products were made to Jordan since the oil-for-aid deal with the UN was executed in December 1996 (see background in Vol. 60, DT No. 19).

     IRAQ'S OIL REFINERIES
  (Usable capacity in '000 B/D)

Location              1985 July   1990*    1995    2005
Basra                   -         126.0   126.0   120.0
Daura                  80.0        76.0    92.0   110.0
Baiji (Salahuddin)     70.0       126.0   145.0   140.0
Baiji (North)         150.0       135.0   150.0   150.0
Kirkuk                 30.0        27.0    27.0    10.0
Nasiriyah/Samawah      10.0        27.0    27.0     9.0
Haditha                 6.5        14.0    14.0     -
Khanaqin/Alwand        10.5        10.5    10.5     -
Muftiah                 4.5         4.5     4.5     -
Qayarah                 4.0         4.0     4.0     -
Total                 365.5       550.0   600.0   539.0

*During a Baghdad oil conference in March 1995, Iraq's Oil Ministry said total refining capacity in July 1990 was about 700,000 b/d. It said the total for March 1995 was 600,000 b/d. The capacities in this table for July 1990 were taken from OPEC's annual statistical bulletin which put the total for the years 1989 to 1993 at 670,000 b/d.

Heavy fuel oil, the bottom fraction from a barrel being processed by the refineries, is being used mainly in power generation. Iraq's refineries cannot produce more gasoline and LPG without producing more fuel oil. Under Saddam's Baathist regime, the oil industry and decision making for all the sectors were centralised. Thus oil has been an integrated business; one cannot separate the refineries from the upstream sector. It is a chain, where operators must push out the fuel oil from the tanks - and for that they need the power stations to go up.

When there is a fuel oil backlog, Daura refinery near Baghdad runs below its capacity. As a result, the nearby Musayib power station would operate way below its 1,000 MW capacity. This is just one example integration and inter-dependence affect the downstream sector as a result of centralisation.

Under the Baathist regime, Iraq used to dilute illegal exports to Turkey with heavy fuel oil. When exports to Turkey are closed off, one of the outlets for fuel oil goes with it. As for LPG, the main source of domestic fuel for ordinary Iraqis, increased production seems some way off. A minimum of crude oil production from the northern and southern oilfields of 500,000 b/d is required in order to produce the needed volumes of propane and butane. The LPG plants are huge and need a lot of gas.