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Analysis: EU hungry for Iraq gas and oil

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by Ben Lando
Washington (UPI) Feb 8, 2008
Iraq is looking outside its legal and security troubles to establish mutually beneficial energy ties with Europe.

Last week Oil Minister Hussain al-Shahristani met with top EU commissioners in Brussels to discuss energy cooperation. Iraq has 112 trillion cubic feet of proven gas reserves and, like its oil reserves, experts say complete exploration will find up to three times more.

But realities on the ground post-2003 as well as Saddam Hussein leftovers are making it hard to develop. Europe, meanwhile, is desperate for Russian alternatives and is offering helping hands to develop Iraq's electricity sector.

Both Turkey and the United States have discussed helping out as well.

"Energy is one of the important sectors that Iraq is working on in the relations with Europe," Sami Askari, an Iraq parliamentarian and adviser to Prime Minister Nouri al-Maliki, told United Press International. "Iraq has large reserves of gas and oil and we're looking for new markets and I think Europe will be the nearer and most important potential market."

One of Iraq's largest gas fields, Akkas, located near the Syrian border, is on the short list of developments. It could feed markets in Syria, as well as tie into a proposed Arab gas pipeline, where natural gas from Arab states would be piped to Turkey and on to Europe.

"It's a promising new supplier," said Ferran Tarradellas, spokesman for EU Commissioner for Energy Andris Pielbags, who met with Shahristani. Citing Iraq's 10th-largest gas and third-largest oil reserves, he added, "It's not that far from the European Union."

"In the foreign energy policy that we are following now, one of the main priorities is the diversification of supply sources," which are mostly Russia, Norway and Algeria, he said. "That leaves the EU, at a time when our own gas production is shrinking, in a very delicate position."

Royal Dutch Shell, France's Total and Italy's Edison are all courting Shahristani for a deal to develop Akkas. The European Parliament rejected a plan by a development committee last October to dedicate funds for the project.

Europe is also helping Iraq with its electricity sector, which is improving but still susceptible to post-2003 chaos and lags behind demand. "The (Iraqi) central government has directed the European Commission and accepted the European Commission's offer to rewrite the electricity law and establish a modern electricity framework along the lines of that which has been adopted and is functioning in Jordan," a member of the Energy Fusion Cell, a U.S.-orchestrated team in Iraq focused on strategic energy issues, told UPI on condition of anonymity.

Turkey, an increasing energy consumer and major transit country for the oil and gas trade, is looking at Iraq's north as well. Turkish President Abdullah Gul led a delegation to Washington early last month, meeting with President Bush, Vice President Cheney and the secretaries of state and energy. Part of the meetings included jointly working with Iraq to develop its energy sources.

Upon returning Energy and Natural Resources Minister Hilmi Guler said specifically Turkey was eyeing northern Iraq gas. Turkey's pipeline firm BOTAS announced it was studying a pipeline project to send gas along the same route as two pipelines pumping oil from northern Iraq to a Turkish port.

"We are looking forward really," said Abdul-Hadi al-Hasani, deputy chief of the Iraqi Parliament's Energy Committee, "to European government and companies to coming in and develop Iraq's oil industry."

Iraq's energy sector -- oil, gas, power and fuels -- needs billions of dollars of investment, especially after Saddam Hussein's mismanagement and U.N. sanctions. Iraq could foot much of the bill but lacks the institutional capacity to spend its capital budget. And only part of the U.S. reconstruction effort in this area has been successful.

Disputes between the Kurdistan Regional Government and the central Iraqi government over control of the oil sector have stalled an oil law package that would, in part, govern how the oil sector is developed and how international oil firms would be able to invest.

The Kurds have gone on their own, signing deals and irking Baghdad while insisting the Constitution supports their efforts. Shahristani has called them illegal. He's beginning a process to sign deals without a law as well. A team from the Oil Ministry has been meeting with officials from Shell, BP, Chevron and ExxonMobil to negotiate special assistance deals on five key oil fields. Later this year the ministry will offer more fields for bidding.

Violence and other instability continue to take their toll on the energy sectors -- not to mention Iraqis themselves. Iraq oil production was praised for reaching 2.3 million barrels per day, but early estimates for January averages show it dropping by at least 100,000 bpd. This has affected, and been affected by, power outages in the middle of the month. Explosions, both accidental and malicious, are hampering refineries and electricity delivery.

"We are happy and open to working closely with Iraq," said Christiane Hohmann, spokeswoman for EU Commissioner for External Relations Benita Ferrero-Waldner, also at the Shahristani meetings. "The first problem which we always had is the security question, which is not new."

She said there are no official meetings planned, but Iraq has been invited to an upcoming ministerial conference on the Arab gas pipeline.


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