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Iraq's eye on gas in new energy auction
by Staff Writers
Baghdad (UPI) Sep 15, 2011

Iraq has prequalified at least 46 foreign companies to bid in a fourth auction for oil and natural gas contracts with the focus on accelerating development of the country's gas reserves.

The 12 exploration blocks up for grabs could add 29 trillion cubic feet of natural gas, as well as 10 billion barrels of oil, to Iraq's abundant energy reserves. The auction is scheduled for Jan. 25-26.

Some 100 executives from many of the companies listed attended an Oil Ministry road show Sunday in Amman, Jordan. The companies included Exxon Mobil and Chevron of the United States, BP from Britain, Total of France and Lukoil of Russia.

With 11 major oil fields being developed by these and other international companies, Iraq has little need for more oil reserves. However, whatever reserves are added to the current tally of 144 billion barrels will boost Iraq's production quota determined by the Organization of Petroleum Exporting Countries.

Iraq has known natural gas reserves of 110 trillion cubic feet, plus another 150 trillion in probable reserves. About 70 percent of these are what is known as associated gas, natural gas produced in conjunction with oil.

Although the 12 blocks on offer are expected to yield sizeable volumes of gas, Iraq doesn't have the infrastructure in place to produce, transport or utilize gas domestically, or to develop an export capability.

Boosting gas production has taken on a new urgency because it can be used to fuel electricity generation.

That is woefully inadequate because of the parlous state of the national power grid after decades of war and neglect. It only produces half of what is needed eight years after the U.S. invasion of March 2003 -- 8,300 megawatts with a peak summer demand of 15,000MW.

This causes constant power cuts across the country and that's impairing industrial development under the post-war reconstruction plan.

It has also triggered riots that have resulted in stopgap measures by the fragile coalition government of Prime Minister Nouri al-Maliki, which is also grappling with a serious security problem.

A long-term solution to the problem is years away, so the sooner Iraq can start using natural gas for power generation the better.

The government is seeking to install by 2013 gas turbines with an output of 11,000MW it acquired from General Electric and Siemens, while it cranks up efforts to harness gas from producing oil fields.

"We may or may not develop and produce from the oilfields," said Abdul-Mahdy al-Ameedi, director of the ministry's contracts and licensing department.

"Regarding the gas, we're keen to find gas accumulations to be produced in order to use the produced gas as a fuel for power generation, petrochemicals and other industries."

Iraq has stepped up efforts to harness its vast gas reserves to fuel its power stations and export the surplus, ending the wasteful process of flaring off 70 percent of the associated gas recovered from oil fields.

In June, more than 874 million cubic feet a day was being burned off at wellheads.

Spearheading this effort is a $12 billion deal with Royal Dutch Shell and Japan's Mitsubishi Corp. to capture the huge volumes of gas flared off in the giant southern oil fields of Rumaila, Zubair and West Qurna Phase 1.

These two companies will form the Basra Gas Co. with the state-owned South Gas Co.

Before the 2003 war, natural gas gathered from major southern oil fields was carried by pipeline to plants in Basra and Zubair but the infrastructure deteriorated after the war. The only functioning gas production is in the al-Anfal field in northern Iraq.

To sweeten the pot for potential investors at the January auction, the ministry has hiked the remuneration for those companies that secure exploration blocks over the fees paid under three auctions in 2009 and 2010.

The previous contracts were for 20 years. But the term of the contracts to be awarded next year will run for a maximum of 30 years.

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China warns on South China Sea oil
Beijing (UPI) Sep 15, 2011 - China warned India and other countries about oil exploration projects in the disputed South China Sea and its islands, claiming its "indisputable sovereignty" over the area.

The South China Sea has proven oil reserves of around 7.7 billion barrels, with estimates reaching to 28 billion barrels.

Aside from China, the disputed waters are claimed in whole or in part by Vietnam, the Philippines, Taiwan, Brunei and Malaysia.

Tensions escalated in June between China and Vietnam over the Spratly and Paracel Islands, with Vietnam claiming that Chinese vessels cut cables to its oil exploration ships in the contested waters. There have also been standoffs this year between Chinese and Philippine vessels.

And in late July, a Chinese warship confronted an Indian navy ship shortly after it left port in Vietnam. Indian officials said the vessel was still within Vietnam's economic zone.

"I would like to reaffirm that China enjoys indisputable sovereignty over the South China Sea and the island. China's stand is based on historical facts and international law," Chinese Foreign Ministry spokeswoman Jiang Yu told reporters.

While not directly referring to India, Jiang's comment came in response to a question on reports that India's Oil and Natural Gas Corp. Videsh Limited was considering exploration projects in two blocks that Vietnam claims.

The proposed projects are expected to figure in scheduled talks Friday between Indian and Vietnamese external affairs ministers.

"We hope foreign countries will not get involved in the dispute," Jiang said, alluding to India's interest in the blocks. "For countries outside the region, we hope they will respect and support countries in the region to solve this dispute through bilateral channels."

While Vietnam maintains it holds rights to the two blocks under the U.N. Convention on the Law of the Sea, Jiang said the agreement "did not give any country the right to expand their own exclusive economic zone and continental shelf to other countries' territories."

Instead, she said, the convention didn't negate "a country's right formed in history that has been consistently claimed."

Chinese state-run news agency Xinhua reported last week that China and Vietnam had agreed to push ahead with negotiations over the dispute, with the aim of signing a formal agreement.

As for oil and gas exploration activities, our consistent position is that we are opposed to any country engaged in oil and gas exploration and development activities in waters under China's jurisdiction," Jiang said.

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