Iraq is finally moving ahead with plans to develop its associated and non-associated gas resources in the next two to three years, according to a statement last week from its Deputy Oil Minister, Hamed Younis.

In total, he said, the Oil Ministry is looking at projects to develop 1.2 billion standard cubic feet per day (scf/d) of associated gas out of the 2.7 billion scf/d produced as an adjunct to oil excavation.

It is also looking to develop a number of standalone gas fields, beginning with the combined estimated 700 million scf/d production of Akkas and Mansouriyah.

There are three very good reasons why it should do so but, given its history on achieving objectives in this area, whether it will accomplish anything at all is a moot point.

The first reason is political, in so far as it needs to have some evidence to show the U.S. that it is intending to reduce its dependence on Iran for electricity and gas imports at some point in the future.

As highlighted by OilPrice.com, this long-running arrangement between the two countries has been an equally long-running source of intense irritation to the U.S.

To reprise briefly, Washington made it very clear in April that unless Iraq showed the U.S. some compelling evidence that it was intending to reduce its imports of Iranian electricity and gas then there would be no more waivers for Iraq after the 30-day one made in April expired.

At the same time, more names in Iraq – connected to the perennial sanctions-busting activities that have marked the two countries’ relationship since the original sanctions were introduced – would be added to the relevant blacklists.

Moreover, financing and security support would be cut and the prospects for the absolutely vital oil infrastructure project – the Common Seawater Supply Project – would be severely damaged, with no chance of ExxonMobil returning to it.

This announcement of new gas projects from Iraq is part of the set of reassurances that Baghdad gave Washington in this regard.

The second reason that Iraq should implement these gas plans is financial, in that not developing its non-associated gas fields is akin to leaving money in the ground.

Although Iraq does not have gas reserves on the same scale as neighboring Iran (with its supergiant non-associated South Pars resource) it does have nearly 135 trillion cubic feet of gas, the 12th largest in the world according to the EIA, with about three-quarters of this associated.

Clearly, global gas prices are currently low but that will not always be the case and it will take at least as long to develop the gas fields as it takes for the world gas price to recover.

For the same reason, it makes good sense to stop flaring the gas associated with oil field development, as this is akin to burning money, which Iraq can ill-afford.

Only last month, Iraq’s economic parliamentary committee suggested that international oil companies (IOCs) be paid with crude oil rather than cash or cash-equivalents as a means to reduce near-term state expenditure. It also proposed delaying payments of foreign debt, introducing salary cuts of 60 percent for various state sector employees, and reducing all non-essential spending.

Despite pumping at least 4.65 million barrels per day (bpd) of oil in February – above its OPEC+ quota of 4.46 million bpd – and exporting around 3.4 million bpd of crude that month, and almost the same in March, Iraq’s oil-related revenues had fallen by nearly 50 percent at that point.

This is in line with the collapse in oil prices and the fact that about 90 percent of Iraq’s government revenues still come from oil, hence the requests to the IOCs. Worse still is that the perennial disagreements persist between Baghdad and Erbil over the deal struck in 2014 for Iraq to send budget disbursements to the semi-autonomous region of Kurdistan in exchange for oil supplies sent back from it to Iraq’s State Oil Marketing Organization (SOMO).

This financial straightening poses severe danger to Baghdad very shortly, with new Prime Minister, Mustafa al-Kadhimi, requiring IQD12 trillion (US$10 billion) just to pay the next two months’ salaries of more than four million employees, retirees, state beneficiaries, and the food relief for low-income families, which together constitutes the majority of households in Iraq. It is believed in Iraqi government circles that any failure to pay any of these obligations could result in the sort of widespread protests that occurred at the end of last year.

The third reason that Iraq should implement these gas plans is longer-term strategic in that flaring gas and not developing non-associated gas resources means that Iraq’s precious oil reserves have to be used instead to generate domestic power.

This means that the oil used for power generation cannot be monetized through export (even now at a much higher rate than the average US$1-2 per barrel lifting cost) to boost Iraq’s near-empty state coffers nor can it be used to help Iraq reach its long-planned crude oil production target of 7 million barrels per day (it was to have been achieved by 2022).

As it stands, Iraq ranks as one of the worst three offenders for flaring associated gas in the world, after Russia, burning off around 16 billion cubic meters last year.

Not only does this cost the economy billions of dollars in lost revenue and contribute to the frequent power outages in Iraq, particularly during the summer months, but it also is not in the spirit of the United Nations and World Bank ‘Zero Routine Flaring’ initiative aimed at ending this type of routine flaring by 2030 that Iraq joined in 2017.

Aside from the gradual development of Iraq’s non-associated gas fields of the 400 million scf/d Akkas and 300 million scf/d Mansouriyah in the first instance, covered in detail by OilPrice.com, Younis highlighted that the initial focus of the efforts to capture associated gas would fall on Nasiriyah (200 million scf/d), Halfaya (300 million scf/d), and Ratawi (400 million scf/d), with the remaining 300 million scf/d (of the total 1.2 billion scf/d) coming from other fields.

Although he provided no further salient details, this single announcement links back to a deal agreed in principle in 2018 between Baghdad and U.S. oil services provision giant Baker Hughes to harness 200 million scf/d from the Nassiriya and Gharraf oilfields (and other oil fields north of Basra), and adjunct deals made at around the same time. These, according to a senior oil and gas industry source who works closely with Iraq’s Oil Ministry, are to be the broad template that the Oil Ministry will now attempt to follow.

The first stage would involve the advanced modular gas processing solution being deployed at the Integrated Natural Gas Complex in Nassiriya to dehydrate and compress flare gas to generate over 100 million scf/d of gas. The second stage would involve the Nassiriya plant being expanded to become a complete natural gas liquid facility that would recover 200 million scf/d of dry gas, liquefied gas, and condensate.

All of this output would go to the domestic power generation sector, with Baker Hughes at that time stating that addressing the flared gas from the two fields would allow for the provision of 400 megawatts of power to the Iraqi grid.

At around the same time as the Baker Hughes deal was announced in 2018, the then-Oil Minister, Jabbar Al-Luaibi, said that he was in the process of negotiating a similar gas capture deal for the state-run Nahr Bin Umar field with Houston-based Orion Gas Processors.

Additionally, Iraq’s South Oil Company stated that as part of the same plan it would begin the construction plans for gas-processing facilities in the Missan and Halfaya fields that would have a combined capacity of 600 million scf/d of gas when completed.

The plan then was for this to be augmented with the construction of gas-processing facilities in the West Qurna, Majnoon, and Badra fields, with respective overall capacities 1,650 million scf/d, 725 million scf/d, and 85 million scf/d.

The plan at that stage, according to the Oil Ministry, was that Iraq would have ceased all gas flaring from its southern-producing oil fields by the end of 2021, and that by that time some of this gas capacity will also have been freed up for export. “When oil production touches seven million barrels per day over the next few years, Iraq will have a surplus of around four billion cubic feet [of gas] to be freed up for exports,” the Oil Ministry had specified.