VZCZCXRO1056
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3254/01 2711320
ZNR UUUUU ZZH
P 281320Z SEP 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 3601
INFO RUCNRAQ/IRAQ COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 03 BAGHDAD 003254 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA-I, EEB FOR GALLOGLY 
DOE FOR ALAN HEGBURG 
 
E.O. 12958: N/A 
TAGS: EPET EINV ENRG PREL IZ
SUBJECT: NATURAL GAS FROM IRAQ 
 
SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET DISRIBUTION. 
 
REFS: A) DAMASCUS 931  B) ANKARA 2350 
 
SUMMARY 
------- 
 
¶1. (SBU)  Iraq has world class reserves of natural gas, although 
most of it is associated with oil deposits and will become available 
only with oil development over the coming decade.  In the medium 
term, however, Iraq may be able to export 4-10 billion cubic meters 
per year (BCM/yr) of gas.  Depending on results of additional 
delineation drilling, development of the discovered but undeveloped 
Akkas field in Western Anbar could provide 4-5 BCM/yr to Turkey via 
a link-up through Syria to the Arab Gas Pipeline.  An additional 
amount of gas, up to 10 BCM/yr may be available directly to Turkey 
from apparently non-associated gas (depending on more drilling) in 
Kurdish regions.  Still larger volumes depend on development of gas 
resources in the southern oil fields, and construction of major new 
strategic pipelines through the length of the country, a long term 
prospect depending as well on restoration of enduring security.  END 
SUMMARY. 
 
RESOURCE BASE 
------------- 
¶2.  (U) Iraq contains an estimated 2.7 to 3.1 trillion cubic meters 
(thousand BCM) of proven natural gas reserves (placing it fifth in 
the world), along with another 4.2 thousand BCM in probable gas 
reserves.  Almost all proven gas reserves in Iraq are associated 
with petroleum reserves - 70 percent of the produced gas is solution 
(associated) gas from oilfields, 20 percent from gas fields 
(unassociated with oil), and the remainder is from oilfields with 
gas caps. 
 
¶3.  (U) Iraq's current total gas production is about 15.5 BCM per 
year (BCM/y).  Iraq's long-term goal is to increase oil production 
from 2.1 to 6.5 million barrels of oil per day (mbd) over the next 
10 years.  If it realizes that oil production target, gas production 
should increase proportionally by about 53 BCM/y, to an annual 
production rate of 69 BCM/y in 2017. 
 
MINISTRY OF OIL GOALS 
--------------------- 
¶4.  (U) At a conference in Dubai in September 2007, Iraq's Minister 
of Oil Husayn Shahrastani optimistically said Iraq's medium term 
goals are to increase oil production from 2.5 mbd in 2007, to 3 mbd 
in 2008, and to 3.5 mbd in 2009.  (COMMENT: Actual production in 
2007 is likely to average only about 2 mbd, although it is 
increasing moderately with the reopening of the northern export 
route.  END COMMENT).  Such an oil production increase would imply 
an increase in associated gas production of about 29 BCM/y.  The 
Minister said Iraq's short term goal is to use more of its gas, and 
medium term, to increase the amount of proven gas reserves. 
 
¶5.  (SBU) Unlike most countries, there is little doubt that Iraq has 
the oil reserves to meet its oil production targets; however, 
capturing the full economic benefit of gas production faces serious 
security, political and institutional obstacles.  Also, because most 
of Iraq's estimated proven oil reserves are concentrated in the 
southern part of the country, and because most of the additional 
production of gas will come from those southern oil fields, Iraq 
faces a difficult logistical choice in deciding how to use its gas. 
 
THE CURRENT STATE OF AFFAIRS 
---------------------------- 
¶6.  (SBU) Existing gas distribution systems in Iraq suffered from 
multiple wars and neglect during the sanctions period. Most of the 
gas pipelines that are left are of extreme age and have suffered 
serious corrosion.   Consequently, many have been de-rated to lower 
operating pressures, resulting on lower flow rates.  Additionally, 
many have been damaged by the insurgency.  Iraq lacks a functioning 
network of degassing, compression and dehydration facilities.  As a 
result, Iraq has to flare vast amounts of gas. 
 
¶7.  (U) In the southern region, some 6-8 BCM/y of associated gas are 
flared, and only about 3 BCM/y of gas are used from a production of 
9.8 BCM/y.  To place that in context, that amount of flared gas 
could be used to generate some 2,400 to 3,200 MW of electricity in a 
modern gas turbine power plant.  The remaining gas that is captured 
in the south is far distant and not connected to any pipeline 
network to any existing and functioning export route. 
 
¶8.  (U) In the northern region, some 3.9 billion BCM/y of free gas 
is produced, along with approximately 1.2 billion BCM/y of 
associated gas.  Total production in the North is 5.1 billion BCM/y. 
 
BAGHDAD 00003254  002 OF 003 
 
 
  Most of that is used in power production, and even so, there still 
is a shortage of gas for power generation. 
 
POSSIBLE MARKETS 
---------------- 
¶9.  (SBU) Looking beyond the immediate domestic need for utilizing 
gas production, addressing the flaring of gas should be a high 
priority for both economic and environmental reasons, and will 
become even more important as Iraq ramps up petroleum production. 
The development of the gas industry in Iraq should take into 
consideration the country's current and future energy needs, as well 
as the potential to be integrated into regional and international 
gas and petrochemical markets. 
 
¶10.  (SBU) Gas exports to Europe represent the best opportunity to 
capture the market value of Iraqi gas.  The Minister of Oil readily 
understands the geopolitical significance as well:  he agrees that 
if Iraqi gas made a substantial contribution to Europe's energy 
diversification, it would encourage European interest in Iraqi 
political stability.  And for us, of course, Iraqi gas can help 
fill-in supplies for a non-Gazprom Southern Corridor.  If 
established, this market would offer Iraq a stable market demand. 
 
¶11. (SBU) So, in the short term, what gas export projects are 
possible?  Since 2003, we have been working with Iraq to help it 
with the capacity-building needed for extending its domestic gas 
network, and integrating the northern and southern gas systems which 
have been effectively broken apart by the insurgency. 
Unfortunately, given the insurgency and attendant instability, we 
have little to show for our efforts: some gas-fired generation, some 
repaired pipeline links.  But even today the north and south 
pipeline systems are not linked and some power plants designed for 
gas are running on diesel, or, even worse from an operational and 
environmental standpoint, on heavy fuel oil.  But there are short 
and medium term export options nevertheless, starting with modest 
volumes via Syria. 
 
SYRIA 
----- 
¶12.  (SBU) Several studies have been conducted (or are being 
conducted) to capitalize on Iraq's gas resources, including by Shell 
country-wide and by the Japan External Trade Organization in the 
north and south.  The western desert of Iraq is relatively 
under-explored, and has not seen recent or new exploration drilling 
except in the area of Akkas field.  Only six gas wells, of which 
only four are productive, have been drilled in the Akkas field, 
located in Anbar province conveniently near Syria but inconveniently 
without a suitable gas pipeline nearby. Although a commercial-scale 
gas reserve has been proven at Akkas field, for lack of a pipeline 
the gas is stranded at the moment, and the wells were capped. 
 
¶13.  (SBU) The Iraqi Oil Minister announced on September 9 that the 
Ministry will construct a pipeline to supply gas to Syria.  He told 
EMIN on September 14 that Iraq is going to build a short pipeline 
from Akkas across to a gas/oil separation plant (GOSP) in Syria, 
which would supply 0.5 bcm per year of gas, initially for injection 
for enhanced recovery for Syrian oil wells in the region.  According 
to the Minister of Oil, however, Iraq would be open to develop 
greater volumes from Akkas, up to 5 BCM.  (NOTE: The field has not 
been proven to that capacity yet. END NOTE). 
 
¶14.  (SBU) This additional gas could be available for export to 
Turkey and then to Europe via the Arab Gas Pipeline (which we 
understand is still in its third phase of construction through 
Syria, and not yet connected to European markets via Turkey).  Full 
field development of this nature could take three years or less if 
it is turned over to an IOC on a service contract basis to develop, 
as the Minister says he would like to do.  However, without the 
national hydrocarbon framework law, such a contract would require 
Parliamentary approval. 
 
TURKEY 
------ 
¶14.  (SBU) A medium-term export possibility is to construct a gas 
pipeline directly from the northeastern gas fields to (or through) 
Turkey.  Iraq had been a minor regional gas exporter prior to the 
first Gulf War.  The implementation of sanctions put an end to the 
export of gas for a decade.  The previous regime in Iraq laid the 
groundwork for resuming exports of natural gas to Turkey, once UN 
sanctions were lifted. In 1996, Iraq and Turkey signed a provisional 
agreement to supply up to 10 bcm/yr of Iraqi gas. The project 
planned to utilize gas from five gas-rich deposits in northeast Iraq 
(Khor Mar, Chemchemal, Jaria Pika, Khashm al Ahmar and Mansuriyah) 
that were not -- and still are not -- in production.  However, to 
develop this gas would require the construction of gas treatment 
 
BAGHDAD 00003254  003 OF 003 
 
 
facilities and a pipeline to the Turkish grid.  The initial 
estimated cost of the development in 1996 was more than US$2.5 
billion. 
 
¶15.  (SBU) Turkey has never forgotten the potential of Iraqi gas. 
According to press reports, the general manager of BOTAS (Turkey's 
national gas company), Saltuk Duzyol, said on September 4 that BOTAS 
hopes to develop gas fields in northern Iraq to strengthen supplies 
for the Nabucco pipeline project, as soon as the new petroleum law 
is enacted in Iraq. 
 
¶16.  (SBU) There is one large caveat to keep in mind about gas in 
the northeastern fields.  The fields are classed as gas fields by 
the Ministry of Oil and generally assumed to contain dry gas, but 
some data suggests otherwise, and it is possible that the first 
exploratory wells have only encountered the gas cap of an oil 
accumulation.  The production of free gas from an oil reservoir 
usually degrades the reservoir pressure and decreases the ultimate 
oil recovery.  Without additional exploratory evidence, this would 
not be a recommended practice. 
 
THE POLICY CHOICES WE MAKE TODAY... 
----------------------------------- 
¶17.  (SBU) The choice between these pipeline export routes raises 
political and technical issues.  With respect to Syria, export by 
Iraq of the small quantities (500 mcm) being discussed would give 
Iraq a considerable lever on Syrian behavior, as this gas would help 
Syria maintain its oil production levels.  Even the modestly larger 
volumes (4.5 bcm) that could be supplied to Turkey across Syria 
could give Baghdad leverage over Damascus, although in that case the 
leverage could cut both ways. 
 
¶18.  (SBU) On direct exports from the northern fields to Turkey, 
such deals could improve Kurdish-Turkish relations, but Baghdad's 
buy-in will be needed also. 
 
¶19. (SBU) On the technical side, both of these options only scratch 
the surface, so to speak, of total reserves with the northern gas 
resources, and Iraq should continue work to repair its internal 
pipeline infrastructure to tap into the potential of its southern 
fields, a long-term project.  But as these fields and pipelines are 
developed, exportable surpluses of 50-60 BCM of Iraqi gas are quite 
realistic, making Iraq a potential major world supplier of gas, and 
creating competition for Russia and Iran. 
 
¶20.  (SBU) Iraq is developing a master gas plan, which should take 
into consideration commercial, technical, organizational and legal 
parameters (including energy regulation and gas policy).  The 
obvious obstacles to the path forward are the current instability, 
the need for extensive mine and ordinance removal in critical 
southern fields, and the ability of Iraq to regain the management 
and technical expertise lost due to personnel departure. Our long 
term goal should be a functioning domestic distribution system that 
satisfies domestic fuel needs, an increase in oil exports, and 
exports of significant quantities of natural gas through Iraq's 
neighbors to customers in Europe and perhaps Asia.