STUDY Powering Iraq: Challenges facing the Electricity Sector in Iraq
The unprecedented POWERING IRAQ: decline in oil prices since March has left Iraq unable to pay CHALLENGES FACING its US$ 4.2 billion monthly public sector THE ELECTRICITY obligations. Iraq’s electricity problem is centred around a chronic SECTOR IN IRAQ inability to match supply with demand. In 2019, peak demand was 26 GW, 58% higher than generation capacity.
challenge for Iraq, is less in generation Robin Mills And Maryam Salman capacity, and more October 2020 in distributing fuel supplies to power plants, and improving the power transmission system.
Al-Bayan Center for Planning and Studies 1
POWERING IRAQ: CHALLENGES FACING THE ELECTRICITY SECTOR IN IRAQ
Robin Mills And Maryam Salman October 2020
2 Table of Contents
1 INTRODUCTION...... 6 2. RECENT DEVELOPMENTS ...... 9 3. BUDGETARY CHALLENGES & FISCAL PRESSURES ...... 11 4. NATURAL GAS DEVELOP-MENT REMAINS SLOW ...... 12 5. THE CHALLENGED POWER-GAS NEXUS...... 16 6. SOLUTIONS LACK FOCUS ON GRID REINFORCEMENT...... 18 7. RENEWABLE ENERGY IS STILL A PIPE DREAM ...... 22 8. A POSSIBLE WAY FORWARD...... 24 Gas Development ...... 25 Electricity Reform...... 26
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4 Powering Iraq: Challenges facing the Electricity Sector in Iraq
Acknowledgements This policy paper was supported by Friedrich-Ebert-Stiftung, Amman, Jordan. We especially thank Tim O. Petschulat the resident director of the Friedrich-Ebert-Stiftung, Amman, who provided insight and expertise that greatly assisted the research, although Friedrich-Ebert- Stiftung, Amman, Jordan may not agree with all of the interpretations/conclusions of this paper. Special thanks to Ali Taher of Al-Bayan Center for Planning and Studies, Baghdad, Iraq for his valuable contribution and coordination to make this work happen Hayder Khafaji and Aymen Abdul Kareem, and Peter Oliver for comments that greatly improved the manuscript.
About the Authors
Robin Mills established Qamar Energy in 2015 to meet the need for regionally-based Middle East energy insight and project delivery. He is an expert on energy strategy and economics. Robin worked for a decade for Shell, concentrating on new business development in the UAE, Qatar, Iraq, Iran and other Middle Eastern countries, when he was described as the “Shell expert on Iran”. He is the author of two books, The Myth of the Oil Crisis, which evaluates global long-term oil supply, and Capturing Carbon, the first comprehensive overview of carbon capture and storage for the non-specialist.
Maryam Salman holds experience as an energy research analyst and consultant, covering the Middle East’s energy spectrum. She has led numerous market studies analysing existing and aspirational business models across the Middle East’s energy sector and has advised on key political and geopolitical issues in Iraq, Iran, Libya, and Bahrain.
5 1. INTRODUCTION
1. INTRODUCTION The struggles of the electricity sector have a long history. Following damage to the grid and On February 21, 2020, Iraq recorded its first power plants in the first Gulf War (1990-91) case of the novel coronavirus. Five months later, and deterioration during the 1990s period of total recorded cases are 129 000 at the time of strict international sanctions, infrastructure was writing, and daily reported deaths almost 100. further damaged by looting and civil conflict The crisis has battered the country’s economic after the 2003 US-led invasion. Corruption development plans, and put an indefinite and mismanagement led to slow progress in question mark over the realisation of a rebuilding the sector and expanding capacity, massive US$ 15 billion electricity infrastructure while demand has continued to grow rapidly upgrade roadmap announced by former because of fast population growth, and the Prime Minister Adel Abdel Mehdi in April last spread of consumer appliances, particularly air- year. Simultaneously, global energy markets conditioners. Fuel supply to power plants has continue to struggle ever since the oil market been a further problem, with continuing high collapsed between March and April, briefly levels of flaring of associated5 gas. plunging oil price will drop to low single-digit. Iraq’s hydrocarbon revenues have, as a result, In June 2013, Iraq launched an Integrated fallen to their lowest since the early years after National Energy Strategy (INES), and was the 2003 US invasion1. confident that Iraqis would soon enjoy 24- hour power supply, as it unveiled plans to have In May, Abdel Mehdi stepped down to make generation capacity cross 20 GW by 20156 from way for new premier Mustafa Kadhimi, who, 10-12 GW. 8 GW of new capacity was to be within a month of taking office, announced added to existing capacity, but by 2019, only 4 his government would not be moving ahead GW of this was realised, bringing total capacity with a 2020 budget, and would instead focus 2 to 16.5 GW, even though generation managed on formulating a budget for 2021 . Partly as a to reach 19 GW during peak periods. Part of result, pressure has mounted on the country’s the gap in demand is met by privately-operated fragile electricity sector. Lack of funds and generators, but these are expensive, noisy and proper maintenance has resulted in 12 hour+ polluting and generally do not provide enough blackouts returning to the southern hubs of electricity to run air-conditioning. Iraq’s oil sector, prompting protests. On July 26, two protestors were killed by security Also in 2013, the Basrah Gas Company (BGC), forces in Najaf3, provoking violence between a joint venture between the Iraq South Gas other demonstrators. Al-Kadhimi’s promises of Company (51%), Royal Dutch Shell (44%), and meeting citizens’ demands for electricity seem Mitsubishi Corporation (5%) was established a difficult challenge to meet under the current to capture associated gas from the Rumaila, circumstances, leading him to blame the Zubair, and West Qurna-1 oilfields for power “corruption and mismanagement” of previous generation. Since then, capture has risen to 7.2 cabinets for chronic power shortages4. billion cubic metres (BCM) per year, nearly a
1. MEES, “Iraq’s Oil Revenues Collapse”, V63 N18 (May 2020) 2. Lawk Ghafuri, “Iraq to dismiss 2020 budget plan, work to secure 2021 budget”, Rudaw, June 07 (2020) 3. The National, “Iraq: Mustafa al-Kadhimi orders investigation into deaths of protestors”, July 28 (2020) 4. Lawk Ghafuri, “Kadhimi blames electricity shortages on previous cabinets’ corruption and mismanagement”, Rudaw, July 27 (2020) 5. Associated gas is the natural gas present in a deposit of crude petroleum (in oil fields), either dissolved in the oil, or as a free “gas cap” above the oil in the reservoir 6. Harry Istepanian, “Iraq’s Electricity: From Crisis to ISIS,” Power Engineering International 22, no. 8 (2014), 32-37
6 Powering Iraq: Challenges facing the Electricity Sector in Iraq
third of associated gas production (~26 BCM). power plants10, which severely interrupted This is a significant success story, but 50% of service to the north-western governorates. associated gas is still flared. There was then a big jump in 2019, following In June 2017, Iran began exporting gas to then-Minister of Electricity Luay al-Khatteeb’s Iraq, via a pipeline through the Diyala province “fast-track programme” to revive halted to Baghdad, supplemented by supplies to power projects, by streamlining contractual Basra in 2018. However, this has been opposed requirements and re-shifting the focus of by the US, which has encouraged Iraq to find regional companies to summer maintenance alternative supplies, while giving time-limited schedules11. This resulted in the summer of 2019 waivers to continue the imports. witnessing a near 20% jump in generation year- on-yearturbines from the were same to be period upgraded in with2018, upstream when cooling 140 violent systems,protests and broke 13 132/33kV out in substations the southern would be con- 120 hubs ofstructed the country. in Basrah Also, and state the centralgrid electricity provinces. A new 100 was delivered500 MW togas areas-fired powerliberated plant from would ISIS be built in 80 for the Zubaidiyafirst time in after southern five yearsBaghdad, of completeand under a sepa- 60 shutdown.rate Nevertheless,US$ 1.3 billion this agreement, has never the beenBaiji 1 and 2 enough to close the gap with demand. 40 power plants, located 250 kilometres north of Bagh- dad, would be rebuilt, adding 1.6 GW capacity when 20 German conglomerate Siemens made Annual generation (TWh) completed. headlines in 2018 for vowing to have Iraq’s 0 power grid up and running after the defeat 2011 2017 2015 2013 2012 2014 2016 2019 2018 2010
2007 Concurrently, US firm General Electric promised 3.3 2005 2003 2004 2006 2009 2008 of ISIS the year prior. It discussed a slew of GW of new generation if 40% of current flared gas “power deals” with the Ministry of Electricity Commented [FW4]: I am not sure whether Germany and Figure 1 Power generation in Iraq, by year (includes Kurdi- were captured12. It also signed agreements to up- stanFigure region) 17 Power generation in Iraq, by year that would boost Iraq’s generation capacity the US share the same approach here: Siemens intended to grade, maintain, and rebuild facilities to boost capac- (includes Kurdistan region)7 by as much as 25 GW if they came to fruition. invest into the grid (extension, expansion, stability, flexibil- As shown in Figure 1Figure 1, generation recovered ity by 5 GW. General Electric’s mandate has involved ity…) RE seems to invest into power generation A US $15 billion roadmap to this end was slowlyAs shown after the in invasion Figure 1,and generation was rather stagnantrecovered un- closer cooperation with the Ministry of Oil (MoO) unveiled in 2019 by then Prime Minister Abdel Formatted: Font: 9 pt, Font color: Auto, Complex slowlytil a significant after the improvement invasion inand 2014 was-2018 rather. How- and the Ministry of Electricity (MoE), with US gov- Mehdi. 40 gas turbines were to be upgraded stagnantever, there untilwas a asetback significant during improvementthis 2014-18 period in ernment backing to wean Iraq off Iranian gas supply Script Font: 9 pt with upstream cooling systems, and 13 2014-2018.due to occupation However, of large there parts was of northa setback-western for electricity generation, while the German focus 132/33kV substations would be constructed in duringIraq by thisthe ‘Islamic 2014-18 State period of Iraq due and to Al occupation-Sham’ (ISIS has mostly been on grid rehabilitation and expan- Basrah and the central provinces. A new 500 ofor Da’esh)large parts group. of They north-western caused an e stimatedIraq by US$the 7 sion. General Electric also has a “GE Renewable En- ‘Islamicbillion of Statedamage of to Iraqthe power and sectorAl-Sham’8, and sabotaged(ISIS or MW gas-firedergy’s Grid power Solutions” plant programme,would be built which in might as- Da’esh)or destroyed group. electricity They caused lines, and an the estimated Al Qayara US$ (750 Zubaidiyasist inin Iraq’ssouthern plans Baghdad, of developing and 635 under MW ofa renewa- 7MW) billion9 and of Baiji damage (1600 MW)to the power power plants sector10, which8, and se- separateble US$ capacity 1.3 bybillion September agreement,, now likely the later,Baiji this year, sabotagedverely interrupted or destroyed service to electricity the north -westernlines, and gov- 1 and 2though power no plants, discussion located to this 250 end kilometres has yet taken place. theernorates Al Qayara. (750 MW)9 and Baiji (1600 MW) north ofFor Baghdad, now, a US$ would 727 be M rebuilt, deal to addingfortify the 1.6 country’s GW capacityelectricity when grid completed. in areas still rebuilding from years of 7.There Data wasfrom then Statistical a big Reviewjump in of 2019World, followingEnergy 2020 then- war, has been signed with the MoE. The deal will also 8.Minister Wall Street of Electricity Journal, “Defeat Luay alof- KhatISIS inteeb’s Iraq “fastCaused-track $45.7 Billion linkin Damage Iraq’s gridto Infrastructure, to Jordan’s, Studyreducing Finds”, overall conges- Februaryprogramme” 18 (2018), to revive https://www.wsj.com/articles/defeat-of-isis-in-iraq-caused-45-7-billion-in-damage-to- halted power projects, by tion and ensuring dependable power supply. Another infrastructure-study-finds-1518389411#:~:text=The%20damage%20to%20the%20housing,age%20is%2020%20 streamlining contractual requirements and re-shift- US$ 500 M deal was also signed to provide parts and years%20old. 13 9.ing GE, the “Let focus There of Be regionalLight: How companies GE Rebuilt toAn Iraqisummer Power Plant Destroyedmaintenance by ISIS”, services October to 6 22GW (2018), of power capacity . maintenance schedules11. This resulted in the sum- https://www.ge.com/news/reports/let-light-ge-rebuilt-iraqi-power-plant-destroyed-isis Commented [FW3]: How? 10.mer Wall of 2019Street witnessing Journal, “Siemens: a near 20% Signs jump Deal toin Rebuildgenera- Iraqi PowerDespite Plants theseDamaged efforts by ,ISIS”, Iraq hasSeptember seen poor 16 progress in (2019),tion year https://www.marketscreener.com/SIEMENS-AG-56358595/news/Siemens-Signs-Deal-to-Rebuild--on-year from the same period in 2018, serving its people’s power needs. Electricity genera- Iraqi-Power-Plants-Damaged-by-ISIS-29209849/when violent protests broke out in the southern hubs tion per capita, which should be high to meet air con- 11. Luay al-Khateeb, “Fixing Iraq’s Power Sector”, Iraqi Economists Network, August 22 (2020) of the country. Also, state grid electricity was deliv- ditioning needs, remains one of the lowest in the ered to areas liberated from ISIS for the first time af- Middle East. It generates less than Lebanon, even ter five years of complete shutdown. Nevertheless, though Lebanon suffers severe power shortages, and this has never been enough to close the gap with de-7 only a little more per capita than Egypt and Jordan, mand. despite a significantly higher GDP. Plans for import- ing 500 MW of electricity from the Gulf Cooperation German conglomerate Siemens made headlines in Council (GCC) countries, first announced in 2019, 2018 for vowing to have Iraq’s power grid up and have also moved slowly, even though Iraq has report- running after the defeat of ISIS the year prior. It dis- edly built 80% of the connections required on its cussed a slew of “power deals” with the Ministry of side. The spread of the coronavirus has stalled Gulf Electricity that would boost Iraq’s generation capac- efforts to comply with their end of the deal, which ity by as much as 25 GW if they came to fruition. A now seems delayed to 2021. US$ 15 billion roadmap to this end was unveiled in 2019 by then Prime Minister Abdel Mehdi. 40 gas
7 Data from Statistical Review of World Energy 2020 10 Wall Street Journal, “Siemens: Signs Deal to Rebuild Iraqi Power 8 Wall Street Journal, “Defeat of ISIS in Iraq Caused $45.7 Billion Plants Damaged by ISIS”, September 16 (2019), https://www.mar- in Damage to Infrastructure, Study Finds”, February 18 (2018), ketscreener.com/SIEMENS-AG-56358595/news/Siemens-Signs- https://www.wsj.com/articles/defeat-of-isis-in-iraq-caused-45-7- Deal-to-Rebuild-Iraqi-Power-Plants-Damaged-by-ISIS-29209849/ billion-in-damage-to-infrastructure-study-finds- 11 Luay al-Khateeb, “Fixing Iraq’s Power Sector”, Iraqi Economists 1518389411#:~:text=The%20damage%20to%20the%20hous- Network, August 22 (2020) ing,age%20is%2020%20years%20old. 12 S&P Global Platts; shorturl.at/uxGX0 9 GE, “Let There Be Light: How GE Rebuilt An Iraqi Power Plant 13 GE, “Peak Power: Iraq Taps GE To Bolster Its Electricity Infra- Destroyed by ISIS”, October 22 (2018), structure”, August 24 (2020) https://www.ge.com/news/reports/let-light-ge-rebuilt-iraqi- power-plant-destroyed-isis 1. INTRODUCTION
Concurrently, US firm General Electric promised 3.3 GW of new generation if 40% of current flared gas were captured12. It also signed agreements to upgrade, maintain, and rebuild facilities to boost capacity by 5 GW. General Electric’s mandate has involved closer cooperation with the Ministry of Oil (MoO) and the Ministry of Electricity (MoE), with US government backing to wean Iraq off Iranian gas supply for electricity generation, while the German focus has mostly been on grid rehabilitation and expansion. General Electric also has a “GE Renewable Energy’s Grid Solutions” programme, which might assist in Iraq’s plans of developing 635 MW of renewable capacity by September, now likely later, this year, though no discussion to this end has yet taken place. For now, a US $727 M deal to fortify the country’s electricity grid in areas still rebuilding from years of war, has been signed with the MoE. The deal will also link Iraq’s grid to Jordan’s, reducing overall congestion and ensuring dependable power supply. Another US $500 M deal was also signed to provide parts and maintenance services to 6 GW of power capacity13. Despite these efforts, Iraq has seen poor progress in serving its people’s power needs. Electricity generation per capita, which should be high to meet air conditioning needs, remains one of the lowest in the Middle East. It generates less than Lebanon, even though Lebanon suffers severe power shortages, and only a little more per capita than Egypt and Jordan, despite a significantly higher GDP. Plans for importing 500 MW of electricity from the Gulf Cooperation Council (GCC) countries, first announced in 2019, have also moved slowly, even though Iraq has reportedly built 80% of the connections required on its side. The spread of the coronavirus has stalled Gulf efforts to comply with their end of the deal, which now seems delayed to 2021.
12. S&P Global Platts; shorturl.at/uxGX0 13. GE, “Peak Power: Iraq Taps GE To Bolster Its Electricity Infrastructure”, August 24 (2020)
8 Powering Iraq: Challenges facing the Electricity Sector in Iraq
2. RECENT DEVELOPMENTS been patchy. A recent rally in oil prices will remain insufficient to meet Iraq’s US $50 billion 2020 has introduced numerous new problems annual public sector expenses. Moreover, to Iraq’s electricity crisis: political instability, the federal crude exports have already been cut by oil price collapse, and the CoVid-19 pandemic. a record 715 kb/d in July on October 2018’s A senior official from the Ministry of Electricity baseline levels, which means roughly a billion (MoE) said in July 2020 that electricity supply dollars of lost revenue at current Brent prices. was down ~1 GW from 201914, as technical The Saudi loan shall, therefore, go into paying malfunctions in power plants remained civil servant wages and other government unaddressed due to “foreign maintenance liabilities unmet by hydrocarbon revenues. staff” (who are better-trained to handle the OPEC cuts are being phased down from August unique requirements of local infrastructure) 2020 onwards, with a further reduction from flying home due to the pandemic. This means January 2021 to April 2022 and an end to cuts most Iraqis are now back to having power thereafter17. This is, of course, dependent on for 5-8 hours a day. July saw an unusually global oil market developments. But Iraq is severe heatwave even by Iraq’s standards, under additional diplomatic pressure to cut with Baghdad reaching almost 52°C, an all- below its August-December 2020 quota to time record, and Basra at 53°C. The high make up for insufficient compliance in May- temperatures further reduce output by cutting July. This could involve further Saudi financial plant efficiencies. On 4th August 2020, it was aid in return for compliance. reported that generation had improved from Domestic needs have also been challenged, 16.25 GW to 18.6 GW as a result of lower 15 even though refinery runs have continued temperatures (this compares to demand of at 70-80%18 to provide fuel for the domestic about 26 GW). market. For instance, OPEC pressure has Electricity shortfalls are compounded by already resulted in gas shortages for power the decline in crucial associated natural gas generation. On July 01, two units of the Amara- production from oilfields, as the Ministry of Oil gas fired power plant (Units 1 and 3) were shut (MoO) curbs output in line with the new OPEC+ down due to low gas supplies from the 370 000 agreement to shore up oil prices. Under the barrels per day (b/d) PetroChina-operated agreement, Iraq was to reduce oil production Halfaya oilfield, which the MoO had ordered by ~1 million barrels per day (Mb/d) in May to reduce production from by 100 kb/d. The and June, from an October 2018 baseline level, reduction implies ~0.54 BCM/y of gas output but failed to comply fully, ushering in Saudi being cut, or 67% of what Amara consumes to intervention, and the promise of a US$ 500 run at capacity. million “financial sweetener” to abide by cuts. Pressure on new Prime Minister Mustafa al- The Saudi loan is a fraction of what Iraq Kadhimi to deliver solutions to the country’s loses monthly due to the longstanding gap electricity problem has seen him direct oil between demand and supply of electricity, companies to transfer power generated at estimated by generation planning studies their fields to the national grid, as output at US $3.3 billion16. It also does little to align drops under the OPEC+ pact. Eni-operated the Ministry of Electricity and Ministry of Oil, Zubair will send power generated to support between whom cooperation has historically oil operations to the local grid, while the
14. The National, “Iraq: Mustafa al-Kadhimi orders investigation into deaths of protestors”, July 28 (2020) 15. Harry Istepanian, https://twitter.com/HarryIstepanian/status/1290544043852587010 16. Parsons Brinckerhoff, “Iraq Electricity Masterplan: 2010 to 2030”, Final Report (December 2010), 3-9 17. Fitch Ratings, “OPEC+ Cuts Tapering Reflects Recovering Oil Demand”, July 16 (2020) 18. Qamar Energy Research
9 2. RECENT DEVELOPMENTS
Basrah Oil Company (BOC) will supply 150 MW from its Petrochemicals Company. Rumaila will send an additional 30 MW from its generation facility. Additionally, the MoO will supply free diesel feedstock to generator owners19. But these moves will only have a limited impact on improving electricity provision, while free diesel is expensive for the government and entrenches the rent-seeking behaviour of the “generator mafia”.
19. Iraq Oil Report, “Iraq draws electricity from oil projects to help failing power grid”, July 17, 2020
10 Powering Iraq: Challenges facing the Electricity Sector in Iraq
3. BUDGETARY CHALLENGES & FISCAL high ask, unless prices rise sharply. There is some PRESSURES speculation that Iraq’s government account has dwindled to just US $300 million at the end The unprecedented decline in oil prices of May22, which puts immediate pressure on since March has left Iraq unable to pay its US$ al-Kadhimi to put together solutions to tackle 4.2 billion monthly public sector obligations, Iraq’s economic crisis. including spending on salaries, pensions, and the running of government offices. A mild To this end, he has assembled a high-level gain in prices in May saw revenues recovering “economic crisis committee”, that will examine slightly, but at US $2.1 billion, were only 50% the country’s options to increase revenues and of Iraq’s commitments, excluding energy reduce expenditures without cutting back on investment spending. The decline in revenues essential supplies to Iraqis. Discussions have has already caused visible financial strains, focussed on reducing state employees’ benefits, forcing Mustafa al-Kadhimi’s new government but such moves might imperil the legitimacy of to tap into its foreign reserves, estimated at his newly-formed government. Worse, it could about US $66.7 billion20, in order to meet salary add fuel to the ongoing protests, ushering obligations of its civil servants for May. in mass unemployment in a country that has halted, progress on the smart grid distribution model an officialdecided unemployment with Siemens. The rate deals higherwith GE thanto rehabil- 6,000 9 23 12.8%itate. Overcoming existing power the plants several and reinforceirregularities transmis- 8 5,000 and sionsetbacks networks in in provinceselectricity liberated reconstruction from ISIS might 7 effortsalso of beformer delayed administrations. are costly and 4,000 6 complex, and even if reducing state employee 5 benefits might have the quickest result in ,000
US$ B saving government finances, such efforts kb d 4 4. ATURAL GAS DE ELOP- 2,000 won’t be sufficient to execute meaningful reform. MoreoverME T a reductionREMAI S in salariesSLOW and 2 1,000 other benefits will impact consumer purchasing 1 Most of Iraq’s current power generation comes from power, depressing the gross domestic product 0 0 natural gas, supply of which has risen substantially (GDP), which is set to contract by -4.7% in 2020 since 2009. This is due to an increase in associated (Figure 4). Continuing political opposition and Jan-17 Sep-17 Jan-19 Jan-16 Sep-16 Sep-19 Jan-18 Sep-18 Jan-20 May-17 May-19 May-16 May-18 gas output (the by-product of oil production) and ef- May-20 a stalemate that has blocked the release of the KRG exports Federal exports forts to capture flared gas, and in large part due to Production Federal Revenue (RHS) budgetimports has also of Iranian slowed, gas sinceif not 201 entirely7. Increased halted, supplies progress on the smart grid distribution model Figure 2 Iraq s monthly oil revenues21 of natural gas have helped cut crude oil burn for gen- Figure 2 Iraq’s monthly oil revenues21 decidederation with and Siemens. also free upThe fuel deals oil for withexports, GE but to short- The country last drew from its forex reserves in 2014 rehabilitateages remain. existing power plants and reinforce afterThe Haider country al- Abadilast drew was fromelected its Prime forex Minister,reserves transmission networks in provinces liberated inbut 2014 would after prefer Haider to spend al-Abadi as little was of itselected (limited) Prime re- There are only two producing non-associated24 gas from ISIS might also be delayed. Commented [FW9]: t oes t is me n Minister,serves as possible. but would ow thatprefer the tofederal spend government as little fields in the country currently. These are the 4.1 ofhas its announced (limited) that reserves it won’t as be possible. moving ahead Now with that a BCM yr Khor Mor gas field in the Kurdistan region, Commented [MS10R9]: e s ie s i e not oi ie s the2020 federal budget, government hope of an increase, has announced or even resump- that it and the 0.5 BCM yr Siba gas field near Basrah. Two t t o e s e sso i te s) s y o t tion, in investment spending in the near-term seems won’t be moving ahead with a 2020 budget, other major non-associated fields, Akkas near the Commented [a11]: estion e in t e me nin o hopea high ofask, an unless increase, prices riseor evensharply. resumption, There is some in Syrian border in the Anbar province, and Mansuri- t e sso i te n non sso i te s t t e e innin o investmentspeculation spendingthat Iraq’s in government the near-term account seems has a yah in Diyala, remain undeveloped, with past con- t e e en i st mentione t o ootnote o in dwindled to just US$ 00 million at the end of May22, tracts with international firms having run into com- te t 20.which Fitch puts Ratings, immediate April pressure2020 on al-Kadhimi to put mercial and security problems. There are also large 21.together Qamar solutions Energy Research; to tackle IraqIraq’s Oil economic Report; Media crisis. sources undeveloped non-associated fields in the Kurdistan Commented [MS12R11]: e ote 22. Ahmed Mehdi, “Compounding Crises: Iraq’s oil and energy economy”,region, including The Oxford Chemchemal Institute for Energy(operated by the Studies,To this end, July he(2020) has assembled a high-level “economic Pearl Petroleum consortium along with Khor Mor), 23.crisis World committee”, Bank, 2019 that will examine the country’s op- Miran and Bina Bawi (both operated by Genel En- tions to increase revenues and reduce expenditures ergy) and others. These fields have been intended without cutting back on essential supplies to Iraqis. since 201 to feed exports to Turkey, but this project Discussions have focussed on reducing state employ-11 has not proceeded. ees’ benefits, but such moves might imperil the legit- imacy of his newly-formed government. Worse, it Current associated gas production is 19 BCM yr on could add fuel to the ongoing protests, ushering in an annualised basis, 7 BCM lower than 2019’s level mass unemployment in a country that has an official of 26 BCM due to oil output constraints under the unemployment rate higher than 12.8 2 . Overcom- OPEC agreement. Captured gas volumes have also ing the several irregularities and setbacks in electric- suffered, even though flaring has seen a noticeable ity reconstruction efforts of former administrations reduction from 1 BCM flared in 2019, only 7. BCM are costly and complex, and even if reducing state was flared in June 2020, as oil output inched closer employee benefits might have the quickest result in to the .6 Mb d target set by OPEC and the MoO. Commented [FW7]: t ene to t e i mo e ni saving government finances, such efforts won’t be Capture has been affected due to reduced associated s tion y iemens sufficient to execute meaningful reform. Moreover a gas producing as oil production is curtailed. This has reduction in salaries and other benefits will impact translated into temporary shortages of crucial feed- Commented [MS8R7]: e some omment y consumer purchasing power, depressing the gross stock for power plants in high-demand areas. How- domestic product (GDP), which is set to contract by ever, capture volumes from international oil compa- -4.7 in 2020 (Figure 6Figure 4). Continuing politi- nies’-operated fields should not be as impacted, if Formatted: Font: 9 pt, Font color: Auto, Complex cal opposition and a stalemate that has blocked the carefully managed to ensure dry gas processing and Script Font: 9 pt release of the budget has also slowed, if not entirely extraction operations remain uninterrupted. Formatted: Font: 9 pt, Not Italic, Font color: Auto, Complex Script Font: 9 pt, Not Italic 21 amar Energy Research Iraq Oil Report Media sources in liquid form, unlike associated gas, which refers to the natural 22 Ahmed Mehdi, “Compounding Crises: Iraq’s oil and energy econ- gas found in association solution inwith oil within an oil reservoir omy”, The Oxford Institute for Energy Studies, July (2020) (see footnote 5). on-associated gas is also know as free gas or dry 2 World Bank, 2019 gas. 24 on-associated gas is gas that comes from pure gas reservoirs that are not connected with any known source of liquid petroleum 4. NATURAL GAS DEVELOPMENT REMAINS SLOW
4. NATURAL GAS DEVELOPMENT REMAINS into temporary shortages of crucial feedstock SLOW for power plants in high-demand areas. However, capture volumes from international Most of Iraq’s current power generation oil companies’-operated fields should not be comes from natural gas, supply of which has as impacted, if carefully managed to ensure risen substantially since 2009. This is due to dry gas processing and extraction operations an increase in associated gas output (the by- remain uninterrupted. product of oil production) and efforts to capture flared gas, and in large part due to Major reasons for the long-running shortages imports of Iranian gas since 2017. Increased are a lack of adequate facilities to process the supplies of natural gas have helped cut crude captured gas, and limited pipeline capacity to oil burn for generation and also free up fuel oil power plants. National nameplate carrying for exports, but shortages remain. capacity (excluding the two Iranian pipeline connections to the national gas and strategic There are only two producing non- 24 pipelines) is ~11 BCM, though available associated gas fields in the country currently. capacity is lower. The pipeline network is These are the 4.1 BCM/yr Khor Mor gas field about 1775 kilometres long, extending from in the Kurdistan region, and the 0.5 BCM/yr Basrah to Mosul, but years of unrest, war, Siba gas field near Basrah. Two other major sanctions, terrorist attacks and deterioration non-associated fields, Akkas near the Syrian has meant that a large part is non-operational border in the Anbar province, and Mansuriyah or operates well below nameplate capacity. in Diyala, remain undeveloped, with past Carrying capacity from Iran to Baghdad and contracts with international firms having run Basrah could be as high as 16 BCM, but, here into commercial and security problems. There too, logistical constraints and bottlenecks at are also large undeveloped non-associated receiving facilities in both cities means pipeline fields in the Kurdistan region, including connectivity cannot be extended to high Chemchemal (operated by the Pearl Petroleum demand areas without further investment. consortium along with Khor Mor), Miran and Moreover, several state-run oilfields still lack Bina Bawi (both operated by Genel Energy) gas pipelines connecting them to processing and others. These fields have been intended units, even though these fields may produce since 2013 to feed exports to Turkey, but this significant associated gas25. project has not proceeded. Current associated gas production is ~19 BCM/yr on an annualised basis, 7 BCM lower than 2019’s level of 26 BCM due to oil output constraints under the OPEC+ agreement. Captured gas volumes have also suffered, even though flaring has seen a noticeable reduction; from 13 BCM flared in 2019, only 7.3 BCM was flared in June 2020, as oil output inched closer to the 3.6 Mb/d target set by OPEC and the MoO. Capture has been affected due to reduced associated gas producing as oil production is curtailed. This has translated
24. Non-associated gas is gas that comes from pure gas reservoirs that are not connected with petroleum in liquid form, unlike associated gas, which refers to the natural gas found in solution in oil within an oil reservoir (see footnote 5). 25. Harvard University’s Belfer Center and Rice University’s Baker Institute Center for Energy Studies, “The Geopolitics of Natural Gas: Natural Gas in the Republic of Iraq”, November 2013
12 a complete facility that would refine dry gas, lique- Ma or reasons for the long-running shortages are a fied petroleum gas and condensate under hase-2. lac of adequate facilities to process the captured gas, All captured and processed dry gas would power and limited pipeline capacity to power plants. a- Iraqi power plants in the south to reduce expensive tional nameplate carrying capacity excluding the imports from Iran. The pro ect with Orion as was to two Iranian pipeline connections to the national gas be developed on the same terms, in line with Iraq’s and strategic pipelines is 11 BCM, though available commitment to eliminate routine flaring by 20 0 un- capacity is lower. The pipeline networ is about 177 der the United Nations and World Bank ‘Zero Rou- ilometres long, extending from Basrah to Mosul, tine Flaring’ initiative, but both pro ects had an ex- but years of unrest, war, sanctions, terrorist attac s tensively long negotiation period, with final decision and deterioration has meant that a large part is non- still not ta en by ecember 201 . operational or operates well below nameplate capac- ity. Carrying capacity from Iran to Baghdad and Bas- The Basrah as Company B C has plans to in- rah could be as high as 1 BCM, but, here too, logis- crease capture to 1 . BCM by 202 , while a oint tical constraints and bottlenec s at receiving facili- venture agreement with American firms oneywell a complete facility that would refine dry gas, lique- ties in both cities means pipeline connectivity cannot and Bechtel for a new flared gas capture facility, the Ma or reasons for the long-running shortages are a fied petroleum gas and condensate under hase-2. be extended to high demand areas without further atawi as ub, was signed in July last year, to cap- lac of adequate facilities to process the captured gas, All captured and processed dry gas would power investment. Moreover, several state-run Poweringoilfields still Iraq: Challengesture .1 BCM facing of associated the Electricity gas from Sector u oil in-operated Iraq and limitedlac gaspipeline pipelines capacity connecting to power them plants. to processing a- Iraqi est power urna plants-2, and in statethe south-run fields to reduce atawi, expensive Ma noon, tional nameplateunits, even thoughcarrying these capacity fields may excluding produce the signifi- imports uhais, from Tuba, Iran. and The Subba pro ect betwe withen Orion the Basrah as was and to two Iraniancant associatedpipeline connections gas2 . to the national gas be developed hi ar provinces. on the same isagreements terms, in lineover with the leader-Iraq’s and strategic pipelines is 11 BCM, though available commitmentship of the to oint eliminate-venture routine agreement flaring led by Bechtel20 0 un- to capacity is lower. The pipeline networ is about 177 Decemberder quitthe Unitedthe 2018. pro ect, Nations and otherand World competitors, Bank ‘Zeroincluding Rou- a ilometres long, extending from Basrah to Mosul, tineconsortium Flaring’ initiati of eneralve, but Electric,both pro ects Iraq-owned had an engi- ex- but years of unrest, war, sanctions, terrorist attac s tensivelyTheneering Basrah long firm negotiationGas ru , Company Acwa period, ower, (BGC) with and has finalposs plansibly decision Saudito and deterioration has meant that a large part is non- increasestillAramco, not ta encapture have by expressed ecember to 16.5 interest BCM201 . by in reviving2023, while negotia- operational or operates well below nameplate capac- a jointtions venturefor the gas agreement hub. But even with with aAmerican rapid agree- ity. Carrying capacity from Iran to Baghdad and Bas- firmsThement, BasrahHoneywell delivery as ofCompanyand significant Bechtel B C additional for hasa new processedplans flared to in-gas rah could be as high as 1 BCM, but, here too, logis- gascrease capturewill captureta e severalfacility, to 1 years. . the BCM Ratawi by 202 Gas , whileHub, awas oint tical constraints and bottlenec s at receiving facili- signedventure in agreement July last withyear, American to capture firms 3.1 oneywell BCM ties in both cities means pipeline connectivity cannot ofand associated Bechtel 0 for gas a new from flared Lukoil-operated gas capture facility, West the be extended to high demand areas without further Qurna-2, atawi as and ub, state-run was signed fields in Ratawi,July last Majnoon,year, to cap- investment. Moreover, several state-run oilfields still Luhais,ture 2 .1 Tuba, BCM of and associated Subba gasbetween from u oil the -Basrahoperated lac gas pipelines connecting them to processing and est Dhi urna Qar-2 , andprovinces. state-run Disagreements fields atawi, Ma noon, over units, even though these fields may produce signifi- the uhais, leadership20 Tuba, andof the Subba joint-venture between the agreement Basrah and cant associated gas2 . led hi Bechtel ar provinces. to quit isagreements the project, over and the other leader- competitors,ship 1 of the oint including-venture a consortiumagreement led of GeneralBechtel to Electric,quit the pro ect,Iraq-owned and other engineering competitors, firm including Uruk, a Acwaconsortium10 Power, of and eneral possibly Electric, Saudi Iraq Aramco,-owned have engi- igure ederal Iraq gas pipelines networ 2 neering firm ru , Acwa ower, and possibly Saudi 26 expressed interest in reviving negotiations for Figure 3 Federal Iraq gas pipelines network Aramco, have expressed interest in reviving negotia- In 201 , the MoO signed a partnership agreement the gas hub. But even with a rapid agreement, withIn drilling2018, servicesthe MoO firm Ba ersigned ughes a partnership to capture deliverytions for of the significant gas hub. Butadditional even with processed a rapid agree-gas agreementup to 2 BCM withof natural drilling gas fromservices the assiriya firm Baker and willment, take0 delivery several of significantyears. additional processed gas 201 2019 2020 Hughes harraf tooilfields, capture and up a to1 BCM 2 BCM capture of natural deal with gas will ta e several years. lared gas Captured gas on-associated gas fromOrion the as Nassiriyafor the ahr and bin Gharraf Omar oilfield, oilfields, in April and igure lared gas production in Iraq excluding urdi- 201 . Baker Hughes’ natural gas capture project was 0 a 1 BCM capture deal with Orion Gas for the stan region , BCM27 Nahrto be abin two -Omarphase programme,oilfield, in and April the first2018. of its Baker ind based on the MoO’s EPCF (Engineering, Procure- Hughes’ natural gas capture project was to be Concerted efforts to develop gas resources could re- ment, Construction and inance contract. 2 sult in narrowing the gap between electricity demand a two-phase programme, and the first of its and supply by 202 . To this end, six oil and gas field kind nder based hase -on1, the the pro ect MoO’s was EPCFto support (Engineering, the devel- 20 development contracts from Bid ound- , held in Procurement,opment of an in tegratedConstruction natural gas andcomplex Finance) in as- April 201 , were signed in January 2020 under for- contract.siriya, followed by an expansion of the complex into 1 mer rime Minister Abdel Mehdi’s tenure. These Under Phase-1, the project was to support could add 7. BCM yr of new gas from the bid’s gas the development of an integrated natural gas 10 igure ederal Iraq gas pipelines networ 2 complex2 Harvard University’sin Nassiriya, Belfer Centerfollowed and Rice by University’s an expansion Baker 2 amar Energy esearch Institute Center for Energy Studies, “The Geopolitics of Natural 27 amar Energy esearch In 201 ,of as: the atural MoOcomplex as signed in the Republicinto a partnership a of completeIraq”, November agreement facility 2013 that with drillingwould servicesrefine dryfirm gas, Ba er liquefied ughes petroleumto capture gas up to and2 BCM condensate of natural gasunder from Phase-2. the assiriya All captured and 0 201 2019 2020 harrafand oilfields, processed and dry a 1gas BCM would capture power deal Iraqi with power lared gas Captured gas on-associated gas Orion plants as for in the the ahr south bin to Omar reduce oilfield, expensive in April imports 201 . Bakerfrom Iran.Hughes’ The natural project gas with capture Orion project Gas was was to igure lared gas production in Iraq excluding urdi- 27 to be abe two developed-phase programme, on the andsame the terms, first of itsin indline with stan Figureregion , 4BCM Flared gas production in Iraq 27 based on the MoO’s EPCF (Engineering, Procure- (excluding Kurdistan region), BCM Iraq’s commitment to eliminate routine flaring Concerted efforts to develop gas resources could re- ment, Construction and inance contract. by 2030 under the United Nations and World sultConcerted in narrowing efforts the gap to betweendevelop electricity gas resources demand
Bank ‘Zero Routine Flaring’ initiative, but both couldand supply result by in 202 . narrowing To this end, the six gap oil andbetween gas field nder hase-1, the pro ect was to support the devel- projects had an extensively long negotiation electricitydevelopment demand contracts and from supply Bid oundby 2025.- , held To in opment of an integrated natural gas complex in as- period, with final decision still not taken by thisApril end, 201 , six were oil signedand gasin January field development2020 under for- siriya, followed by an expansion of the complex into mer rime Minister Abdel Mehdi’s tenure. These 26. Qamar Energy Research 27. Qamar Energy Research could add 7. BCM yr of new gas from the bid’s gas
2 Harvard University’s Belfer Center and Rice University’s Baker 2 amar Energy esearch Institute Center for Energy Studies, “The Geopolitics of Natural 13 27 amar Energy esearch as: atural as in the Republic of Iraq”, November 2013 4. NATURAL GAS DEVELOPMENT REMAINS SLOW
contracts from Bid Round-5, held in April 2018, MW of electricity supply directly to Federal were signed in January 2020 under former Iraq from the Bazian power station between Prime Minister Abdel Mehdi’s tenure. These Chemchemal and Sulaymaniyah, likely via an could add 7.6 BCM/yr of new gas from the existing 400 kV, single circuit transmission line bid’s gas plays, which include two blocks in the to Baghdad. However, this is subject to fuel Diyala province, Gilabat-Qamar and Khashm provisions for the plant (if surrounding fields are al-Ahmar-Injana, and the Khider al-Mai block developed in a timely manner), which currently on the Kuwaiti border28. The shallow depth has a nameplate 500 MW capacity and supplies of reservoirs at Khashm al Ahmar-Injana could the surrounding region. The agreement might encourage quick development, as well as its progress once Bazian increases capacity to 750 being located in proximity to the Khor Mor gas MW, allowing it to meet demand as planned field in the autonomous Kurdistan region and 200 MW imports from Turkey commence29. its surrounding infrastructure. In 2013, Iraq signed a deal with Iran to The current period of low oil prices, under US$ import 50 million cubic metres of gas per day 45 per barrel, however, will blunt investments in (Mcm/d), divided equally between Baghdad the sector. A rise in security incidents by Islamic and Basrah. Imports were held up by insecurity State (IS) militia in and around Diyala could in Diyala and attacks on crews constructing the undercut start-up of operations. Sharjah-based pipeline to Baghdad, but began in earnest in oil and gas company, Crescent Petroleum, who June 2017, and have since averaged between holds the rights to both fields as well as Khor 4-5 BCM, even though the deal allows for Mor and the nearby undeveloped Chemchemal imports of up to 18 BCM to meet peak demand. field, has indicated it could develop its Bid A major reason for this is the high price of the Round-5 wins by 2023. Given lengthy delays in Iranian natural gas, which is oil-linked, and at other Iraqi field developments and the impact current Brent crude prices is around US$ 5.1 of low oil prices and the pandemic, this appears per million British thermal units (MMBtu), plus exaggerated. Nearby Mansuriyah can offer 3.3 domestic tariffs. For comparison, current spot BCM/yr for surrounding power plants if fully LNG prices for delivery in October 2020 were developed, supplying gas-short Baghdad and about US$ 4/MMBtu, while contractual prices the northern provinces. Under domestic efforts, paid for dry (processed) gas from BGC are it could reach first output of 1 BCM by 2025, but around US$1.7/MMBtu at current Brent crude remains undeveloped, even though a Ministry- levels30. Nevertheless, the price paid to Iran is established “Energy Council” has been put still far cheaper than the alternatives of fuel oil together “to secure financing” in an attempt to and diesel, which Iraq still relies on for much of bring in international companies. Finally, there its power generation. have been discussions with the government of the autonomous Kurdistan region to Iran was able to negotiate these relatively “import” gas, probably from Khor Mor and/or high prices since Iraq does not have LNG import Chemchemal, estimated to take 6-12 months facilities (and LNG prices have historically been from agreement to build the required pipeline. higher than current levels), and there have been Another recent agreement has been for 450 no other ready suppliers of pipeline gas in Iraq’s
28. Middle East Economic Survey 29. Harry Istepanian, https://twitter.com/HarryIstepanian/status/1288398525080825857 30. Spot prices are market-based prices and more volatile than oil-linked gas prices, and more accurately reflect the seasonality of demand and occasional supply disruptions. Oil-linked prices face a delayed impact of market disruptions, because they incorporate (typically) a 3-month backdated average of the Brent or Japan import crude price. For deliveries to Asia, oil-linked pricing is delayed twice, also because crude cargoes can take up to 4 weeks to arrive, and pricing for them is determined based on the loading dates.
14 plays, which include two blocks in the iyala prov- reason for this is the high price of the Iranian natural ince, Gilabat- amar and hashm al- hmar-Injana, gas, which is oil-linked, and at current Brent crude and the hider al-Mai block on the uwaiti border2 . prices is around US .1 per million British thermal The shallow depth of reservoirs at hashm al hmar- units (MMBtu , plus domestic tariffs. For compari- Injana could encourage quick development, as well son, current spot NG prices for delivery in October as its being located in pro imity to the hor Mor gas 2020 were about US MMBtu, while contractual field in the autonomous urdistan region and its sur- prices paid for dry (processed gas from BGC are rounding infrastructure. around US 1. MMBtu at current Brent crude lev- Commented [FW13]: is is ve y te ni o non e 30 els . Nevertheless, the price paid to Iran isse prices e ts n yo e in t e e son o t e e i e i e The current period of low oil prices, under US are still far cheaper than the alternatives of fuel oil en es n t it into onte t o i es ) per barrel, however, will blunt investments in the and diesel, which Iraq still relies on for much of its sector. rise in security incidents by Islamic State power generation. Commented [MS14R13]: e ote (IS militia in and around iyala could undercut Powering Iraq: Challenges facing the Electricity Sector in Iraq start-up of operations. Sharjah-based oil and gas Iran was able to negotiate these relatively high prices company, Crescent Petroleum, who holds the rights since Iraq does not have NG import facilities (and to both fields as well as hor Mor and the nearby un- NG prices have historically been higher than cur- developed Chemchemal field, has indicated it could neighbourhood.rent levels , and there Delays have in been payments no other readyhave sup-also develop its Bid Round- wins by 2023. Given lengthy pliers of pipeline gas in Iraq’s neighbourhood. elays resulted in gas supplies being shut-off by Iran in the delays in other Iraqi field developments and the im- in payments have also resulted in gas supplies being pact of low oil prices and the pandemic, this appears past,shut -evenoff by thoughIran in the under past, currenteven though circumstances, under cur- e aggerated. Nearby Mansuriyah can offer 3.3 therent Islamic circumstances, Republic the will Islamic be relieved Republic to will continue be re- BCM yr for surrounding power plants if fully devel- sendinglieved to itscontinue gas to sending Iraq inits ordergas to Iraqto earnin order some to oped, supplying gas-short Baghdad and the northern much-neededearn some much export-needed revenues. e port revenues. provinces. Under domestic efforts, it could reach first apanese- output of 1 BCM by 202 , but remains undeveloped, 20 orean Marker ( M even though a Ministry-established “Energy Council” 1 Brent- inked 11 has been put together “to secure financing” in an at- 1 tempt to bring in international companies. Finally, Brent- inked 1 1 there have been discussions with the government of 12 Henry Hub the autonomous urdistan region to “import” gas, 10 probably from hor Mor and or Chemchemal, esti- Henry Hub- inked NG mated to take -12 months from agreement to build utch TTF the required pipeline. nother recent agreement has been for 0 MW of electricity supply directly to Fed- U NBP eral Iraq from the Ba ian power station between 2 apan Contract Chemchemal and Sulaymaniyah, likely via an e ist- 0 ing 00 k , single circuit transmission line to Bagh- Iran-Iraq Pipeline Oct-1 Feb-1 ec-1 un-1 pr-21 pr-1 ug-1 ug-1 Feb-22 ec-22 dad. However, this is subject to fuel provisions for un-20 the plant (if surrounding fields are developed in a Figure Iran-Iraq pipeline gas price versus global NG, timely manner , which currently has a nameplate FigureUS MMBtu 5 Iran-Iraq31 pipeline gas price versus 00 MW capacity and supplies the surrounding re- global LNG, US$/MMBtu31 Pressure from the US to diversify its gas supply saw gion. The agreement might progress once Ba ian in- Iraq receive only a 30-day waiver in March to con- creases capacity to 0 MW, allowing it to meet de- tinue importing Iranian gas, even though this was e - mand as planned 200 MW imports from Turkey tendedPressure into afrom 120- daythe waiver US toin Maydiversify, due to itsWash- gas commence2 . ington’s wish to support the new Al Kadhimi govern- supply saw Iraq receive only a 30-day waiver ment and the double whammy of high coronavirus In 2013, Iraq signed a deal with Iran to import 0 in March to continue importing Iranian gas, cases and lack of funds for developing natural gas re- million cubic metres of gas per day (Mcm d , divided even though this was extended into a 120-day sources. Even before the re-imposition of US sanc- equally between Baghdad and Basrah. Imports were waiver in May, due to Washington’s wish to tions against Iran, Iraq had been facing diplomatic held up by insecurity in iyala and attacks on crews support the new Al Kadhimi government and pressure from merican channels to undertake con- constructing the pipeline to Baghdad, but began in thecerted double development whammy of its of natural high coronavirusgas assets, both cases as- earnest in une 201 , and have since averaged be- andsociated lack and of nonfunds-associated, for developing in partnership natural with USgas tween - BCM, even though the deal allows for im- resources.companies .Even before the re-imposition of US ports of up to 1 BCM to meet peak demand. major Commented [FW15]: e o e te is inte estin sanctions against Iran, Iraq had been facing t ve y m o sin on t e s m et not e e t i ity diplomatic pressure from American channels se to see tit e o t e e ) 2 Middle East Economic Survey delayed impact of market disruptions, because they incorporate 2 to undertake concerted development of its Harry Istepanian, https twitter.com HarryIstepanian sta- (typically a 3-month backdated average of the Brent or apan im- e tion s no mo e om tus 12 3 2 0 0 2 naturalport crude gasprice. Forassets, deliveries both to sia, associated oil-linked pricing and is delayed non- Commented [MS16R15]: 30 Spot prices are market-based prices and more volatile than oil- twice, also because crude cargoes can take up to weeks to arrive, ment y on t e e e t i ity se to linked gas prices, and more accurately reflect the seasonality of de- associated,and pricing for themin partnership is determined based with on theUS loading companies. dates. mand and occasional supply disruptions. Oil-linked prices face a 31 amar Energy Research
31. Qamar Energy Research
15 5. THE CHALLENGED POWER-GAS NEXUS
5. THE CHALLENGED POWER-GAS NEXUS suggest that the rise of population could have peak demand reach 50 GW by 203035. The electricity system in Iraq is effectively split in two, with the semi-autonomous Kurdistan region operating its own sector. Both Federal Iraq and . KRI E have C A E E a state-owned E sector run- by their respective A E Ministries of Electricity with a monopoly over transmission and distribution. he electricity system in Iraq is effectively split in However, generation in Kurdistan is mainly two, with the semi-autonomous Kurdistan region op- viaerating independent its own sector. power oth ederal producers Iraq and (IPPs)K I contractedhave a state -toowned the sector Ministry run by there, their respective whereas the inistries federal of ElectricityMoE operates with a monopoly most of over its trans- own generation,mission and distribution.with a limited use of IPPs, which started to generate in 2017. In contrast to Constant eal, Federal owever, Iraq, generation Kurdistan in Kurdistan has is mainlymanaged via inde- to establishpendent apower reasonably producers reliable I s electricitycontracted service,to the inistry there, whereas the federal oE operates powered by gas and some diesel, even though most of its own generation, with a limited use of theI s, fiscal which burden started has to generatebeen heavy. in . For In instance,contrast igure Iraq s forecast to , dieselto ederal for the Iraq, Dohuk Kurdistan power has managed plant is to estimated establish Figure 6 Iraq’s GDP forecast to 2030, US$ B36 toa costreasonably US$ 100reliable million electricity per service,month powered more than by Almost all mar eted gas in Iraq is used for power. gasgas wouldand some32. diesel,However, even thoughelectricity the fiscal provision burden is Almost ost of allcurrent marketed installed gas capacity in Iraq is gasis used turbines for ~15has hours been heavy.daily, compared or instance, to diesel the southernfor the ohu parts power. which Most can run of currenton gas or installeddiesel and capacity steam turbines is gas ofpower Federal plant Iraq, is estimated where topower cost supply million is only per 5-8 turbines which (whichcan run oncan gas, run diesel, on gasfuel oilor ordiesel) crude oil .and month more than gas would . owever, electricity hours daily currently. In July 2020, the 300 MW steam hese turbines are inefficient. (which he can country run hason fewergas, thandiesel, provision is hours daily, compared to the south- fuel oil-powered Khabat plant near Erbil began fuelmore oil efficientor crude combined oil). -cycleThese gas areturbines inefficient. CC s ern parts of ederal Iraq, where power supply is only currently, most running below capacity due to trans- operations, which should somewhat improve The country has fewer than 10 more efficient - hours daily currently. In uly , the mission constraints, brea downs, and lac of fuel. 33 availabilityfuel oil-powered in the Khabat Kurdistan plant near region Erbil began. oper- combined-cycle ost of the new capacitygas beingturbines installed is higher(CCGTs)-ef- ations, which should somewhat improve availability currently,ficiency CC smost running including belowconversions capacity of e isting due Iraq’s electricity problem is centred around in the Kurdistan region . to plantstransmission . Also, over constraints, of the currentbreakdowns, CC s are and lo- a chronic inability to match supply with lackcated of fuel.in the Mostcentral of provinces, the new the capacitycentre for beingtrans- demand.Iraq’s electricity In 2019, problem peak is centreddemand around was a chronic26 GW, installedmission is losses higher-efficiency and technical faults,CCGTs or (includingfurther up 58%inability higher to match than supply generation with demand. capacity. In , Shifting pea north, around osul and Kir u , which have limited demand was , higher than generation ca- conversions of existing plants). Also, over demographics, as the population grows and 40%connect of theivity current to the grid CCGTs because are of sabotagelocated and in lac the peoplepacity. migrate hifting demographics,from villages as tothe largerpopulation cities of maintenance. grows and people migrate from villages to larger cit- central provinces, the centre for transmission and major metropolises, expanding use of air- ies and ma or metropolises, e panding use of air- losses and technical faults, or further up north, conditioning, rising summer temperatures due An independent power producer I programme, conditioning, rising summer temperatures due to cli- aroundal- amawa, Mosul aimed and to Kirkuk, ump-start which the mar et have waslimited first to climate change, and catching up to suppressed mate change, and catching up to suppressed de- connectivitylaunched in to , the withgrid thebecause of alsabotage- amawa demand,mand, could could result result in pea in peakdemand demand crossing crossing andCC lack power of maintenance. plant to be the first to be established un- 37in GW the ne tin the years next ,5 even years though34, even though shall face GDP a der the scheme. A decade later, and the plant is yet to shallsha rpface contraction a sharp in contraction - . accordingin 2020 to(-4.7% the Anachi eveindependent completion, with power industry producer onloo ers e pect-(IPP) according orld an to. therthe World studies Bank).suggest thatOther the risestudies of programme,ing commission al-Samawa, only in . aimed owever, to jump-start I s have population could have pea demand reach by gone into operation at umaila near asra, under . 32. World Bank, 2015 hamara olding , and targeting 33. Kurdistan Regional Government, 14 July (2020), https://gov.krd/english/government/the-prime-minister/ eventual capacity and esmaya at aghdad activities/posts/2020/july/prime-minister-masrour-barzani-opens-300mw-steam-power-station-in-khabat/ ass lobal and E, with hase to ta e capacity 34. Qamar Energy Research; author’s calculations to . 35. Parsons Brinckerhoff 36. World Bank; Qamar Energy Research he inistry also planned a large programme of so- lar power, Iraq’s first significant renewable genera- tion other than hydropower. An initial tender in uly was for of solar capacity across seven 16 sites. An earlier and too low feed-in tariff of .
orld an , amar Energy Research; author’s calculations Kurdistan egional overnment, uly , arsons rinc erhoff https gov. rd english government the-prime-minister activi- orld an amar Energy esearch ties posts uly prime-minister-masrour-bar ani-opens- mw-steam-power-station-in- habat Powering Iraq: Challenges facing the Electricity Sector in Iraq
the market was first launched in 2010, with the 750 MW al-Samawa CCGT power plant to be the first to be established under the scheme. A decade later, and the plant is yet to achieve completion, with industry onlookers expecting commission only in 2025. However, IPPs have gone into operation at Rumaila near Basra, under Shamara Holding (1500 MW, and targeting 3000 MW eventual capacity); and Besmaya at Baghdad (Mass Global and GE, with Phase 3 to take capacity to 4500 MW). The Ministry also planned a large programme of solar power, Iraq’s first significant renewable generation other than hydropower. An initial tender in July 2019 was for 755 MW of solar capacity across seven sites. An earlier (and too low) feed-in tariff of 3.5 USD/kWh was scrapped, with the country moving to the auction-based model successfully deployed elsewhere in the region. However, these have not progressed further following the change of government, and with investor concerns over financial guarantees. In September 2019, the government signed an agreement with the Gulf Cooperation Council Interconnection Authority for 500 MW of supply, to be connected via Kuwait37. There are also plans for a 300 MW connection with Jordan. In July 2020, the electricity ministry announced plans to buy 450 MW from Kurdish firm KAR Group and 200 MW from Turkey (see 4), and said that 80% of the link to Kuwait was complete38.
37. Kate Dourian, “Iraq’s Electricity Challenges Mount as Oil Revenue Slows to a Trickle”, Arab Gulf States Institute in Washington, May 15 (2020), https://agsiw.org/iraqs-electricity-challenges-mount-as-oil-revenue- slows-to-a-trickle/ 38. Dania Saadi, “Iraq to import power from Turkey, Kurdish company to address severe shortages”, SP Global Platts, July 28 (2020), https://www.spglobal.com/platts/en/market-insights/latest-news/electric- power/072820-iraq-to-import-power-from-turkey-kurdish-company-to-address-severe-shortages
17 6. SOLUTIONS LACK FOCUS ON GRID REINFORCEMENT
6. SOLUTIONS LACK FOCUS ON GRID due to various technical difficulties. These REINFORCEMENT include low short-circuit current level and high line loading operating conditions, need Failures of the Iraqi power sector policy can for single-pole recloses and neutral reactors, be broadly grouped into four categories. These and poorly developed communications include, first, a fixation on increasing generation schemes. Limited capabilities of the MoE capacity to meet demand to the neglect of fuel, and lack of locally trained experts further maintenance and grid improvement; second, compound the problem. poor or non-existent demand side management (DSM) measures; three, a failed tariff collection 2. Unbalanced loading: High-demand centres system; and lastly, lack of interest in utilising like Baghdad and most of southern Iraq, alternative and/or renewable energy sources. as well as the industrial sector, have a higher number of unbalanced loads, which The most immediate challenge for non- consume large amounts of reactive power. Kurdistan Iraq, though, is less in generation This results in a degradation of power capacity, and more in distributing fuel supplies transfer capability of the transmission to power plants, and improving the power lines, simultaneously causing under-voltage transmission system. Nameplate capacity in 39 problems. Typically current is increased to 2018 was about 30.3 GW , more than enough maintain power supplied to the load, which to meet demand, but much of this was unusable results in entire transmission lines going off. because of war damage, lack of maintenance and fuel shortages. Peak generation was 3. Poor standard of equipment: Transmission about 19 GW in summer 2019, plus 1.4 GW equipment in Iraq is decades old, which of electricity imports from Iran, compared increases the stress on the grid and the to estimated peak demand of ~26 GW. The risk of widespread blackouts. Also, local difference is met by power cuts and the use of capabilities in developing transmission distributed neighbourhood diesel generators, equipment (such as transformers, which receive fuel at subsidised prices. Funding switchgear, and high voltage technology) of the electricity sector has lacked coherent are extremely limited, with the power sector strategy since 2003, and efforts have been relying almost entirely on foreign firms. directed more to developing new generating capacity, rather than upgrading and expanding 4. Improper earthing: Electricity supply systems the country’s dilapidated transmission and in Iraq are improperly earthed, affecting distribution (T&D) network. not only the magnitude and distribution of short circuit currents through the system, The main outline of Iraq’s transmission grid but also human safety. Improper earthing, is shown in Figure 7. It has about 5200 km of alongside faulty electrical wiring, has 400 kV grid and 12500 km of 132 kV grid. This resulted in scores of transmission-related links to the distribution grid at 33 and 11 kV fires, in some cases also causing human via 132/33/11 kV substations40. Challenges fatalities. associated with the transmission grid are mostly technical in nature. These include, majorly: 5. Limited connectivity: Even though Iraq’s grid stretches from Mosul down to Basrah, 1. Long single-phase lines: Transmission line over 1/5th of the network is unusable due protection for long single phase lines is a to years of conflict and lack of maintenance. complex challenge, particularly in Iraq, Major congestion is apparent in central 39. Iraq’s Power Conundrum: How to Secure Reliable Electricity While Achieving Energy Independence, https:// blogs.lse.ac.uk/mec/2020/03/24/iraqs-power-conundrum-how-to-secure-reliable-electricity-while-achieving- energy-independence/ 40. https://wbgeconsult2.worldbank.org/wbgect/download?uuid=c2fa7598-bb0d-49d7-90df-8b2669aca7e8
18 Powering Iraq: Challenges facing the Electricity Sector in Iraq
Limited connectivity: Even though Iraq’s signed with GE for reinforcing the country’s grid and Iraq, in andgrid stretches around from Baghdad, osul do n towhere asrah, other rehinabilitating the po erenergy plants sector, in and around rather areas dis than an actual non-technicalo er lossesth of the net or of electricity is unusable take due to place, cussedcommitment under the Iranian to meetings receiving such as support arbala from Iran. years of conflict and lac of maintenance and a af , spea s to this fact such as a orrampant congestion theft is apparent and in “hooking”.central The recent US$ 1.2 B deal signed with GE for Most ofIraq, western in and around and aghdad, northern here otherIraq has In ,reinforcing the inistry the un eiled country’s plans to finance grid aand rehabilitating non technical losses of electricity ta e billion upgrade of the net or billion poor connectivity, and needs significant power plants in and around areas discussedCommented [FW23]: o yo ovi e m o place, such as rampant theft and “hooking”. for transmission and billion for distribution t t emonst tes t e i e ent i s nsmission n is expansion ost of to est ern accommodateand northern Iraq has poorpower to ma eunder the gridthe capableIranian of deli ering meetings at least (such as Karbalat i tion i imports, connecti ity,as well asand technicalneeds significant expertise e pan on hoursand of Najaf),electricity speaksacross the to country this fact. he plan sion to accommodate po er imports, as failed to recei e appro al from the ouncil of Repre design details, line length, and operating ell as technical e pertise on design details, sentati esn 2019,follo ing the then Ministry rime inister unveiled bdel e plans to finance conditions.line length,Typical and operatingline losses conditions of electricity, ypi hdi’s exitI from his post. Lack of central government currently,cal are line lossesin the of electricity, range currently,of 4-8% are41 .in fundsa meansUS$ 3the billion o cannot upgrade finance this of upgrade, the T&D network the range of as current(US$ electricity2 billion tariffs for co etransmissionr almost nothing and of US$ 1 billion costs oreo er, the o has complained about the absencefor distribution)of a supporti e regulatory,to make institutional the grid capable of frame or delivering necessary at leastfor reform 20, hichhours, alongside of electricity across generalthe corruption country. and The political plan lobbying, failed reflects to receive on approval the poor performance and management of the sector from the Council of Representatives following e elopingthen-Prime ne interconnections Minister andAbdel upgrading Mehdi’s the exit from grid net or into a modern po er system capa ble hisof supplying post. nearLack hourof po ercentral is a comple government funds process means he e istingthe MoE grid is cannotcontinuously finance sub ect to this upgrade, suddenas changescurrent in load electricity demand, short circuittariffs faults, cover almost equipment outages and generator failures, as ell as eathernothing damage andof sabotagecosts. , andMoreover, regional subdi the MoE has isions of the o able able are ill equipped complained about the absence of a supportiveCommented [MS24]: Re e e to e e e to successfully manage contingencies et billions of dollarsregulatory, ha e been in ected institutional into e panding framework e isting necessaryFormatted: Font: 9 pt, Font color: Auto, Complex capacityfor reform, as a stopgap which, solution alongside to Iraq’s chronic general de- corruptionScript Font: 9 pt mandand problem political he country lobbying, has planned reflects ne on the poor combined cycle po er plants or s by , performance and management of the sector. igure Iraq s electricity transmission net or ith a total design capacity of , but has not Figure 7 Iraq’s electricity transmission network42considered grid stability and design to support these hese challenges ha e increased since , but hese ne Developing plants ill require new an additional interconnections and Theseha e historicallychallenges recei ed havelittle focus increased from pre ious since of gas,upgrading on top of current the sales grid gas olumes network of , into a modern cabinets nder the largely technocratic bdel ehdi to be able to fire at capacity he main associated gas 2003, go ernmentbut have ctober historically ay ,received minister little pro ectspower ould system add ,(PS) and capable ansuriyah of plus supplying near- focus uayfrom al hatteeb previous o ersa significantcabinets. impro ement Under the the24 th roundhour fields power another is a Incomplex theory, this process. The in both generation and as isible in igure could be sufficient, but it demands much more rapid largely technocratic Abdel Mehdi government existing grid is continuously subject to Commentedsudden [FW19]: i en y is es onsi e o t e igure , but as not in position long enough to progress than has been made historically, at a time t nsmission i i one o t e ist i tion et e (Octoberma e longer2018-May term gains 2020), e electricity minister minister, Luay al- henchanges the Iraqi go ernmein loadnt hasdemand, irtually no short in est circuit o e faults, se to s o e is sse not t e s se to Khatteeb a id oversaw ahdi ant osignificantush, also a technocrat, improvement recently in mentequipment funds outages and generator failures, hailed the “importance of electricity imports” from Commented [MS20R19]: e t e both generation and T&D (as visible in Figure as well as weather damage and sabotage44, neighbouring Iran, and rene ed the po er import Commented [a21]: t is ette to e e to t e t e 1), butcontract was not from in the position Islamic Republic long forenough another t oto make and regional subdivisions of the MoEsome e e (Table in t e te t years, stating that Iraq would draw on Iran’s exper- longer-term gains. New electricity minister, 1) are ill-equipped to successfully manage ee omment ove tise to fi its old and dilapidated po er grid o Commented [MS22R21]: Majid e er,Mahdi this seems Hantoush, more a sop to a aguealso memoranduma technocrat, contingencies. Yet billions of dollars haveFormatted: been Font: 9 pt, Font color: Auto, Complex recentlyof understanding hailed the o “importance signed bet een bothof coun electricity injected into expanding existing capacityScript Font: as 9 pt tries in December 2018 for “cooperation” in the en- imports”ergy sector,from rather neighbouring than an actual commitmentIran, and to renewed re a stopgap solution to Iraq’s chronic demand the powercei ing support import from contractIran he recent from the deal Islamic problem. The country has planned 14 new Republic for another two years, stating that combined cycle power plants (or CCGTs) by amar nergy Research halid al Taie, “Iraq repairs power lines blown up by ISIS”, Di- Iraq would amar nergy draw Research on Iran’s expertise to fix its yaruna,2025, ay with a total design capacity of ~13 Financial Tribune, “Iran, Iraq Power Export Contract43 Renewed old andfor Twodilapidated Years”, June 05 (2020) power grid . However, this GW, but has not considered grid stability and seems more a sop to a vague memorandum design to support these. These new plants will of understanding (MoU) signed between both require an additional ~18 BCM of gas, on top countries in December 2018 for “cooperation” of current sales gas volumes of 14 BCM, to be 41. Qamar Energy Research 42 Qamar Energy Research 43. Financial Tribune, “Iran, Iraq Power Export Contract Renewed for Two Years”, June 05 (2020) 44. Khalid al-Taie, “Iraq repairs power lines blown up by ISIS”, Diyaruna, May 06 (2020) 19 T D losses are between 0-50 , with up to 0 of 5 Table 1 inistry of Electricity s Regional Subdivisions these attributed to distribution losses, including Supply Transmission Distribution technical losses, and non-technical ones like theft, General Com- General Com- General Com- non-billing, faulty energy meters and tampering, and
pany of Elec- pany of Elec- pany of Elec- hooking tapping on transmission lines. Lack of of tricity Produc- tricity Trans- tricity Distri- maintenance and spares, and unplanned capacity
orth tion, orth mission, orth bution for the growth add to technical losses. For comparison, T D Region Region orth losses in Iran are about 12. , and the world average General Com- General Com- General Com- is 8 8. pany of Elec- pany of Elec- pany of id- tricity Produc- tricity Trans- dle Electricity 80
Central tion, iddle mission, id- Distribution Region dle Region 0 General Com- General Com- General Com- 0
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Euphrates Region iddle Eu- 0 phrates Region 20 General Com- General Direc- General Com- 10
pany of Elec- torate of Elec- pany of South tricity Produc- tricity Trans- Electricity 0
South tion, South mission, South Distribution Iraq Iran Syria Libya Egypt Yemen Turkey Jordan lgeria
Region Region Tunisia orocco Lebanon
Saudi rabia chieving satisfactory performance from the elec- Figure T D losses in the region tricity grid, could, according to current estimates, take anywhere from 10-12 years (Figure 8Figure 8), Including losses and non-payment, about two-thirds Formatted: Font: 9 pt, Complex Script Font: 9 pt a lengthy timeline. The oE, in 2010, put together a of generated power is not paid for. bout 2 of gen- Formatted: Font: 9 pt, Not Italic, Complex Script Font: short-term plan for developing 00 k systems that erated electricity is lost to illegal connections. eters 9 pt, Not Italic could carry 00 on a single line, or 800 on are often outdated or malfunctioning about 80 of 6. SOLUTIONS LACK FOCUS ON GRID REINFORCEMENTdouble lines. This is yet to be realised, with current meters are more than 0 years old and some have efforts, under Siemens, concentrated on reconfigur- never been recalibrated. Even customers who pay ing existing 1 2 k systems around aghdad to over- their bills are only covering about 10 of the real cost come high fault problems. ost of north and north- of electricity provision, making it impossible for the west Iraq remains omitted from efforts to rehabili- oE to stand on a commercial basis50. This requires able to fire at capacity. The main associated gas sufferingtate infrastructure severe damage after suffering under severe the occupationdamage un- continuing large budget transfers, with electricity projects would add 12.1 BCM, and Mansuriyah ofder ISIS. the occupation of ISIS. subsidies costing about S 12 billion annually51. In- plus the 5th-round fields another 10.9 BCM. In efficient management and operation of the distribu- theory, this could be sufficient, but it demands Small il Generators tion sector is a key contributor to the issue, and a much more rapid progress than has been Raising F se lackadaisical attitude towards subsidy reform, net made historically, at a time when the Iraqi obile Power nits metering, and privatisation compounds the issue. government has virtually no investment funds. Rooftop Solar P End-user metering is very poor, made up of outdated Refurbish Generators and malfunctioning meters and widespread theft or Table 1: Ministry of Electricity’s Regional tility il Gas Turbine unmetered connections. ccording to the inistry of Subdivisions45 tility Solar P Electricity, there were over 1 0 000 unmetered cus- ind Power tomers in 201552, likely an underreported figure, and Supply Transmission Distribution tility Gas CCGT much higher in 2020. General Company General General pgrade T D etworks of Electricity Company Company Expand Transmission etwork ecause current tariffs for electricity (Table 2Table Formatted: Font: 9 pt, Font color: Auto, Complex Production, North of Electricity of Electricity 0 2 8 10 2) are near- ero for regular consumers, demand is North Region Transmission, Distribution for Script Font: 9 pt North Region the North Figure 8 est Technology for Improved Electricity Supply by Years to Complete Commented [MS25]: Re e e to e e e General Company General General Figure 8 Best Technology for Improved of Electricity Company Company Electricity Supply by Years to Complete47 Production, Middle of Electricity of Middle 5 Central Region Transmission, Electricity T&D inistry losses of Electricity, are betweenIraq 40-50%, with up to orld ank, orld Development Indicators arry Istepanian, Middle Region Distribution Iraq Energy Institute “Iraq’s Electricity Tariff Reform”, Iraq Energy Forum, September 90% of these attributed to distribution losses, T D Yesar losses aliki, areIraq betweenEnergy Institute 0-50 , with up to 0 of (201 ), referenced orld ank Group data (201 ) General Company General General 8 Poudineh, Sen, & Fattouh, “Advancing Renewable Energy in Re- 50 l- hateeb, 2020 5 including technical losses, and non-technical Table 1 inistryof Electricity of Electricity s CompanyRegional Subdivisions Company sourcethese- Richattributed Economies to of thedistribution MENA”, 2016 losses , including 51 ehdi and l-Saffar, “Compounding crises: Iraq’s oil and energy Production,Supply Al Transmissionof Electricity Distributionof Baghdad ones technical P. K. Mallick,like losses, theft,“Iraq’s and Electricity non-billing, non- Sectortechnical is Caught onesfaulty in likethe US energytheft-Iran, economy”, Oxford Institute for Energy Studies, July 2020 Power Struggle”, 14 December (2018), referenced Stratfor (2018), 52 orld ank GeneralFurat RegionCom- GeneralTransmission, Com- General Electricity Com- metersnon-billing and, faultytampering, energy mete andrs andhooking/tapping tampering, and Upper & Middle Distribution
Euphrates pany of Elec- pany of Elec- pany of Elec- onhooking tapping transmission lines.on transmission Lack of maintenance lines. Lack of andof Euphrates tricity Produc- tricity Trans- tricity Distri- Region spares,maintenance and unplanned and spares, capacityand unplanned growth capacity add to orth tion, orth mission, orth bution for the growth add to technical losses. For comparison, T D General Company General General technical losses. For comparison, T&D losses in Region Region orth losses in Iran are about 12. , and the world average of Electricity Directorate Company Iran are about 12.6%, and the world average 8 Production,General Com- SouthGeneral of ElectricityCom- Generalof Com- South is 8 48 .
is ~8% . South pany Regionof Elec- pany Transmission,of Elec- pany ofElectricity id- tricity Produc- tricitySouth Trans- Regiondle ElectricityDistribution 80
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putEuphrates togetherRegion a short-term iddle Eu-plan for developing 0 400 kV systems thatphrates could Region carry 400 MW on 20 General Com- General Direc- General Com- a single line, or 800 MW on double lines. This 10
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underSouth tion, Siemens, South concentratedmission, South onDistribution reconfiguring Iraq Iran Syria Libya Egypt Yemen Turkey Jordan lgeria existingRegion 132 kV systemsRegion around Baghdad to Tunisia orocco Lebanon overcome high fault problems. Most of north
Saudi rabia and chieving north-west satisfactory Iraq performance remains fromomitted the elec- from Figure T D losses in the region 49 effortstricity grid, to could, rehabilitate according toinfrastructure current estimates, after Figure 9 T&D losses in the region take anywhere from 10-12 years (Figure 8Figure 8), Including losses and non-payment, about two-thirds Formatted: Font: 9 pt, Complex Script Font: 9 pt 45.a lengthy Ministry timeline. of Electricity, The oE, Iraq in 2010, put together a of generated power is not paid for. bout 2 of gen- Formatted: Font: 9 pt, Not Italic, Complex Script Font: 46.short Iraq-term Energy plan Institutefor developing 00 k systems that erated electricity is lost to illegal connections. eters 47. Yesar Maliki, Iraq Energy Institute 9 pt, Not Italic could carry 00 on a single line, or 800 on are often outdated or malfunctioning about 80 of 48. Poudineh, Sen, & Fattouh, “Advancing Renewable Energy in Resource-Rich Economies of the MENA”, 2016 double lines. This is yet to be realised, with current meters are more than 0 years old and some have 49. P. K. Mallick, “Iraq’s Electricity Sector is Caught in the US-Iran Power Struggle”, 14 December (2018), efforts, under Siemens, concentrated on reconfigur- never been recalibrated. Even customers who pay ing existing 1 2 k systems around aghdad to over- their bills are only covering about 10 of the real cost come high fault problems. ost of north and north- of electricity provision, making it impossible for the west Iraq remains omitted from efforts to rehabili- 20 oE to stand on a commercial basis50. This requires tate infrastructure after suffering severe damage un- continuing large budget transfers, with electricity der the occupation of ISIS. subsidies costing about S 12 billion annually51. In- efficient management and operation of the distribu- Small il Generators tion sector is a key contributor to the issue, and a Raising F se lackadaisical attitude towards subsidy reform, net obile Power nits metering, and privatisation compounds the issue. Rooftop Solar P End-user metering is very poor, made up of outdated Refurbish Generators and malfunctioning meters and widespread theft or tility il Gas Turbine unmetered connections. ccording to the inistry of tility Solar P Electricity, there were over 1 0 000 unmetered cus- ind Power tomers in 201552, likely an underreported figure, and tility Gas CCGT much higher in 2020. pgrade T D etworks Expand Transmission etwork ecause current tariffs for electricity (Table 2Table Formatted: Font: 9 pt, Font color: Auto, Complex 2) are near- ero for regular consumers, demand is 0 2 8 10 Script Font: 9 pt Figure 8 est Technology for Improved Electricity Supply by Years to Complete Commented [MS25]: Re e e to e e e
5 inistry of Electricity, Iraq orld ank, orld Development Indicators arry Istepanian, Iraq Energy Institute “Iraq’s Electricity Tariff Reform”, Iraq Energy Forum, September Yesar aliki, Iraq Energy Institute (201 ), referenced orld ank Group data (201 ) 8 Poudineh, Sen, & Fattouh, “Advancing Renewable Energy in Re- 50 l- hateeb, 2020 source-Rich Economies of the MENA”, 2016 51 ehdi and l-Saffar, “Compounding crises: Iraq’s oil and energy P. K. Mallick, “Iraq’s Electricity Sector is Caught in the US-Iran economy”, Oxford Institute for Energy Studies, July 2020 Power Struggle”, 14 December (2018), referenced Stratfor (2018), 52 orld ank Powering Iraq: Challenges facing the Electricity Sector in Iraq
Including losses and non-payment, about Table 2 MoE Current Tariff Scheme54 two-thirds of generated power is not paid for. About 23% of generated electricity is lost to Tariff US$ Cent per kWh Range of consumption level illegal connections. Meters are often outdated Domestic or malfunctioning; about 80% of meters are 0.8 1-1500 kWh 2.9 1501-3000 more than 30 years old and some have never 6.7 3001-4000 been recalibrated. Even customers who pay 10 4001 and more their bills are only covering about 10% of the Commercial real cost of electricity provision, making it 5 1-1000 impossible for the MoE to stand on a commercial 6.7 1001-2000 50 basis . This requires continuing large budget 10 2001 and more transfers, with electricity subsidies costing Industrial 51 about US$ 12 billion annually . Inefficient 5 Flat rate management and operation of the distribution Agriculture sector is a key contributor to the issue, and a 5 Flat rate lackadaisical attitude towards subsidy reform, net metering, and privatisation compounds the Privatisation of distribution has regularly issue. End-user metering is very poor, made up been cited as the first step of a potential of outdated and malfunctioning meters and reform policy. However, caution precedes widespread theft or unmetered connections. privatisation reforms. According to former According to the Ministry of Electricity, there Minister of Electricity, Luay al-Khatteeb, the were over 160 000 unmetered customers in government believes privatising the sector is 201552, likely an underreported figure, and akin to a “radical” reform, which might cause much higher in 2020. widespread opposition from political hardliners, or put thousands of civil servant employees Because current tariffs for electricity (Table 2) out of employment55 in a country where are near-zero for regular consumers, demand is unemployment levels have soared in recent essentially infinite53. The ongoing demand on weeks due to coronavirus-led lockdowns. power generation cannot be tamed through DSM measures without immediate restructuring of tariffs (see Section 8).
referenced Stratfor (2018), World Bank, World Development Indicators; Harry Istepanian, “Iraq’s Electricity Tariff Reform”, Iraq Energy Forum, September (2019), referenced World Bank Group data (2014) 50. Al-Khateeb, 2020 51. Mehdi and Al-Saffar, “Compounding crises: Iraq’s oil and energy economy”, Oxford Institute for Energy Studies, July 2020 52. World Bank 53. Luay al-Khatteeb, “Fixing Iraq’s Power Sector”, Iraqi Economists Network, August 22 (2020) 54. Barik Schuber, “Main Policy Failures and the necessity of effective reforms of the Iraqi Power Sector”, Iraqi Economists Network, August 23 (2020) 55. Luay al-Khatteeb, Harry Istepanian, “Turn a Light On: Electricity Sector Reform in Iraq”, Brookings Doha Center (March 2015), 4-5 21 7. RENEWABLE ENERGY IS STILL A PIPE DREAM
7. RENEWABLE ENERGY IS STILL A PIPE clear plan, priorities and an investment model, DREAM these did not go ahead. As can be seen in Figure 8, an obvious Currently, Electricity Law (53) of 2017 part of the solution to Iraq’s electricity crisis regulates the adoption of renewable energy, is renewable energy. The country has a good its activities and “nationalisation” under the variety of renewable resources, including MoE. A subsequent draft Renewable Energy exploitable hydropower, abundant sunshine Law was passed through the MoE to the on unused land, and good wind speeds in Iraqi Ministerial Energy Council, the highest certain areas. Given chronic power shortages executive energy body in the country. The and difficulties with natural gas development, Law was prepared with the help of the UNDP distributed renewables could become an Regional Renewable Energy Centre, but is yet economic and practical part of the generation to be finalised, leaving the MoE as the executive mix. However, integrating renewable energy authority controlling the development and with the existing national grid shall pose a financing of renewable energy projects in significant challenge, even if significant power the country. Under the Law, institutions and capacity is developed. Remote areas such as individuals can generate renewable power for Anbar, good sites for solar photovoltaic plants, their own use, with access to the national T&D will either require extended connections to the grid or to sell to the MoE under a PPA. This led grid, or battery storage. to numerous companies approaching the MoE with offers for solar projects, and a feed-in A small amount (36.5 MW) of solar PV was tariff was established at $ 3.5/kWh, inspired by installed during 2013-14, and parts of Baghdad the low prices achieved in some neighbouring feature solar street-lighting. There are also some countries. Low-interest loans were also offered rare cases of solar cells being used in residential for rooftop solar installations56. units. The INES foresaw 2 GW of renewables by 2030, including new hydropower. However, However in May 2019, the feed-in tariff was it rejected large-scale solar on the grounds abandoned after criticism for being “repressive”, that it was (then) too expensive compared to and instead the MoE launched a competitive natural gas resources, even though the MoE tender for 755 MW of solar PV across several subsequently planned 50 MW solar/wind sites (two solar parks of 300 MW and 225 MW hybrid plants in remote locations, where they capacities, and 5 smaller projects, ranging in would be competitive with diesel generators. size from 30-50 MW), pre-qualifying 45 bidders, Following the defeat of ISIS, the Iraqi including companies like Total, Siemens, and government issued a long list of projects for Acwa Power. Bids were received for this on 1st international investment and reconstruction, September, but it is unclear whether an award including 410 MW of solar power, as well as a will be made before the scheduled elections in solar research and manufacturing centre. The June 2021. Later in the year a Ministry advisor MoE’s own projections showed 2.7 GW of solar revealed plans for another 750 MW to be PV being installed between 2017-20 (excluding launched in the first quarter of 202057, in line KRI, and northern provinces). Projects were with plans for renewables to account for 20% awarded to some regional companies: 465 MW of the generation mix by 2030. Encouraged by in five locations to Sama Baghdad, and 230 their home governments, Saudi Arabia’s Acwa MW in four locations to Kuwait-based al-Dana Power and the UAE’s Amea Power proposed International. However, in the absence of a renewable energy projects in Iraq as part of
56. Yesar al-Maliki, 2020 57. Emiliano Bellini, “Iraq plans second 750 MW solar tender”, PV Magazine, November 27 (2019)
22 Powering Iraq: Challenges facing the Electricity Sector in Iraq
supporting the government and offsetting Iranian influence. Acwa Power proposed two 1 GW solar projects; one would be based in Saudi Arabia and export to Iraq at a tariff of USD 1.65/kWh, while the other would be in Iraq with a tariff of USD 6.5/kWh, reflecting the difference in business risk between both countries. Since then, Iraq has faced major turmoil, with several candidate prime ministers abandoning their posts after Abdel Mehdi resigned. Progress on renewable technologies has therefore been slow, with most projects still a pipe dream at this stage. Distributed solar power would seem to be an ideal initiative for Iraq, but opposition from the “generator mafia”, politicians with stakes in local diesel generators, and poor progress on electricity tariff reform, will keep this from transpiring anytime soon. Financial and economic constraints are often cited by political hardliners opposed to uptake of renewable projects, while structural constraints, such as a lack of legislative, executive, and relevant authorities, apart from the MoE, to encourage the production and use of renewable advanced technologies for energy production, will continue to contribute to the poor attractiveness of the sector. Technical challenges, such as grid extension and reinforcement, and limited local capabilities in unique renewable energy markets, such as firming, frequency regulation, and peak shaving, shall add to limited uptake.
23 8. A POSSIBLE WAY FORWARD
8. A POSSIBLE WAY FORWARD The Al Kadhimi government will also have a short tenure, with the next elections meant The Iraqi electricity situation is obviously to be held in June 2021. It can thus do little in highly challenging. The technical solutions are the way of fundamental reforms, and has to not particularly difficult; the problem is the lack be concerned with managing the current crisis of finance, government capability and political and avoiding complete collapse. will. The situation should improve somewhat It will be extremely difficult to make progress as Iraq comes out of the summer period and while electricity tariffs remain very low and as the OPEC+ cuts are relaxed, increasing the mostly not collected. However, raising tariffs amount of available associated gas. There are is problematic because customers are, not some emergency and short-term measures unreasonably, unwilling to pay while service that could be taken to increase the amount remains so poor. In 2016, pilot projects were of available power61, but they risk further implemented in parts of Baghdad, including entrenching barriers to reform. Zayouna and Yarmouk, that increased tariffs in return for guaranteeing supply. Consumption In terms of short- and medium-term actions of electricity was reduced by 30% and to remedy the country’s electricity problem, collection rates improved58. But local politicians the following actions should be priorities. connected to generator operators campaigned The gas and electricity sectors are closely for the pilot to be halted59. linked, and therefore gas sector improvement to provide fuel for power is a critical part of Neighbourhood generators provide 20% improved service. Nevertheless, there are some of power but charge 60-120 USD/kWh, while areas of electricity reform that could be made users in the top bracket of the state grid pay independently of changes in the gas sector. an average of around 0.8 USD/kWh60 (see also Section 6), despite a top rate of about 12 USD/kWh. Iraqis paid about US$ 4 billion to private generators in 2018, as much as was allocated to the MoE’s capital budget. This creates a vicious circle which is extremely difficult to break: consumption at peak times is high because of T&D losses, low tariffs and inefficient equipment; the state system cannot meet demand, and has to be supplemented by generators; state bills are not paid because service is poor, enforcement is weak and generator operators resist reform; the Ministry of Electricity therefore cannot invest in new generation and T&D.
58. Hashim Al-Rikabi, “An Assessment of Electricity Sector Reforms in Iraq”, Al-Bayan Center for Planning and Studies, 2017, http://www.bayancenter.org/en/wp-content/uploads/2017/09/909865676600.pdf 59. Salam Zidane, “Efforts to privatize electricity face resistance in Iraq”, Al-Monitor, March 12 (2017), https:// www.al-monitor.com/pulse/originals/2017/03/electricity-iraq-private-najaf-general-electric.html 60. International Energy Agency, “Iraq’s Energy Sector: A Roadmap to a Brighter Future”, April 2019 61. Ali Al-Saffar, “Powering Iraq: Why Electricity is Key to Peace, Stability and Prosperity”, July 29 (2020), https://1001iraqithoughts.com/2020/07/29/powering-iraq-why-electricity-is-key-to-peace-stability-and- prosperity/
24 Powering Iraq: Challenges facing the Electricity Sector in Iraq
Gas Development: • Progress the negotiations with the Kurdistan region to purchase gas (and electricity). Because of the Kurdistan region’s budgetary crisis, there should be a possible win-win deal involving reinstatement of part of the region’s share of the federal budget. • Advance the development of new gas fields such as Mansuriyah and the fifth- round fields (Akkas may be more costly and technically-challenging), as well as the associated gas capture schemes, and consider more attractive models that would give developers direct stakes in gas sales instead of service fees or revenue shares. • Refurbish/rehabilitate existing, dilapidated gas and gas-to-power infrastructure, as well as debottlenecking pipeline networks to improve connectivity to areas with large unused gas power capacities (middle and north Iraq). • Encourage transparency in exchanging energy information between the MoO and the MoE to support investment into developing natural gas resources for offtake by power plants. Historically the MoE has avoided assuming the risks of feedstock supply and requested power plant developers enter into separate supply agreements with the MoO, which is negative for international interest.
25 Electricity Reform
Electricity Reform: tariff collection, such as “smart grid” systems63, to which end it installed 41,000 1. Privatisation & Tariff Reform new smart meters across Erbil in 2019. • Find a solution to the political opposition 2. Grid Reinforcement/Modernisation to reform from the generator operators, who are backed by political parties. This • Hand-in-hand with tariff reform, refurbish could involve giving them stakes in local the distribution grids and metering, to distribution companies which would receive improve collection and reduce faults and electricity from the generators, state grid losses. This will improve service relatively and distributed renewables, in return for quickly and at low cost. It can also create regulated tariffs62. local employment if neighbourhood technicians can be trained. • Focus initially on providing reliable supply to large commercial and industrial establishments, which are easier to identify than residences, in return for full payment. • Technical solutions could involve implementation of advanced metering • Revisit the tariff reform schemes trialled in infrastructure (AMI), medium voltage 2016, guaranteeing good service in return distribution (MVD) networks in theft-prone for full payment at higher rates (but lower areas, and the introduction of energy than those of the generator operators), with audits up to the distribution transformers. a “lifeline” rate for low-income, low-volume These solutions were implemented by consumers. If these can be firmly established India’s North Delhi Power Limited (NDPL) in pilot areas and then expanded, they can company, helping it reduce T&D losses from finance grid refurbishment and saving on over 50% in 2002, to 15% by 2009. some of the system’s massive losses. • Move forward on the grid connections • Use the Kurdish experience as a benchmark to the GCC, Jordan and Kurdistan region. for privatising the Federal power structure This will also require grid reinforcement and improving tariff collection. The KRG so that power entering southern Iraq can entered its first power purchase agreement be moved north. The GCC and Kurdistan in 2007 with Mass Global, a private sector links should probably be priority given the company owned by a Kurdish businessman shorter distances and their likely ability to for the development of the 500 MW Erbil provide power at more competitive prices. power plant. Although the PPA was designed The Jordan interconnection, a deal for similarly to international standards, its terms which was signed with General Electric (see were more favourable to the developer, Section 1), could also support predictable resulting in two other PPA agreements with supply of power and achieve savings. the same firm, encouraging exploration of institutional arrangements that could 3. Encourage Renewable Energy Use allow local, government-owned, or private • Expedite the current utility-scale solar power companies to distribute electricity to tenders, accepting that this will not achieve customers, and collect tariffs. The Kurdish the very low prices bid in neighbouring Ministry of Planning has also announced countries such as the UAE, Saudi Arabia plans for establishing better systems for and Jordan. Iraq can bring down its solar 62. See a similar suggestion in Barik Schuber, “Main Policy Failures and the necessity of effective reforms of the Iraqi Power Sector”, Iraqi Economists Network, August 23 (2020) 63. Ministry of Planning, Kurdistan Regional Government, “A Vision for the Future”
26 Powering Iraq: Challenges facing the Electricity Sector in Iraq
power prices by establishing confidence in its contract model, scaling up the projects, and making use of international financial support where available. • Encourage more use of distributed and rooftop solar. Communities could be given a stake in projects, rebated on bills, to overcome opposition. Solar power installation would create local employment. Rooftop schemes could be compensated at a price based on the Ministry’s true cost of service, including losses, instead of the low retail rates. International organisations may be willing to offer concessionary financing to support such programmes. Smart ‘pay as you go’ meters could be used to ensure collection. Distribution grid upgrades would be required to allow and meter bidirectional flow and manage variability. • Rehabilitate the existing hydroelectric facilities, which generate a maximum of about 867 MW from a nominal 1904 MW capacity. However this also depends on reliability of river flows. These policies will enjoy substantial international support and goodwill, and potentially financing. The aim has to be to move the electricity ministry to a point of being able to cover its costs, but this is a long=term endeavour. Privatisation of some parts of the electricity sector, including distribution, as well as more use of IPPs, is promising but encounters strong political opposition and accusations of corruption, often backed by vested interests. Ultimately, given its vast hydrocarbon and solar resources, Iraq’s gas and electricity problems are not technical or even economic in origin. The previous studies referred to in this paper have amply outlined the required improvements. The current economic and electricity crisis should give the necessary sense of urgency. The core challenge is to find the path to implement such improvements in Iraq’s dysfunctional political economy.
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1. INTRODUCTION
In June 2013, Iraq launched Almost all marketed gas in two-thirds of generated an Integrated National Energy Iraq is used for power. Most power is not paid for. About Strategy (INES), and was of current installed capacity 23% of generated electricity confident that Iraqis would is gas turbines (which can run is lost to illegal connections. soon enjoy 24-hour power on gas or diesel) and steam Meters are often outdated or supply, as it unveiled plans to turbines (which can run on malfunctioning; about 80% of have generation capacity cross gas, diesel, fuel oil or crude meters are more than 30 years 20 GW by 2015 from 10-12 GW. oil). These are inefficient. old and some have never been 8 GW of new capacity was to The country has fewer than recalibrated. Even customers be added to existing capacity, 10 more efficient combined- who pay their bills are only but by 2019, only 4 GW of this cycle gas turbines (CCGTs) covering about 10% of the real was realised, bringing total currently, most running below cost of electricity provision, capacity to 16.5 GW, even capacity due to transmission making it impossible for the MoE though generation managed constraints, breakdowns, to stand on a commercial basis. to reach 19 GW during peak and lack of fuel. Most of the This requires continuing large periods. Part of the gap in new capacity being installed budget transfers, with electricity demand is met by privately- is higher-efficiency CCGTs subsidies costing about US$ operated generators, but (including conversions of 12 billion annually.Inefficient these are expensive, noisy and existing plants). Also, over management and operation of polluting and generally do not 40% of the current CCGTs the distribution sector is a key provide enough electricity to are located in the central contributor to the issue, and a run air-conditioning. provinces. lackadaisical attitude towards subsidy reform, net metering, and privatisation compounds the issue.
Al-Bayan Center for Planning and Studies 28