iraq’s ambition - eprinc.org · nabucco is contingent upon securing supplies from either azeri...
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Iraq’s AmbitionWhat is the Role of Natural Gas?
Lucian PugliaresiEnergy Policy Research Foundation, Inc.
Iraqi Petroleum 2010London
November 30, 2010
Key Points
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•Critical role of expectations in oil and gas markets
•Why forecasters should show humility
•Iraq’s role as a game changer (oil vs. gas)
•What should be done with the natural gas?
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4.2 5.81.9 1.3 0.95 1.3 2 1.7 0
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A Series of Unfortunate Events Leading to New Expectations
World Oil Production (EIA) Expected Production (EIA 2001 Predictions)OPEC Excess Capacity (EIA) Crude Oil Price
Positive Expectations Expectations Shift Negative Expectations
Yukos -- Kremlin taking control of Russian oil
development
Oil development in
Iraq delayed
Russia takes over Sakhalin II, Chavez
Nationalizes Projects
Nigeriarebels hurt
output
Continuing civil strife in Sudan,
Nigeria
OPEC Excess Capacity remains limited
Congress continues ban on ANWR and offshore
development
Outlook positive for expanded output from
Nigeria, Mexico, Venez., Russia, North Slope
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Forecasting and Humility (Hubbert’s Limitations)
Source: EPRINC Study
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1964 Estimate for Production
in 2000
1982 Estimate for Production
in 2000
Actual 2000 Production
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Cumulative Discoveries - Permian (red area - right axis)
Cumulative Discoveries - San Joaquin (blue area - right axis)
Projected Year 2000 Production -San Joaquin (blue line - left axis)
Projected Year 2000 Production -Permian (red line - left axis)
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A Decoupling of Politics and Oilfields DevelopmentAlthough oil development is in an early stage it is moving forward, same cannot be said for politics and security
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Estimated Gas Reserves (Tcf)
Akkas 5.6*Mansuriyah 4.5*Kashm al-Ahmar 2.2Siba 1.5*Tel Gazal 0.2
Oil Fields withAssociated Gas
West Qurna 13.7Majnoon 11.8Rumaila 9.8Zubair 2.9Nasiriyah 2.6Total 43.2
Gas Reserves and Location
*Gas in place
Source: Oil Ministry, Energy Intelligence
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• Development of the Siba and Mansouriya gas fields has been initialed in Bagdad, but the Akkaz development has not been signed. They all await ratification by the cabinet which has yet to be formed.
• Total plateau production for three fields is 820 mn cfd, the anticipated was 685 mmcf/d
• Maximum total gas in place of 11.6 tcf, 7.4 is proven reserves, this implies a 63.8% recovery factor. 900 mmcf/d max daily production would give fields a life of 22.5 years.
• 700 mmcf/d of associated gas is flared in Iraq each day
Iraqi Gas
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Provincial Opposition and Electricity Concerns• There is strong opposition by provincial governments for the Akkaz
field bidding.
• Electricity is a major issue within Iraq leading to unrest, security concerns, instability, and infrastructure stagnation.
• Iraq puts out just 4-5 hours of electricity each day from the national grid. While there is 50% more electricity generation than before the invasion of Iraq in 2003, the electricity is spread throughout the country rather than giving it all to Iraq.
• Energy consumption has doubled in the last 7 years.
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• Allow companies to export 50 percent
• Costs are recoverable
• Iraqi government agreed to take or pay take it or pay 100 percent of gas production
• No signature bonus
• Commitment for TTSF (Training, Technology, and Scholarship Fund)– very important
•• Conversion factor for barrel of oil equivalent reduced from 8,000 to 6,000 cu ft.
(EPRINC Calculations are 5.75 for value estimate).
• Remuneration fee 90% of scoring formula and remuneration fee and cost recovery paid with 25% plateau target needed to be reached within 3 years.
Key Gas Contract Features ?
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Bid Consortium (Participation %)
Winner Renumeration Fee ($/mcf)
Plateau Production Target(mmcf/d)
Plateau Period(Years)
Akkaz Kogas/KMG (50/50)
Total/TPAO(50/50)
Kogas/KMG $0.95
$3.30
400
375
13
Mansouriya TPAO/KE/Kogas(50/30/20)
TPAO/KE/Kogas $1.22 320 13
Siba KE/TPAO(60/40)
KMG (100)
KE/TPAO $1.30
$2.78
100
65
9
Iraqi Gas Field Awards
Source: MEES November 8, 2010
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What are the best options for Iraqi natural gas?(some preliminary observations)
•Power generation, industrial, and residential
•Re-injection
•GTL
•Regional pipeline sales
•LNG
•Long haul pipeline sales (Nabucco)
Natural Gas and Crude Oil Prices Through 2030
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Henry Hub Spot Price
Imported Low-Sulfur Light Crude Oil ($ per million BTU)
Source: EIA Annual Energy Outlook 2009
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Japan Korea Marker Remains Well Above US and UK Spot Prices
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CoalCoal Supercritical: 10.554Coal Integrated Gasification Combined Cycle (IGCC): 11.481Coal IGCC with Carbon Capture & Storage (IGCC with CCS): 17.317
AlternativesBiogas: 8.552Wind: 8.910Gas Combined Cycle: 9.382 (assumes $5.50 to $6.50/MMBtu for gas)Geothermal: 10.182Hydroelectric: 10.527Concentrating solar thermal (CSP): 12.653Nuclear: 15.316Biomass: 16.485
Note: Busbar means the price of the power leaving the plant. All capital, fuel, and operating costs are taken into account in busbar costs.
Source: California Energy Commission, “Comparative Costs of California Central Station Electricity Generation Technologies,” CEC Staff Report, June 2007
Natural Gas Offers Lower Busbar Cost Escalation Risk(cents per kwh)
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Capital Costs and the Gas Crude Spread*
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Price of Oil - $ per barrel
Gross Margin - 80% discount to oil
Gross Margin ($ per barrel of Distillate, assumed to be the price of crude oil plus 10%) - left axis
Feedstock costs and operating costs ($5/bbl) per barrel of product output (Includes 40% energy penalty) - left axis
Break even capital cost per barrel of installed capacity at a given oil price (required to break even over 20 years | refined product value minus feedstock and operating costs of $5/bbl) - right axis
Break even capital cost per barrel of installed capacity - 80% discount to oil
Current capital costs ($200,000/bbl) atChevron's Escravos plant require $90 oil to break even.
To be competitive at current prices, capital costs would have to be reduced to $125,000/bbl
*EPRINC preliminary estimates 15
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Nabucco is contingent upon securing supplies from either Azeri gas and/or Iraqi gas - Expect 10 bcm from Iraq and 8 bcm from Shah Deniz –yet both supplies are far from certain at the moment.
Nabucco would require a supply agreement from Shah Deniz phase II in Azerbaijan. But such supplies face competition from other pipelines and from the Russian government, which has been working to maintain control over Central Asian gas.
Other option is Iraq, but is not likely to be highest value for gas output
The Nabucco consortium has recently called Iraq the most likely supplier because of Russia’s influence over Central Asia (pipe dream
Nabucco Prospects