Breakthrough for long-awaited Iraq-Kuwait energy supply deal

Kuwait has agreed on a long-awaited gas supply deal with Iraq.

Excess gas is burnt off at a pipeline at the Rumaila oilfield in Basra, Iraq. The country has been at odds internally over what to do with gas from its oilfields, and has now reached a deal to export Show more

Kuwait has agreed to start a long-delayed gas import deal with Iraq, the two countries announced during a visit of Iraq’s oil minister that was also aimed at drumming up Kuwaiti investment in Iraq.

The plans for such a deal have dragged on for well over a decade, but have failed to come to fruition because of Iraq’s ongoing internal conflict and lack of investment for infrastructure to convert the huge amount of gas it flares from its oilfields.

Iraq oil minister Jabbar Al Luaibi said the “venture is not new”, but assured that Iraqi gas flows to Kuwait “will see the light very soon”, Kuwait’s state news agency Kuna reported reported.

After meeting with Kuwait’s newly appointed oil minister, Essam Al Marzouq, Mr Al Luaibi said the two had agreed to form a joint committee to facilitate delivery of an initial 5 million cubic feet a day (cf/d), with a plan to increase that gradually to 200m cf/d.

Kuwait has struggled to meet its growing domestic demand for gas, importing more in recent years, especially in the form of liquified natural gas or LNG. Last year, the shortfall was about 500m cf/d.

Mr Luaibi did not specify how the gas would be delivered, but in March Iraq exported the first gas from its southern oilfields in the form of a 10,000 square metre cargo of condensate, opening up a new revenue stream for its hard-pressed government.

Iraq’s gas development plans centre mainly on the Basra Gas Company, a US$17 billion, 25-year project which is 51 per cent owned by the Iraq government’s Southern Gas Company, with Royal Dutch/Shell owning 44 per cent and Japan’s Mitsubishi the remaining 5 per cent.

Despite having natural gas reserves of about 112 trillion cubic feet – the 12th largest in the world – Iraq has been a net importer of gas, including via pipeline from neighbouring Iran, which itself has struggled to meet its own domestic gas needs because of a long period of ­underinvestment under ­sanctions.

However, the future of that project is in doubt as Shell has announced plans to consider exiting a number of countries – including Iraq – as part of its $30bn divestment programme following its $54bn merger last year with BG Group.

Shell sharply reduced its workforce in Iraq – where it also is a developer of the supergiant Majnoon and West Qrna oilfields –because of low profitability and rising arrears in payment from the government.

While on his visit to Kuwait, Mr Al Luaibi also said the two delegations discussed a possible resolution to ongoing disputes over border oilfields and agreed to set up a joint “consultancy company” to facilitate Kuwaiti investment in Iraq, “where there are mega projects and substantial facilities”.

Follow The National's Business section on Twitter