Iraq expands Basra oil refinery after GE and Baker Hughes gas deal

Baghdad wants to build new refineries as its oil processing capacity was severely curtailed by damage to its largest plant in Baiji, north of the capital

<p>The Nahr Bin Omar natural gas field, north of the southern Iraqi port of Basra. The proposed Red Sea pipeline will source oil from Iraq&#39;s southern oil fields.&nbsp;Mohammed Ali / AFP</p>

Iraq has started work on expanding its oil refinery near the southern city of Basra by adding 70,000 barrels per day to processing capacity, the oil ministry said on Tuesday.

The Shuaiba refinery's capacity should increase to 280,000 bpd by the end of the year, as a result of the expansion, the ministry said.

Iraq, Opec's second-largest oil producer, wants to build new refineries as its oil processing capacity was severely curtailed by damage to its largest plant in Baiji, north of Baghdad, when it was captured by ISIL militants in 2014.

Baiji was retaken by Iraqi forces in 2015 and it should be brought back on line partially this year. Iraq now relies on the Doura refinery, in Baghdad, and Shuaiba.

Baker Hughes and General Electric signed a contract with Iraq's government on Monday to process natural gas extracted alongside crude oil at two fields in southern Iraq, the oil ministry said.

The plan was first announced by GE last July and is part of Iraq's efforts to stop flaring gas associated with oil by 2021. Iraq continues to flare some of this gas because it lacks the facilities to process it into fuel for local consumption or exports.

Gas flaring costs nearly $2.5 billion in lost revenue for the government and would be sufficient to meet most of needs for gas‐based power generation, according to the World Bank.

The contract with Baker Hughes and GE provides for processing the gas at the Nassiriya, Al Gharraf oilfields.

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It is the second contract signed by Iraq to process gas associated with oil, after one with US energy firm Orion in January.

Iraq's production of associated gas is expected to grow as the country increases its oil output capacity.

The Iraqi cabinet on Sunday approved a plan to raise the nation's crude oil output capacity to 6.5 million barrels per day by 2022, from about 5 million bpd now.

The country is currently producing about 4.4 million bpd, below its capacity, in line with an agreement between the 14-member Opec and other exporters including Russia to cut supply to boost oil prices.

Iraq plans to award oil and gas exploration and development contracts in 11 new blocks on April 15.

The Iraqi government depends on oil and gas sales for about 95 per cent of its income.