Growing Iraqi optimism for oil refining expansion

Iraq_refining

Iraq's oil output could reach up to four million barrels per day (bpd) by the end of next year and it is adding a fifth project to its planned refinery capacity expansion as it seeks to meet domestic demand, its deputy oil minister said.

Further crude output expansion would depend on creating new infrastructure, which is under way, the deputy minister said, reiterating earlier comment.

"By the end of next year, I think it could be in the region of 3.5 to four million barrels per day," Ahmed Al-Shamma said.

He said Iraq was on track for output of three million bpd by the end of this year. That compares with around 2.6mn bpd last month.

While Iraq's crude output creeps higher, its demand for refined products has also been rising, forcing it to import large amounts of gasoline and gas oil in the final part of this year.

Shamma said Iraq had added a fifth refinery project to four new refineries previously planned. It would process heavy oil from Qayarah and Najmah, awarded to Angola's Sonangol in 2009, and construction should begin "after three years to be in line with production," he said on the sidelines of an investment conference in London.

The deputy minister said Iraq was also working with private equity firm Citadel Capital on the project, which he expected would cost at least US$5 billion and would process "no less than 150,000 barrels per day."

Of the four earlier projects, a refinery at the city of Kerbala is the most advanced, said Shamma, who as deputy minister takes prime responsibility for gas and the oil refining sector, while the minister oversees the upstream or production.

He said that since July, Iraq had been in exclusive talks with an "Italian-orientated" team to work on Kerbala.

The project has previously been linked with Italy's ENI but Shamma would not be specific on Wednesday and ENI was not immediately available for comment.

For the other projects, he did not have progress to report, but said Nassiriya, in the south, was the last of the list. The other two are in Maysan, also in the south, and in the northern oil city of Kirkuk.

Iraq's other great need is to harness gas as it struggles to generate adequate power supplies. Its fourth energy bidding round, scheduled for late January, is focused on natural gas.

"The fourth round is basically for increasing our reserves," said Shamma, adding he was sure the blocks on offer would reveal additional reserves, especially of gas.

"If gas is discovered, it will be developed immediately. If oil is discovered, there will be a delay before it can be developed," he added.

Much of Iraq's gas so far has been associated with crude production, which is a huge problem in the absence of sufficient infrastructure to capture it.

Shamma said the hope for the fourth international bidding round was that it would reveal non-associated gas, which could be suitable for export, including to Europe.

"We need to have a stable supply (to agree export deals). That can only be achieved with free gas. That's what we hope to discover," he said.

Asked whether he was concerned a possible rush of investment into Libya following the toppling of Muammar Qaddafi's regime could steal away investment from Iraq, he said it was up to investors.

"That will depend on investors and whether they think the environment in Libya is more stable for investment than in Iraq. I have my doubts," he told Reuters Insider.

Although Iraq is still subject to violence, he said stability was improving, notably for the oil and gas sector. "In 2005-2006, there were daily attacks on pipelines," he said.

"Now things are different."

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