Presentation at the AlKindi Engineering Conference

1
Presentation at the Al-Kindi Engineering
Conference Baghdad, Iraq
Iraqs Natural Gas Waste or Rational Utilisation?
Dr. Muhammad-Ali Zainy Senior Energy Economist
Analyst Centre for Global Energy Studies - London
17 - 20 November 2008
2
Presentation Outline

• Iraqi natural gas overview
• Gas production
• Power generation oil or gas?
• Gas exports pipeline or LNG?
• Conclusion.

3
Top ten gas-rich countries in the world at
1.1.2008

• Proven world gas reserves were 175 tcm on 1.1.2008

4
Iraqs share () of proven gas reserves in the
Middle East at 1.1.2008

• Proven Middle East gas reserves were 72 tcm on
  1.1.2008

5
Distribution of Iraqs proven gas reserves

• Total proven reserves
• Associated gas 70
• Non-associated (free) gas 20
• Cap gas 10
• Associated gas reserves
• Developed oilfields 55
• Undeveloped oilfields 45
• Southern oilfields 83
• Northern and central fields 17
• Free gas reserves
• Contained in 10 fields, including Kor Mor,
  Chemchemal, Khashm al-Ahmar,
• Jeria Pika and Mansuriyah (located in the
  north-east), Siba (south of Basrah),
• and Akkas (in the Western Desert, close to the
  Syrian border).
• Cap gas reserves
• All but one of the gas caps are situated in the
  northern and central fields, and
• 94 of cap gas reserves are concentrated in five
  fields Jambur, Ajil (ex-Saddam),
• Bai Hassan, Khabbaz and Kirkuk.
• (Note the 55, 45 division of associated gas
  reserves depends on what is considered as
  developed and undeveloped fields)

Source Arab Oil Gas Directory
6
(No Transcript)
7
Iraqs undiscovered gas potential
4,600 BCM non-associated
9,250 BCM
4,650 BCM associated
Source Arab Oil Gas Directory
8
Iraqs gross natural gas production (1971-2008)
9
Fate of Iraqi gas produced during 2003-07

• Marketed 12, flared 64, re-injected 5 and
  shrinkage 19

10
Marketed and flared gas over the period 1979-2007
11
Cost comparison between CCGT (gas)and thermal
(fuel oil) power generation

• Ratio of electricity unit cost generated by fuel
  oil to one by natural gas 1.42

Diagram source Iraqi Ministry of Electricity
12
Comparing power generation cost Gas vs. oil

• GAS Oil
• /mmBtu (spot) 6.97 Fuel oil
  Cent/gallon(spot) 92.57
• 1bbl fuel oil 5.8 mmBtu One barrel 42 US
  gallons
• 6.975.8 40.43 Fuel oil /bbl(spot) 38.88
• Assume one barrel of oil or 5.8 mmBtu produce z
  kwh
• Then, CCGT with efficiency 53 will produce 0.53z
  kwh
• And thermal (oil) plant with efficiency 38 will
  produce 0.38z kwh
• Therefore using CCGT, z kwh will cost 40.43/0.53
  76.28
• And using thermal, z kwh will cost 38.88/0.38
  102.32
• Ratio of electricity unit cost generated by fuel
  oil to one
• by natural gas 1.34
• Note the gas price is Henry Hub spot and fuel
  oil price is US Gulf Coast spot
• on 7/11/2008.

13
Cost of generating electricity (pence per kWh)
with no cost of CO2 emissions included
Source Royal Academy of Engineering
14
Export Rent Gas vs. Oil

• Gas export Total Oil export Total
• Price 5.67/mcf 39.2 Price per
  barrel 80.0
• NGLs 5.60.0480 17.9 NGLs
  0.0
• Cost 5.60.2 (1.1) Cost
  (5.0)
• Negative feedback
• 1.220.14580 (14.2)
  Negative feedback
  (0.0)
• Gas rent 41.8 Oil rent
  75.0

• Assumptions
• Price per barrel oil 80
• Price per 1 mcf gas 7
• One barrel oil 5.6 mcf gas
• One mcf gas contains 0.04 barrels NGLs
• Iraqs OPEC quota 14.5 of production ceiling

15
European gas consumption imports (bcm/y) and
import dependence () during the last 10-year
period
Source BP
16
Comparison of gas transportation costs
between pipelines and LNG carrier
Source Jensen Associates
17
Conclusion

• For power generation, it is far better to use
  combined cycle gas turbines than thermal for two
  reasons cost per kWh using a thermal power plant
  is about twice the cost using a CCGT power plant
  and natural gas emits less carbon dioxide than
  oil when burnt and, thus, is more favourable than
  oil in addressing the global warming issue.
• No gas should be exported as long as there is a
  chance for it to be used domestically in
  industry. It is not only that industry gets a
  better return than the export option, social
  returns coming from employment of the local
  population, as well as transfer of technology and
  propagating skill within the Iraqi labour force,
  should not be ignored. Besides, domestic gas
  industry creates other industries through forward
  and backward linkages and consequently
  contributes value added to the economy and
  enriches the country.

18
Conclusion.continued

• It is true that gas transportation in LNG form is
  quite flexible and can avoid geopolitical hot
  spots and can reach any world market, but that
  should be weighed against cost. I believe that
  since Iraqi natural gas is not stranded, and that
  needy markets are very close-by (Europe and the
  GCC states in the medium term), Iraqi gas exports
  through pipeline is the better option, given that
  geopolitical problems hindering exports would be
  rare to non-existent through Turkey or the GCC
  states. In the long-term, however, and with the
  addition of potential gas reserves in the future,
  it then becomes imperative to export part of the
  gas as LNG to such distant markets as the Far
  East, the USA and Latin America. But before
  resorting to any gas exports, domestic power
  generation and industries using Iraqi natural gas
  should always be encouraged and preferred to gas
  exports whether in the form of pipeline gas or
  otherwise.

19
????? 1

• ?? ???? ????? ?????? ??????????? ?? ?????? ??????
  ??????? ????? ????????? ????? ??? ???? ?????
  ????? ?? ??????? ???????? ???? ?????? ?????? ??
  ???? ????? ???? ?????? ?????????? ?????? ???????
  ???????? ???? ??? ??? ?????? ?????? ???????
  ??????? ????????? ???????? ?? ????? ??????? ?????
  ??? ????? ??? ?? ????? ??? ???? ???? ???? ??????
  ??????? ??? ?? ????? ??? ????????? ???? ?????
  ????? ??? ????? ????? ???? ???? ?????? ??????? ??
  ??? ???????? ??????? ????? ??????. ?????? ????
  ???? ?????? ???????? ????? ?????? ??? ?????
  ???????? ???????? ?????? ????? ????? ????????
  ???? ??????????? ???? ????????.
• ??? ?? ?? ?????? ????? ??????? ????? ????? ????
  ???? ????????? ?????? ?? ??????? ????? ??? ?????
  ?????? ??????????. ?? ????? ????? ??? ??? ????
  ?????? ???? ?? ??????? ????? ???? ??????
  ????????? ????? ?? ????? ????? ????? ?? ??? ???
  ????? ????????? ???? ??????????? ??? ???? ?????
  ???? ??????? ??? ?????? ???????. ??? ??? ??? ??
  ????? ????? ????? ???? ???? ??????? ?????? ?????
  ?????? ??? ?? ???????? ???? ?????? ?????? ??????
  ????? ???? ??????? ????? ???? ??????? ??????
  ????? ?????? ??? ???????? ?????? ?????? ?????
  ????? ???????? ???????? ?? ????? ????? ????????.
• .

20
????? 2

• ????? ??? ????? ????????? ????? ????? ?? ??????
  ????? ??? ????? ????? ?????? ???????? ???
  ???????? ?????? ??? ?????? ?? ????? ??????
  ????????? ??? ??? ????? ?????? ????????? ??? ??
  ??? ?????? ??? ?????? ??? ????? ????? ?????
  ??????? ???? ??? ????? ???? ??. ??? ??? ????
  ?????? ??? ????? ????? ??????? ??? ??? ???? ??
  ???? ???? ????? ????? ?? ????? ?????? ?? ????????
  ?????? ???? ?????? ??? ????? ????? ????????
  ?????? ????????? ??????? ?????????.
• ????? ??? ??????? ????? ????????? ??? ????? ?????
  ????? ?? ???????? ????? ??????? ?????? ?? ????
  ?????? ??????? ??????? ??? ???????? ???????
  ???????? ??? ??? ??? ???????? ??? ???? ????? ???
  ????? ?? ???? ????? ?? ???? ?? ??? ?????? ??
  ????? ????? ??? ????? ?????? ?? ??????? ??????
  ??????? ????? ??????? ??? ???? ??????? ????????
  ?? ???.