Conversely, Iraq and Lebanon have very low ratings. Energy investment in the … Contact online >>
Conversely, Iraq and Lebanon have very low ratings. Energy investment in the
ByNimit Shah, Regional Vice President, Middle East & Africa at KBR
In 2024, Iraq stands poised to rebuild and revitalize its energy infrastructure, balancing the crucial role of hydrocarbons with reducing emissions and flaring while improving food and energy security. By ensuring that every decision made serves to uplift and empower the Iraqi people, the country is charting a path towards a sustainable and prosperous future.
Progressing the energy transition
Restoration of oil and gas assets has played a huge role in the economic recovery of Iraq and represents over 90% of its GDP. It has also helped to ensure the operation of critical infrastructure such as schools and hospitals, but the Iraqi government recognizes the need to decarbonize and has targeted dramatic reductions in emissions levels by 2030. The elimination of gas flaring is central to these ambitions. This includes a Rumaila Field project, where targets have been set to bring carbon emissions from gas flaring to below 100 mmsfcd by 2025.
Instead of flaring, this gas is gathered and processed to be sold, or injected into oil reservoirs to raise pressure for extraction.
The country is also making strong headway in renewables. Last year the EU and Iraq signed a joint declaration which will see the two parties "deepen and intensify cooperation" on sustainable development. Iraq intends to generate 25% of its energy from green sources by 2030, and in 2022 made $750m in low interest loans available to fund solar initiatives. An increase in renewable power will drive growth in green hydrogen and ammonia production.
The economic benefits of these projects are substantial, helping Iraq diversify its economy by making use of its abundant renewable resources.
Empowering local talent and driving progress
Drawing on external subject matter expertise to provide sustainable skills growth for local people is another key tenet of Iraq''s long-term strategy. At KBR we have been working in Iraq since the 1970s, developing a local workforce, skilled in areas such as emissions reductions, gas monetization and green ammonia production. KBR''s team in Iraq is composed of 50% Iraqi nationals. At the Majnoon Oil Field project for example, supporting the local workforce is a key priority. We awarded contracts to local construction companies and prioritized appointing Iraqi nationals to senior management and engineering positions.
Striking the right balance
Iraq is fortunate to have natural resources, but the historical dominance of oil and gas creates a challenge. Eliminating gas flaring and reducing methane emissions is a welcome first step. Meanwhile, the pioneering work in green hydrogen and ammonia production, holds real promise in minimizing carbon emissions and reducing Iraq''s reliance on hydrocarbons.
Collaboration with experienced international companies like KBR will be key to achieving this. But crucially, this must nurture local talent and help to grow Iraq''s own skills base, building a truly sustainable future for the country.
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The Middle East is home to five of the world''s top oil producers: Saudi Arabia, Iraq, the United Arab Emirates (UAE), Iran, and Kuwait. Moreover, it plays a significant role as a producer of natural gas, with three of the world''s top ten producers being Iran, Qatar, and the UAE. For the moment, spending on fossil fuel supply predominates: for every 1 USD invested in fossil fuels, only 20 cents are allocated to clean energy investment, which represents approximately one-tenth of the average global ratio of clean energy to fossil fuel investment.
There are wide disparities in per capita income and energy consumption levels across the region. For example, countries like Saudi Arabia, the UAE and Kuwait are situated at the higher end of income and energy consumption, while Yemen and Syria are positioned at the lower end. Sovereign credit ratings also vary significantly. Saudi Arabia, Kuwait, Qatar, and the UAE hold high ratings, while Jordan, Oman, and Bahrain fall into the medium-grade category. Conversely, Iraq and Lebanon have very low ratings.
Energy investment in the Middle East is expected to reach approximately USD175billion in 2024, with clean energy accounting for around 15% of the total investment. In the APS by 2030, clean energy investment more than triples compared with 2024. As a result, by the end of the decade, every 1 USD invested in fossil fuels in this scenario would be matched by 70 cents going to clean energy.
Five of the twelve countries in the region have set net zero emission targets. The UAE and Oman have set targets to achieve net zero emissions by 2050, while Saudi Arabia, Bahrain, and Kuwait have announced a target for 2060. Additionally, the UAE has committed to reducing emissions by 19% by 2030 from 2019 levels, and it also pledged USD30billion in catalytic capital to launch a climate-focused investment initiative at COP28.
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On April 24, 2023, the Atlantic Council’s Iraq Initiative convened a hybrid panel discussion to examine Iraq’s current economic and energy landscape, and their future trajectory. The panel discussed Iraq’s significant progress in rebuilding its economy and energy sectors that have suffered since the 2003 US invasion of the country, despite facing various challenges such as corruption, political instability, and conflict.
The event included introductory remarks from the Director of the Iraq Initiative at the Atlantic Council, Dr. Abbas Kadhim, and was moderated by the Senior Director, and Richard L. Morningstar Chair of the Global Energy Security Center at the Atlantic Council, Landon Derentz. The event featured the Chief Executive Officer of Crescent Petroleum, Majid Jafar; the Co-Founder and President of the Iraq Foundation, Ambassador Rend al-Rahim; and Atlantic Council Nonresident Senior Fellow, Ahmed Tabaqchali.
Addressing economic and structural obstacles to foreign investment in Iraq’s energy sector
Kicking off the conversation, Derentz addressed Iraq’s dire economic situation, highlighting the recent devaluation of the dinar and inadequate foreign direct investment (FDI) inflow in the country, particularly from the US and European countries. He also emphasized that despite being the second-largest oil producer in OPEC, Iraq still faces energy security challenges, and the government has been forced to import electricity from neighboring countries such as Iran, Kuwait, and Saudi Arabia. This is noteworthy as oil revenues comprise a considerable proportion of Iraq’s government revenues, GDP, and exports.
Collaboration for energy security: overcoming geopolitical challenges in gas production in Iraq
When asked about the main geopolitical challenges in gas production, Tabaqchali, referred to the political relationship between Baghdad and Erbil and argued that Iraq should focus on fulfilling its own needs by integrating its economy with the KRG. In terms of Iraq’s growing demand for electricity, he also mentioned that Iran cannot meet Iraq’s demand due to their own power generation needs and lack of investment. Therefore, the KRG and the Iraqi Federal Government should collaborate to resolve these issues and work with their neighbors.
To do so, Tabaqchali stated that Baghdad and Erbil first must reach a consensus on how they interpret the Constitution, whether they view Iraq as a strong centralized state or a federation with everyone contributing to it. Then, a win-win formula needs to be reached in agreements between Iraq and oil companies to benefit from their resources and technology.
Jafar echoed Tabaqchali’s viewpoint that the main problem affecting Iraq’s electricity generation is the shortage of fuel. He elaborated that Iraq needs to enhance its gas and oil production to meet its actual demand of 4 billion cubic feet per day, which could easily double to 8 billion cubic feet per day by the end of the decade. Jafar predicted that there may still be a 2 billion cubic feet deficit per day, which could require imports unless exploration efforts are increased in Iraq. The goal should be providing 24-hour electricity for Iraqi citizens, which is critical for stability and economic development. Once the power needs are fulfilled, the priority is to use gas for industrial development and job creation, with any surpluses being exported.
Maximizing value for Iraq: balancing contract types and resource nationalism in the energy sector
When asked about contract types and their impact on Iraq’s energy sector, Jafar clarified the difference between product-sharing and service contracts. He also explained that it is a misconception that production-sharing agreements or investment contracts are more profitable for investors. Unlike some of its regional neighbors, such as Iran and Kuwait, Iraq’s Constitution allows private investment in the oil sector if the investment model aligns the interests of investors with those of the host government.
Al-Rahim also highlighted three factors that have impacted Iraq’s oil contracting: a socialist mindset of preventing foreigners from controlling the sector, a lack of technical expertise, and a sense of arrogance that has affected Iraqi decision-making.
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