Baghdad gas field auction

19 October 2010

Baghdad manages to auction off gas fields in 2010, eclipsing the lack of bidder interest the previous year. Legal framework must improve to build upon this minor success and attract international oil companies

After failing to attract satisfactory bids in June 2009, Iraq’s Oil Ministry has succeeded in auctioning off three gas fields across the country. Developing the fields is an essential part of producing the gas necessary to fuel Iraq’s power needs. That has not been enough to sway bidders for the fields.

Compared with 2009’s oil field licences, the gas auction has failed to attract the biggest names in the energy sector. Few majors registered for the bidding ceremony in Baghdad and even fewer decided to bid. Only France’s Total made an attempt, but lost out in the end.

It is not through a lack of trying. Baghdad made several moves to attract interest, removing signature fees and committing to pay developers for all the gas produced removed what had been seen as the major obstacle to investment. The Oil Ministry even offered up 50 per cent of the gas produced for export as an incentive.

That was not enough to convince the oil majors, though. They still worried that the lack of export infrastructure, as well as the slow development of domestic gas consumers, could leave them left with gas they would not be able to sell.

Iraq remains a risky investment. There is still no government in place with the executive authority to take strategic decisions and push them through.

At one field at least, the auction has led to further frustrations between the federal and regional governments. The Anbar provincial authority believes that the current investment plan orchestrated by the Oil Ministry will not dance well with its local vision based on domestic focused investment. Tensions could easily rise further in this restive region in the western desert.

Iraq is desperate to rebuild its hydrocarbons industry with the help of international oil companies, but without the necessary legal framework and vision beyond national slogans, it will be tough to deliver on.

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