Iraq is planning to develop $10bn worth of oil export pipelines in one single project as Baghdad reassesses potential routes to get its crude oil to the international market.

The Oil Ministry has redrawn plans for a complex single-phase crude oil export pipeline to Syria instead of a series of pipeline projects linking to Turkey and Syria, which it had planned since April last year, a source close to the Oil Ministry tells MEED.

The original Oil Ministry plan, revealed in April 2011, called for the construction of a 1.75 million barrel a day (b/d) pipeline from Basra in the south of Iraq to Haditha in the western Anbar governorate, about 240 kilometres northwest of Baghdad. The pipeline would then split, with one line going westward to the Syrian border and the other joining the existing northern export pipeline from Kirkuk to Ceyhan in Turkey.

The first phase would also include a parallel natural gas pipeline to supply feedstock to 17 pumping stations along the route, including three in Syria.

A number of changes have been made. The capacity of the pipeline has been increased to carry 2.25 million b/d, but more importantly the link to the Iraq-Turkey export pipeline has now been dropped. All the crude will be exported through Syria from the Mediterranean port of Tartus, despite objections from some technical personnel within the ministry.

Plans for a 1.5 million b/d heavy crude oil pipeline from Basra to North Baghdad and then to Syria, part of the original second phase, have also been shelved, as has the gas line from Basra to Kirkuk running along Iraq’s eastern provinces.

Feasibility studies and the pre-front end engineering and design (Feed) work has already been completed by Canada’s SNC Lavalin, which was awarded a project management consultancy (PMC) for the project in May 2011. The Canadian firm has also been asked to update the memorandum of understanding with the Syrian government, which has still not been signed, to include the changes to the pipeline.

The 20-year build, operate and transfer (BOT) contracts are expected to be tendered in 2012. SNC will draw up the tender documents ahead of an Oil Ministry road show, held outside Iraq in the next three to four months for interested engineering, procurement and construction (EPC) contractors who will invest in the scheme.

“This is the first time a BOT contract will be used in Iraq. It is a complicated procedure, which has only been deployed on this scale two or three times anywhere in the world. Iraq does not have experience with this kind of deal, but the Oil Ministry doesn’t have the budget for such a project”, says a source close to the Oil Ministry.

Progress has been made on the crude pipeline. “Land rights have been tendered for almost 99 per cent of the planned route. It is just at the port in Syria where it is incomplete”, says another source close to the scheme.

However, the deal looks like it will face some delays. SNC Lavalin’s contract covers the PMC of a liquefied petroleum gas (LPG) pipeline from Basra to the Turkish border, originally considered in phase-two.

“The LPG pipeline has not been approved by Oil Ministry, but is included in the SNC contract. They are complaining that they don’t have any data to do their design work”, says the source. 

The Iraq-Syria crude pipeline may also face obstacles from parliament. “Intergovernmental agreements must be ratified by parliament by law”, explains Tom Donovan, partner at the Iraq Law Alliance, based in Erbil.

The pipeline deals also present a complicated legal picture, with separate gas feedstock agreements for the pumping stations and questions over the ownership of the oil being pumped. A joint venture company, part owned by the government and including all the scheme’s investors will also have to be formed.

Iraq does not have the best history when it comes to these issues.  Iraq’s Independent Power Project (IPP) programme collapsed after a disappointing response from international bidders. The ambitious plan was scaled back to only one scheme, from the original ten power plants in mid-2011. Some firms were deterred by the lack of government guarantees and doubts over the prospects for project finance (MEED 22:12:11).

“IPP failed because the Oil Ministry wouldn’t give the Ministry of Electricity feedstock. This will have a lot more variables”, cautions Donovan.