Baghdad seeks foreign interest in oil transport infrastructure

23 April 2012

Iraq needs a compelling case to attract private sector investors to overhaul its oil transport infrastructure network this year

It looks like it will be another busy few months for Iraq’s Oil Ministry. After setting out the terms of investment for its planned new refineries in mid-April, Baghdad now plans to gather potential investors at a roadshow in May to propose a series of new oil export pipelines. The country’s fourth oil and gas licensing round, focusing on exploration, is also set to kick off at the end of May.

The timing of the pipeline expansion could suffer given the current political upheaval in Syria

Early estimates of the scale of investment needed to overhaul and expand Iraq’s oil transport infrastructure come in at more than $100bn. For now, the government is seeking investors for the first phase, worth some $12bn, which will involve crude oil from the south of Iraq exported to the Mediterranean through Syria. The new 2.25 million barrel a day (b/d) pipeline to Syria, which is due for completion in 2016, as well as the rehabilitation of Iraq’s northern export line to Turkey will take some of the burden off the south and provide Iraq with the flexibility to move its crude to suit market conditions.

The idea of Syria as a regional energy transport hub is nothing new. After all, the Arab Gas Pipeline already passes through Syria from Egypt to the Lebanese port of Tripoli. The old pipeline from Kirkuk in northern Iraq to the port of Banias in Syria was built in the 1950s, but has been offline since the US invasion of Iraq in 2003.

But the timing of the pipeline expansion could suffer given the current political upheaval in Syria. Few foreign contractors or investors will be willing to get involved in the project on the Syrian side of the border as long as Bashar al-Assad clings to power.

While the pipeline scheme is highly risky, it seems tailor-made for state-owned contractors backed by sovereign wealth funds or export credit agencies, who may be willing to negotiate an agreement for infrastructure in exchange for energy security.

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