Iraqi degassing project terminated

17 August 2015

Contractors say $558m facility has been derailed by ongoing budgetary problems

  • Project is known as the Zubair South Degassing Station
  • It forms part of a wider drive to develop Iraq’s Zubair oil field
  • Project’s cancellation forms part of an ongoing trend in Iraq

The $558m project to build the South Degassing Station as part of the development of Iraq’s Zubair oil field has been terminated, according to an industry source.

Ongoing budgetary problems in Baghdad have been blamed for the cancellation of the scheme, according to the source, who said that contractors were informed of the termination in April this year.

Iraq’s cabinet approved the engineering, procurement and construction (EPC) contract to build the South Degassing Station in April 2014, awarding it to South Korea’s Daewoo Engineering & Construction.

It is one of three Zubair degassing station deals that were approved in 2014.

The two other contracts were won by Samsung Engineering, which submitted a price of $840m for the North Degassing Station, and Hyundai Engineering & Construction, which submitted a price of $818m for the Central Degassing Station.

The Zubair field is operated by Italy’s Eni, which tendered the degassing stations as part of a drive to ramp up output at the field by drilling new wells, overhauling old wells and implementing a water injection programme.

Eni holds a stake of 32.81 per cent in the joint venture behind the field development.

Other stakeholders in the project are US oil and gas company Occidental Petroleum (Oxy), which holds a 23.44 per cent stake; South Korea’s public natural gas company Korea Gas Corporation (Kogas), which holds an 18.75 per cent stake; and the Iraqi state-owned Missan Oil Company (MOC), which owns a 25 per cent stake.

“The cancellation of the Zubair South Degassing Station is part of an ongoing trend as Iraq faces the twin problems of lower oil prices and the ongoing war with [the jihadist group] Islamic State in Iraq and Syria [Isis],” the industry source said.

In the 12 months leading to 14 August, the value of active capital projects in Iraq declined by $109.6bn, a contraction of 22.3 per cent.

In December 2014, the cabinet approved a draft budget that envisioned a deficit of ID23 trillion ($19.6bn) for 2015, as the country suffered lower government revenues  due to the drop in oil prices over 2014 and high spending due to the war with Isis.

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