Despite ongoing political instability and security concerns, Iraq’s oil and gas sector is attracting the attention of international investors, with billions of dollars-worth of engineering, procurement and construction contracts expected to be awarded in the coming years.

Companies such as Russia’s Lukoil, the UK/Dutch Shell Group, China National Petroleum Corporation and Italy’s Eni are pouring investment into oil field development as well as petrochemicals projects.

Iraq’s oil exports rose to a record 2.8 million barrels a day on average in February. The government is also planning to invest at least $50bn in refinery schemes to reduce its dependence on importing refined products.

Dilapidated ports

However, the progress of the oil industry has been hampered by Iraq’s inadequate port and storage infrastructure. War and lack of investment have left ports dilapidated and in need of modernisation. The wreckages of sunken vessels have proved problematic, blocking shipping lanes to ports. This slows down the import of fuel, refined products and construction materials needed to develop the country’s hydrocarbons infrastructure. 

Although some ports such as Umm Qasr in southern Iraq have undergone extensive improvements in the past few years, other projects such as the planned $6bn Grand Faw port close to Basra have made limited progress.

“Ports need to be designed and operated to a high level of efficiency; Iraq needs every port to be fully functional,” Fatima Faisal, director of sales and marketing at Iraq’s Nawah Port Management, told delegates at MEED’s Iraq Energy Projects conference held in Dubai in February. 

Ports need to be operated to a high level of efficiency; Iraq needs every port to be fully functional

Fatima Faisal, Nawah Port Management

New and improved facilities at Umm Qasr are already in use. The project terminal opened in 2010 and is operated by the UAE-based port operator Gulftainer. The port has a capacity of 250,000 twenty-foot equivalent units and has facilities to support break-bulk, project cargo and associated facilities.

Gulftainer also built and operates the container terminal, which was commissioned in 2012. The firm is developing the logistics centre at the port, an area that covers 750,000 square metres and provides services such as warehousing facilities and customs clearance.

Further up the Gulf, Iraq is planning to build the Grand Faw port, capable of handling 100 million tonnes a year of cargo. This highly ambitious project is close to the Basra oil and gas fields, and will provide much-needed storage facilities.

The $6bn facility will also help Iraq’s long-term aspirations to become a major trans-shipment and logistics hub in the Gulf. There are plans to build a railway link connecting Iraq to Kuwait, Jordan, Syria and existing lines in Turkey. This route would offer a potentially quicker alternative to transporting cargo by sea through the Suez Canal, cutting transportation times from 20 days to just three or four days.

Yet, given the high level of regional instability, the railway network remains an aspiration rather than a reality. Progress on the actual port remains slow, with little construction work started. Plans for the port were initially discussed in 2005 but political infighting led to the scheme stalling.

Pace started to gather in 2010, with a consortium led by Italy’s Impregilo winning the contract to design the facility. Towards the end of 2012, Geneva-registered Archirodon Construction won the $264m design-and-build contract for the first breakwater. South Korea’s Daewoo Engineering & Construction was awarded the $690m construction deal for the western breakwater in December 2013, and the marine works contract is now open for prequalification, according to sources at the ports authority.

The Iraqi government has taken some steps to speed up the project. In mid-2013, it announced it would allow foreign companies involved in the port to be exempt from taxes and duties given that it is a “developmental project” supporting the country’s reconstruction.

New terminal

Work on Iraq’s other port, Khor al-Zubair, has made some progress over the past year. In the first half of 2013, the UK’s BP signed a deal to build a new terminal to support the import of refined oil products and the export of goods.

Earlier this year, the rehabilitation project won funding from the Japan International Cooperation Agency, which signed a $380m loan agreement with Iraq’s Finance Ministry in mid-February. The rehabilitation work includes shipwreck removal, civil works and dredging.

Japan has a track record of supporting Iraq’s port projects, having provided financing to support the Umm Qasr port rehabilitation in 2008. Following talks between Baghdad and Japanese authorities in Basra at the end of February, further Japanese support is expected.

Deals such as BP’s investment and Japanese funding are signs that external investors realise modernised ports are essential to ensuring their companies and Iraq can both benefit from the rich opportunities offered by the country’s oil and gas sectors. The government will also need to keep port infrastructure investment high on its priority list.

Key fact

Iraq is planning to build the Grand Faw port, capable of handling 100 million tonnes a year of cargo

Source: MEED