Iraq’s Oil Ministry has awarded Canada’s SNC Lavalin an engineering consultancy contract to oversee the first phase of the country’s $50bn planned oil and gas pipeline overhaul.

The contract is due to be signed on 10 May, according to a source close to the Oil Ministry. The value of the contract was not disclosed and SNC Lavalin would not comment on the award.

In April, sources close to Baghdad outlined to MEED a three phase plan for the development of Iraq’s oil and gas transport network, which has suffered years of neglect (MEED 22:4:11).

The build, operate and transfer (BOT) contracts will be tendered in 2012 and funded from Iraq’s oil revenues. Longer term plans for pipeline revamp are currently yet to be determined and the timeline for the projects will depend on the success of the first phase and the political situation in the region.

Phase one will include 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 will then split, with one line going westwards to the Syrian border and the other joining the northern export pipeline from Kirkuk to Ceyhan in Turkey.

It will also include a natural gas pipeline to supply the pumping stations and a storage terminal and tanks in Basra, Haditha and Baiji, 200km from Baghdad.

Recent media reports have speculated that Iraq plans to slash its oil output capacity target by almost half from 12 million b/d to less than 7 million b/d. However, deputy prime minister for energy, Hussain al-Shahristani, has denied the reports saying Iraq has no intention to lower the targets or renegotiate its contracts with international oil companies.

Iraq faces an enormous task of financing and managing the repair and expansion of its pipeline, storage and export terminal network, even if it does cut production targets. It remains unclear how Iraq will finance the expansion at a time when oil companies will begin recovering costs for their massive upstream investments.