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Iran begins supplying pipeline gas to Iraq

22 Jun 2017 09:12 (+01:00 GMT)
Iran begins supplying pipeline gas to Iraq

Dubai, 22 June (Argus) — Iran has belatedly begun exports of pipeline gas to Iraq, under the first of two supply contracts signed between the Mideast Gulf neighbours in 2013 and 2015.

Speaking in Tehran late yesterday, Iran's deputy oil minister Amir Hossein Zamaninia said gas exports to the Iraqi capital Baghdad had begun that evening at a rate of 7mn m³/d, which will gradually ramp up to "a final volume" of 35mn m³/d.

Originally scheduled for mid-2014, the start-up of Iranian gas flows to Baghdad faced repeated delays largely on account of the volatile security situation in Iraq. The federal government in Baghdad deemed the Iraqi territories that the pipeline would cross too insecure.

But with government forces taking back control of much of the territory south and east of the capital in recent months, Baghdad appears to have decided the situation is now safe and stable enough for supply to begin.

Under the first contract, Iran committed to export a maximum of 35mn m³/d of pipeline gas to Iraq for a period of six years, predominantly for power generation. The original contract allowed for the possibility of an extension to 10 or 25 years, depending on Baghdad's needs.

The 2013 deal was signed to provide badly-needed feedstock to power plants in Baghdad and Diyala provinces, as an interim measure until Iraq was able to build the infrastructure it needed to process the rising associated gas production from its oil wells. Iraqi oil production has increased by more than 1mn b/d over the past three years, to 4.50mn b/d from around 3.41mn b/d in May 2014, according to latest Argus figures.

A second supply agreement was signed in late-2015 to pipe Iranian gas to the southern Iraqi city of Basrah, again for a period of six years. Under this contract, Iran committed to supply Basrah with 7mn m³/d for the first six months of the contract period, through a pipeline built from Baghdad. This will rise to around 14mn-18mn m³/d after 12 months, and plateau at a rate of 20mn-35mn m³/d.

This latest contract means Iraq has become Iran's fourth gas customer after Turkey, Armenia and Azerbaijan. Iran exported 8.4bn m³ of gas to its neighbours in 2016, according to the latest BP Statistical Review of World Energy.