Russian Majors Among Investors in Iraqi Refining

By Yekaterina Pokrovskaya, July 10, 2014

As Iraq’s demand in oil products rises, the government in Baghdad is taking efforts to enhance the country’s refining capacities by promoting incentives offered to foreign investors.

A government-conducted feasibility study has revealed a 30-percent increase in demand for petroleum products in 2015-2020, reaching the estimated refining capacity level of 940,000 barrels per day, Thamir Ghadhban, chairman of Advisory Commission to the Prime Minister’s Office, told participants of the Abu-Dhabi International Downstream Conference 2014 (ADID 2014). The study forecast a 4.8-percent average annual growth in gasoline demand in 2015-2030, whereas gas oil demand is expected to grow at 6 percent per year on average.  

Currently, the capacities of Iraq’s old refineries that had been ravaged in military conflicts and stagnating under economic sanctions, are limited to 660,000 barrels per day. 

At the show, Ghadhban unveiled a number of projects to build new refineries, talked about the challenges they pose and stressed some of the incentives provided by the Iraqi government to foreign investors: build-own-operate models of integration, tax exemptions and free zone law incentives. 

According to the official, Iraq has invited investors to participate in four new refining projects in Karbala, Nasiriyah, Amarah and Kirkuk.

In Karbala, the $6-billion refinery project that would handle 140,000 barrels per day was awarded to Hyundai Engineering and Construction in February. 

A refinery in the Kurdistan-governed northern province of Kirkuk and a plant in Amarah, the city in the southeastern region of Maysan, are both awaiting foreign investors. Each project’s capacity is 150,000 barrels per day. In Kirkuk, the North Oil Company has opposed bidding procedures due to the ongoing territorial dispute between Kurdistan and Iraq.

The Nasiriyah project involves a development of the 4-billion-barrel Nasiriyah oilfield, and a building of a 300,000-barrels-per-day refinery. The project’s estimated value is $13 billion. Foster Wheeler recently completed the Front End Engineering and Design (FEED) for the refinery.    

In March 2013, Iraq’s Petroleum Contracts and Licensing Directorate (PCLD) announced that seven international oil companies had been selected to bid for development of its Nasiriya oilfield and refinery, including Russia’s Zarubezhneft and LUKOIL. Later, in August 2013, a few more companies were added to the shortlist, including Rosneft. The refining project in Nasiriya is awaiting the auction that was postponed for a second time until June 19, Reuters reported. 

LUKOIL has been in talks with Iraqi oil authorities concerning the Nasiriya project for over a year now. On Feb. 12, LUKOIL President Vagit Alekperov sai that the next round of talks on the project with the government in Baghdad is expected this summer. In his statement, Alekperov also pointed out that the first draft of the contract on Nasiriya Integrated oilfield and refinery project offered by the Iraqis posed too many financial risks.

As Ghadhban said during his presentation at ADID 2014, the Nasiriyah project was still at the negotiation stage and the project would be awarded to an investor who could make the best offer in terms of ROI for the Iraqi government.