Iraq's latest bid to revive its battered energy sector and rebuild after years of war drew little interest, with a gas field auction Wednesday attracting mainly smaller oil firms. It proved again that when it comes to balancing the country's security risk with reward, only oil can lure the Western oil giants.
Heading into the country's third energy auction since Saddam Hussein's 2003 ouster, Oil Minister Hussain al-Shahristani appeared focused more on persuading those present to participate than taking on the role of a man confident he had what others wanted.
Al-Shahristani, who had beamed about the expected boom in oil production after two markedly more successful oil licensing rounds last year, told the companies that the current auction was "very important" for Iraq. He promised they had the full support of the government in developing the fields.
Few appeared reassured, with only five of the 13 companies that paid the participation fee actually submitting bids. In all, 45 companies had been pre-qualified.
"From an Iraqi point of view, it's a disappointment," said Samuel Ciszuk, Mideast energy analyst with IHS Global Insight in London. "They had been hoping for much more experienced companies — both internationally experienced and technically experienced — to take on those fields."
The only major Western company to make an offer, France's Total SA, submitted a failed bid asking for compensation more than three times higher than that sought by the field's eventual winner.
In the end, South Korea's Korea Gas Corp., Kuwait Energy, the Turkish Petroleum International Co. and Kazakhstan's KazMunaiGas EP JSC emerged the overall winners, securing access to what amounts to 10 percent of Iraq's 112 trillion cubic feet in proven gas reserves.
"If one looks at the gas reserves in the U.S., plus the developments in the other countries in the region, the attractiveness for Iraq is really crude oil, not natural gas," said Olivier Jakob, managing director of the Switzerland-based consultancy Petromatrix. "I think you can see that through the interest that developed in the crude oil fields compared to the gas fields."
"Those are not the top tier oil and gas companies," Jakob said, referring to the winners.
Iraq certainly needed more.
Despite sitting atop the world's third largest reserves of conventional crude, Iraq suffers from a nagging shortage in electricity generation. Boosting gas production is seen as key to addressing that shortfall, kick-starting its crippled industrial sector and rebuilding.
The companies appeared unwilling to take the risk of pumping in millions of dollars into the three gas fields with little in the way of tangible assurances that Iraq would be able to step up the necessary infrastructure, or that they would find willing export partners in a world awash in natural gas.
Iraq's security woes factored into the equation.
The two biggest gas fields offered, the 5.6 trillion cubic foot Akkas in western Iraq, near the Syrian border, and the 4.5 trillion cubic foot Mansouria field in Diyala province in the east, sit in some of the most volatile regions of the country. Both fields had been offered in earlier oil auctions, but were not awarded.
A consortium led by KOGAS and with KazMunaiGas won Akkas, offering $5.50 per barrel of oil equivalent and peak production of 400 million cubic feet per day.
Their only rival was a Total-led consortium with Turkey's TPAO that wanted $19 per barrel of oil equivalent produced. The rate reflected concerns about operating in Anbar province, once the epicenter of the Sunni Muslim insurgency in Iraq and a region largely missing the oil wealth found in the country's north and south.
TPAO also teamed with Kuwait Energy and Korea Gas Corp. as sole bidders for Mansouria. They eventually accepted Iraq's counteroffer of $7 per barrel of oil equivalent produced after their bid of $10 per barrel was rejected.
The third field on offer, the 1.1 trillion cubic foot Siba field, was snatched by Kuwait Energy and TPAO, offering Kuwait it's first foothold in Iraq since Saddam invaded the emirate in 1990, sparking the first Gulf War.
KOGAS' executive vice president, Young-Sung Park, said the company had some concerns about security, but noted that given the overall security situation in Iraq, Akkas "is more secure compared with other gas fields."
But in a reflection of the challenges the company faces, hundreds demonstrated in Anbar's capital, Ramadi, complaining that the central government had failed to consult with the province's leader. They also demanded that local labor be used in the project.
"We, as the provincial council of Anbar, will not cooperate with oil ministry and not deal with them concerning this subject," Shaalan Obaid, the deputy president of the Anbar Provincial Council, told The Associated Press.
The dispute was troubling for KOGAS.
"I didn't expect that," Park, the KOGAS executive, said, referring to the protest. "Anyhow, we have to work together with the central government and provincial government to solve or prevent such kinds of incidents."
Al-Shahristani was less diplomatic, telling reporters that "we expect the provinces where these fields are located to thank the (oil) ministry for creating job opportunities and bringing in extra revenues."
"We will not allow to anyone to delay the implementation of these contracts in any way, and we will deal with them according to the damage they inflict on the Iraqi economy," he said, adding that the initial signing will be "in the coming few days." He did not say when the deals would get final approval.
Thamir al-Ghadhban, the prime minister's chief adviser on energy, said he expects all three fields, which have yet to be developed, to come online within three years.
Other challenges also kept the major companies on the sidelines, not the least of which was a lack of adequate gas transmission infrastructure and relatively little accurate sense of when one will be up and running.
"It's a question of stability. Gas deals require long term planning, ... and Iraq doesn't have a long term framework," said Ciszuk, noting that companies were also worried about the actual projected demand situation in Iraq.
"No one knows what demand would probably be if Iraq was reconstructed because it was never reconstructed properly since the Kuwait war," he said.
Associated Press writer Tarek El-Tablawy reported from Cairo. Associated Press writers Sameer N. Yacoub in Amman, Jordan and Hamid Ahmed in Baghdad contributed.