Iran's Gas May Free Up Iraqi Oil

Iran will begin exporting gas to the southern Iraqi city of Basra within six months, according to the National Iranian Gas Company, under a gas supply contract signed between Tehran and Baghdad in 2015.

If deliveries under this contract and under a supply deal for Baghdad that became operational last month reach their maximum volumes—a total of 70 million cubic meters per day—Iranian gas could more than replace Iraq's current crude burn for power generation and consumption of fuel oil, Argus Media reported on Friday. The crude consumption is around 170,000 barrels per day and fuel oil consumption at some 190,000 bpd.

"A six-year contract to export natural gas to Basra was signed … to send up to 35 mcm/d of gas to the region," NIGC's director for international affairs, Behzad Babazadeh, said.

Under the terms of this contract, Babazadeh said volumes supplied by Iran will vary between 20 mcm/d in the colder months and around 35 mcm/d in the warmer months when power demand for air-conditioning rises.

"Because we do not want to encounter any particular problems during the implementation of the contract, we will tighten all the nuts and bolts from now," Babazadeh said. "We expect to begin gas exports to Basra within six months."

Babazadeh's comments come just days after Iran belatedly began supplying gas to the Iraqi capital Baghdad.

Iran's Deputy Oil Minister Amirhossein Zamaninia said gas exports to Baghdad began on 21 June at a rate of 7 mcm/d, which would gradually ramp up to "a final volume" of 35 mcm/d.

The 2013 six-year agreement to send Iranian gas to Baghdad was originally scheduled for a mid-2014 launch, but faced repeated delays over the volatile security situation in Iraq.

Babazadeh said gas export to Baghdad was "progressing well" and expected volumes to rise to 16-18 mcm/d in the second year of supply. The Iranian gas being sent to Baghdad will be paid for by Iraq on a monthly basis by letter of credit to NIGC.

Iraq has now become Iran's second largest gas customer behind Turkey, which imported about 21 mcm/d in 2016, according to the latest BP Statistical Review of World Energy.