Debating the Iraq-Jordan Oil Pipeline

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

A confused and confusing decision by the Council of Ministers-CoM followed by an imprecise statement from the Ministry of Oil-MoO regarding Iraq-Jordan/ Basra-Aqaba Oil Pipeline-BAOP project had ignited a new wave of serious concerns and protests that eventually led to filing two lawsuits of appeal before the Federal Supreme Court-FSC and, probably, more cases are in the making, but surely the heated debate continues unabated.

To clarify what surrounds BAOP project, a debating platform, Al-Mushtarek, invited me to address the mater; by utilizing Zoom facility and with help of PowerPoint the event was successfully convened.

The topic is, Basra – Aqaba Oil Pipeline: Economic, Legal, Geopolitical, Geostrategic and National Security Perspectives.  My purpose is to make independent, professional, constructive, and facts/evidence-based contribution to the national ongoing debate regarding this pipeline.

Throughout my presentation I covered some basic issues before opining the debate by and with the direct participants who are in many different countries and others who posted questions through other social media means, particularly Twitter.

The first issue was “Reality and Implications of Semi Landlocked Geographic Location”.

The reality, Iraq is the only Arab resource rich (oil and gas) country that has very narrow access to international waters through north Arabian Gulf; due to its imbalance economic structure, it has high dependency on natural resource, specifically oil, exports revenues, and after almost a century of oil discovery the failed economic policies only deepen such imbalance, making it more chronic and the country as clear example manifesting “Dutch disease” and “Resource curse” effects, exacerbated by devastating kleptocracy of post 2003 invasion.

Geography is sovereign, and thus there are, for Iraq, many implications of relevance to our topic- oil export pipelines.

Each of the neighboring countries, i.e., Jordan, Syria, Saudi Arabia, Turkey possesses a “location rent“; this could be economical and financial (in terms of transit fee, oil supplies or operating the pipeline) and political leverage, competition and interference.

Each export outlet has, simultaneously, geopolitical risks and geostrategic importance and, thus, there are high degrees of associated vulnerability and uncertainty.

The diversity and capacities of oil export outlets through pipelines and seaborne represent an economic rationality problem, i.e., if all oil export outlets are developed, total export capacity would exceed total oil production capacity by many folds.

The above reality and implications are bound to impact Iraqi decision making and the national debate on any proposed oil pipeline.

My second talking point is to provide brief background and data on BAOP.

This project has been under official and formal considerations for four decades; it went through two distinct periods of intensive attention while shelved for almost 28 years in between.

The first period, 1983/4, was short but witnessed very intensive efforts at high level of decision making.

A pipeline of one million barrel daily, the US Bechtel Co., was selected to execute the project that could cost estimated to be one billion US Dollar, half of which would be offer by the US EXIM Bank’ financial guarantees.

Iraq requested US government security guarantees for the pipeline against any Israeli attack, but the US government refused to make such undertaking.

The project was shelved, and Iraq pursued other options; the first was to expand the capacity of Kirkuk-Ceyhan (Turkey) pipeline-ITP through a loan from APICORP of OAPEC and, the second was a new pipeline through Saudi Arabia-IPSA, financed fully by Iraq.

BAOP project was completely forgotten due to ITP expansion, IPSA, Kuwait invasion, the sanction and US led invasion of 2003 and its dramatic far reaching consequences.

The second period started in earnest in 2012 and continued to date.  Every government and prime minister stated and asserted they have concluded a “Frame Agreement” with Jordan regarding the pipeline, but no substantive verifiable complete documents comprising such frame agreement and feasibility study ever made public!!!!

From whatever available information, I premise my assessment on the following formal data:

The pipeline project is composed of two parts: Part 1, between Basra and Haditha with designed capacity of 2.2mbd, while Part 2, is between Haditha and Aqaba with designed capacity of 1mbd. The two parts have different pipeline sizes, length and there are many pumping stations and tank farms along them and a loading terminal at Aqaba.

The entire project was reportedly estimated cost at $26billion ($4billion for part1 (15.4%) and  $22billion for part 2 (84.6%)) as an “investment BOOT/BOT”, or between $8.5 – $10.9billion as “EPCF”.

Obviously, the difference is very huge indeed, but no official clarification was provided, and our repeated questions remained unanswered by any authority within the government!!

I move now to my third item which is about MoC Decision 95 of April 2022.

MoC agrees to adopt a plan to execute the pipeline by the Chinese CITIC’ consortium with Worley Engineering as supervising consultants, according to the proposed EPCF by the Ministry of Oil; the project is to be financed by the Iraq-China strategic cooperation framework and, after 2022 state budget law is promulgated.

The above decision raises more questions than offers answers, clarifications, or assurances.

Discussion within the MoO revealed that no sufficient funding is available under the Iraq-China strategic cooperation framework; no other mean of funding is secured and, 2022 state budget law has not been even proposed so far as the new government has not been formed!! Moreover, nothing at all was released regarding the EPCF proposed by the ministry- utter lack of transparency. Also, it is not clear whether the proposed EPCF is the same or different from that proposed by the MoO in October 2021 and sent then to the Ministry of Planning-MoP for inclusion under the investment provisions of the state budget. And, what makes the matter murkier is a follow-up statement by the MoO asserting MoC decision was only a “roadmap” as the project is still under study and consideration!!

No surprise, therefore, that the pipeline project and MoC decision ignited powerful reactions, mostly by Iraqi parliamentarians and oil professionals.

These reactions include “parliamentary questions” that require formal answer from the MoO, various public statements by parliamentarians and other legal actions. Two legal cases were field before the FHC by the outspoken parliamentarian Dr. Hanan Fatlawi: a “stay/ restraining order” (Amr walaei) and an appeal case, both dated 16 April 2022. Also, a former member of the parliament, Lawyer, Yosuf Al-Kolabi and a group of lawyers and parliamentarians have been considering launching another appeal before FHC.

For the economic evaluation of the project, I used and calculated three criteria as presented briefly hereunder.

  • Cost of funding (based on EPCF contract according to MoO October 2021 and MoP December 2021 official data) of capital cost ca. $9 billion, funding cost-accumulated interest ca. 1.9billion. Total cost payable in six equal annual installments.

Funding cost, i.e., accumulated interest, ranges between 21% and 109% of capital provided by the contractor, depending on when these six installments start: after the completion of the pipeline or at the commencement of the construction of the pipeline.

These funding costs are unreasonably high and, if the project is to be financed by the Iraq-China strategic cooperation framework, such cost of funding is totally unacceptable and contravene with the provisions of that framework.

  • Cost of “piped-barrel”. This cost was estimated by using full-cycle method; 25 years economic life; $300 million operating cost, $0.25/b transit fee; 4 years construction period with capex distributed evenly; pipeline capacity utilization rate-PCUR ranges from minimum 20% and maximum 80% of designed capacity.

The cost ranges between ca. $10.4/b at 20% PCUR and ca. $2.7/b at 80% PCUR. The implications are if seaborne barrel cost Basra FOB- Aqaba is lower than $10.4/b, it is not rational then for Jordan to import 200kbd through this pipeline AND if it is lower than $2.7/b the pipeline then has ZERO feasibility; it loses any competitiveness!!!

  • Limitation and deception of conventional commercial feasibility indicators such as NPV, IRR and Payback-period; this is due to the intrinsic biasness to oil price and its impact. This was proved analytically and empirically in my previous articles on the pipeline and how such arguments prompt corruption, favoring contractor interest and ignore efficiency considerations.

In addition to the above standalone assessment, this project should be subject to thorough comparative assessment; such comparative evaluation covers exports options comprising existing, possible, and potential alternatives.

This takes me to address very briefly these comparative options for export outlets.

  • Southern route/Basra export outlets. Now KAOT is expanding to add 600kbd and 300kbd within 6 months and, adding one more SPM would add 900kbd; both options are cheaper, quicker, fully sovereign, have more oil marketing flexibility and generate higher “Netback” for Iraq. Hence, either option is more valuable compared to the BAOP from capacity & operation, economic, financial, national economic security, strategic importance, and geopolitical complications among others.
  • The Turkish route provides three options. I- Rehabilitation of pipeline section Kirkuk- Feishkhabor measurement station on Iraq-Turkey borders; II- Use/buy current KRG (KAR/Rosneft) pipeline; III- revive Turkish 2011 proposal for a new Basra-Ceyhan pipeline at, then, $2billion cost for 1.6mbd and 18-24 months construction period. Either option I & II is better than “Part 2” of BAOP, and option III is highly favorable than entire BAOP.
  • The Syrian route. This route has many unique advantages: two pipelines- more than 2mbd; two types of crude- regular and heavy oil; two export facilities- Banias and Tertus on the Mediterranean; pipeline to Lebanon; it goes along Railway line Iraq-Syria; mutually supportive to IIS gas pipeline; it benefits from China’s BRI. But this route currently faces formidable geopolitical risks: American policy and military, Qasad, Daesh presence. Also faces opposition from Turkey, SA and Jordan.
  • Rehabilitating IPSA; the pipeline costed Capex $2.7billion, Opex $72 annualy, pipeline capacity 1.65mbd (1990). Using same BAOP methodology IPSA had piped-cost of $1.49/b at 20% PCUR and $0.37/b at 80% PCUR (these should be escalated by annual index increase). IPSA rehabilitation remains viable option with competitive/ comparative advantage (from cost, marketing flexibility and geopolitical complexity) over BAOP if it requires partial rehabilitation. But for complete rehabilitation, this route has one disadvantage since most of it is in Saudi Arabia compared with other routes; but this depends on cost of full rehabilitation.

Pro BAOP arguments emphasis the strategic importance of the project; but Aqaba location refutes such claim. Analytically and empirically three strategic national security equations should not be ignored:

  • Where there are four states that have direct presence in the area, the geopolitical risks are highly probable and thus the geostrategic importance, for Iraq, diminishes; this applies to Aqaba.
  • When a location has Global Strategic Importance, the local geopolitical risks are less probable and less impactful and, thus, geostrategic importance for Iraqi oil exports are secured; this applies to Basra seaboard export outlets via Strait of Hormuz.
  • BAOP-P2 route is highly susceptible to local terrorist and sabotage inside Iraq and Jordan, thus very vulnerable from national security and strategic perspectives.

What to do and the way forward

Recent government move contravenes the constitution on many aspects and thus, any legal action against government action should be supported. The government and MoO in particular, should provide and make the FEED and/or a comprehensive feasibility study publicly available.

BAOP’ Frame Agreement is an international bilateral treaty with over 25 years term and, thus it should be debated, approved, and legalized according to the current constitution and valid laws.

Aqaba area is the most vulnerable geopolitically as four states can have very serious impacts: Egypt, Saudi Arabia, Jordan and Israel. Iraqi Ministry of Foreign Affairs should provide its assessment particularly regarding Wadi Araba Agreement between Jordan & Israel and advise on possible implications on this project.

Based on the published data and information, the economic, financial, geopolitical and geostrategic analysis do not support this project and particularly so through thorough comparative assessment. More data and transparency are urgently needed and thus are prerequisite for making final decision on expanding Iraq’s oil export outlets.

The debate on this BAOP with my PowerPoint slides, in Arabic, is available through the following link  https://www.youtube.com/watch?v=apg0JY51rQ4

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

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Iraq debates New Oil Pipeline to Jordan

From Amwaj Media. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

PM Kadhimi under fire as Iraq debates new oil pipeline to Jordan

Since taking office in May 2020, Iraqi Prime Minister Mustafa Al-Kadhimi has placed the activation of an oil pipeline to Jordan at the top of his agenda.

The idea is to transfer crude from the southern city of Basra to the Jordanian Red Sea port of Aqaba, reaching international markets via the Suez Canal.

However, plans for the pipeline have drawn heavy criticism from Iraqi political factions close to Tehran-despite the new opportunities it would create for Iran.

The full report can be viewed here (registration required).

The post Iraq debates New Oil Pipeline to Jordan first appeared on Iraq Business News.

Iraq-Jordan Pipeline Decision Delayed Again

By John Lee.

Iraq’s oil ministry has said that future of the long-delayed oil export pipeline from Iraq to the Jordanian port of Aqaba will be decided by the next government.

The country has still not formed a new government following parliamentary elections in October.

At a press conference at the weekend, the Ministry of Oil clarified that the project, which it says will not exceed $8.5 billion, is still “under technical study“, and has not yet been put out to contract.

It also revealed that the Council of Ministers agreed to change the contract basis from BOOT (build-own-operate-transfer) to EPCF (engineering, procurement, construction and financing), which is sometimes referred to as “turnkey“, for the entire project; it had previously been split between the two methodologies.

The total capacity of the pipeline from Basra to Haditha is planned to be 2 million barrels per day (bpd), with one million bpd planned for the section from Haditha and Aqaba.

The American company Honeywell UOP was recently approved to develop Haditha refinery.

See also.

(Source: Ministry of Oil)

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Iraq-Jordan Oil Pipeline: Financially Costly, Contractually Complex

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Iraq-Jordan Oil Pipeline — Financially Costly, Contractually Complex

Since 1983 the Basra-Aqaba, or Iraq-Jordan, oil pipeline (IJOP) has been on and off the screen of the bilateral relation between the two countries.

And from 2011 to date, every Iraqi government had “approved a frame-agreement” relating to the same pipeline, but none of these agreements was published and, thus, nothing known about the terms of these, so claimed, approved agreements!

Scope of the pipeline, route, length, funding, execution, duration and cost have been on a changing course since 2011, but the most dramatic change is the staggering cost, which reportedly, increased from $3 billion to $26 billion between 2016 and 2022!

No surprise, therefore, that this pipeline has been viewed diametrically differently and with absence of full transparency, on the part of the Ministry of Oil (MoO) and its affiliate SCOP, the feasibility of this project remains a pure intelligent guessing.

This article addresses first the different views and what prompted them by recent development and information on the pipeline, then in part two calculates the barrel-cost corresponding to actual pipeline utilization.

Part three examines the re-export options in the comparative, and part four provides cautionary notes on the limitation of cash flow analysis for such a project.

Moving from the quantitative mode to real life environment, part five debates strategic considerations, geopolitical vulnerability and security risks and that is complemented, in part six, by highlighting and identifying the needed contractual and legal modalities; then the article ends with concluding remarks.

Click here to download the full report in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

The post Iraq-Jordan Oil Pipeline: Financially Costly, Contractually Complex first appeared on Iraq Business News.

Iraq, Jordan and Egypt agree Energy Projects

By John Lee.

Egypt’s President Abdel Fattah al-Sisi and Jordan’s King Abdullah arrived in Baghdad on Sunday for a fresh round of talks aimed at strengthening cooperation between the countries.

It is the first visit by an Egyptian head of state to Iraq since Iraq’s invasion of Kuwait in 1990.

The leaders agreed on the importance of the electrical interconnector project between the three countries, and linking the gas transmission networks between Iraq and Egypt through Jordan.

They also pushed for the completion of the Basra-Aqaba crude oil pipeline, which will provide a new outlet for the export of Iraqi oil through Jordan.

(Source: Govt of Iraq)

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Basra-Aqaba Pipeline may be extended into Egypt

By John Lee.

Iraqi and Egyptian officials have discussed the possibility of extending the Basra-Aqaba pipeline to Egypt.

The matter was discussed at a meeting on Wednesday between Iraq’s Oil Minister Ihssan Abdul-Jabbar Ismail the Egyptian Ambassador to Iraq.

A press release after the meeting said that extending the pipeline into Egypt would be “an important addition and a new outlet for Iraqi oil exports to North Africa”.

(Source: Ministry of Oil)

The post Basra-Aqaba Pipeline may be extended into Egypt first appeared on Iraq Business News.

Iraq to Export 1m bpd Oil through Jordan

Iraq announced on Thursday the completion of the “technical preparations” to extend a pipeline to export one million barrels of oil per day through Jordan, Petra has reported.

“The export capacity of the Basra-Aqaba pipeline, which runs through Jordan, is expected to reach one million barrels per day (bpd),” Iraqi oil minister, Thamir Al-Ghadhban, said in a statement.

Al-Ghadhban explained that Iraq had completed the planning arrangements of the pipeline’s construction work. “The arrangements included its [the pipeline’s] track, components, absorptive capacity, the mechanisms of linking it to the northern Kirkuk oil fields, funding sources, and implementation and operational means,” he said.

The Iraqi official stressed that his country was only depending on the southern portal city of Basra for oil exports, noting that the ministry has prepared “a major plan for its rehabilitation and development with the aim to increase its export capacity levels.”

The government, Al-Ghadhban pointed out, plans to establish three linked crude oil exporting ports.

Baghdad and Amman recently concluded six bilateral agreements to develop their relations, most notably in the oil and energy sectors. The two governments said the agreements aimed at “revitalising” their economies and strengthening ties between Iraq and Jordan.

(Source: Middle East Monitor)

Iraq could transport 1m bpd via Aqaba

By John Lee.

Iraq could transport up to a million barrels of oil per day through the Jordanian port of Aqaba (pictured), according to a report from The National.

Ali Nazar Faeq Al Shatari, deputy director general for the State Oil Marketing Organization (SOMO) told The National:

“That project is still in place and we’re going to go ahead with it. We need another outlet for our crude oil,”

There has been little detail on the scheme’s timeline for completion or the scope of the project.

More here.

(Source: The National)

“Iraq’s Energy Future Lies to the North”

By John Lee.

A new report from the Washington Institute for Near East Policy says that Iraqi hydrocarbons “will either be exploited by Iran and its allies or used for Iraq’s own benefit, transforming the country into an energy export hub between the Gulf states, Turkey, and Europe. The United States has a strong strategic interest in promoting the latter outcome.

Authors James F. Jeffrey, a former US ambassador to Iraq and Turkey, and Michael Knights, who has worked extensively on energy projects inside Iraq, suggest that the US should put its weight behind a north-south energy corridor in which Iraq serves as an energy hub between ever-friendlier Gulf states and Turkey, ultimately forming an export bridge to Europe.

They add that Washington should also support the Basra-Haditha-Aqaba pipeline project to bring Iraqi oil and gas to Jordan.

The full paper can be read here.

(Source: The Washington Institute for Near East Policy)