A report by the International Energy Agency (IEA) recommends a substantial investment in Iraq’s power sector (including a 70 per cent increase in power generation capacity) in order to help bring about an oil boom that can transform the country’s economy as well as “make a major contribution to the stability and security of global energy.”
Iraq could become the world's second-largest oil exporter within two decades and double its output by 2020, according to the major new study, but much will hinge on projected investment into the country’s power sector being met.
The sector requires investment of more than $6bn per year on average until 2035, and half that needed before 2020, with gas power to have a central role.
“Most of the investment is required in new generation capacity, with just under 40 per cent needed to improve the transmission and distribution network, with efficiency gains to save the equivalent of the annual input of six CCGT power plants,” states the report.
It also outlines how revenues gained from an expected oil boom can be used to diversify the country’s economy, and specifically to take advantage of Iraq’s substantial, yet so far under-utilised gas reserves.
At a press conference launching the report in London, Fatih Birol, the IEA’s chief economist (pictured) said, “This oil production growth can provide a lot of money to Iraq and a chance to transform the country’s future prospects. It is expected that Iraq can earn $200bn each year in oil revenues into its economy.”
Mr Birol added that due to decades of war damage and lack of maintenance power cuts are frequent and typically Iraqis, “despite 45 degree heat”, are dependent on just ten hours a day for electricity, despite the resources all about them.
Regardless of that difficulty the report estimates that if planned new capacity is delivered on time, electricity generation will meet Iraq’s demand for power by 2015.
Once domestic needs are met, Iraq can also provide a cost-competitive source of gas supply to neighbouring countries, European markets and to Asia. Mr Birol stated that the country would provide one of the lowest cost options for natural gas (through pipeline) than other countries.
“Natural gas will be the main focus in Iraq’s future energy mix and will be the main fuel for power generation, replacing oil and freeing up valuable resources for export. Fossil fuels dominate the energy mix with hydropower and other renewables playing a small supporting role.
Gross power generation capacity will quadruple by 2020 to reach 80 GW by 2035. Gas fired power plants emerge as the lowest cost generation technology and over time Iraq moves from a predominantly oil fired power generation mix to major use of gas, both in gas turbines and more efficient combined cycle gas turbines (CCGTs).
Without this transition domestic oil demand would be around 1.2mb/d higher in 2035 and Iraq would forego around $520bn in cumulative oil export revenues.”
The report goes on to state that if the investment challenge isn’t met, production will be much slower, with negative implications for the world oil market.
“There needs to be a shared vision between private and public interests and federal and central government,” according to Maria van der Hoeven, Executive Director of the IEA.
She added that renewable power generation will have a part to play, even if relatively minor for now. “The potential is there, especially in hydropower and of course solar power. Because of the high cost of solar compared to other technologies and the weak commitment to its use we don’t include a major increase in our projections.
However there may well be a number of grid applications for renewables in more rural areas and we think future policy decisions, as GDP increases.”
Securing investment in Iraq’s power sector isn’t the only challenge.
Progress has been hampered by failure to pass a hydrocarbons law that would regulate the industry. The main sticking point has been disagreements between Baghdad and the Kurdish autonomous region in the north over oil rights.
The report warns that political consensus on both oil governance and the legal framework is vital in creating the conditions for Iraq to maximize its oil revenues.
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