Basrah Gas gets $360m IFC loan to expand one of the world's largest flaring reduction projects

The World Bank's International Finance Corporation is providing more than $300 million in funding to Basrah Gas Company that will expand one of the largest gas-flaring reduction projects globally and help Iraq to realise its ambitious plans to meet growing energy demand in the country.

"We have secured a loan of $360m through the IFC and eight international banks as a consortium. That is a sizeable amount of money and will help the stability of our financial investments," Malcolm Mayes, managing director of Basrah Gas Company, told The National.

The IFC loan will contribute to the company’s main growth project, the Basrah Natural Gas Liquids extraction plant.

The expansion will contribute to increasing BGC’s capacity to process an additional 400 million standard cubic feet of gas a day from nearby producers.

That is an increase of 40 per cent of BGC's current capacity and will help the country meet its growing energy needs and power an additional one million Iraqi homes. The BNGL project will help reduce greenhouse gas emissions by about 10 million tonnes per annum.

Iraq, Opec's second-largest oil producer, plans to eliminate gas flaring by 2022. The World Bank estimates about 16 billion cubic metres of gas from Iraqi fields were flared in 2015, costing the economy billions in lost revenue.

A 2018 study by Siemens found that Iraq could save about $5.2 billion over the next four years by reducing gas flared from its fields in addition to other power generation efficiency efforts.

The country is forced to import gas from neighbouring Iran to plug gas shortages for power.

The Basrah Gas Company is a 25-year joint venture between Iraq’s South Gas Company, Shell and Mitsubishi.

It was established in 2013 to process associated gas produced from three huge oilfields in the south of Iraq, that otherwise would be flared off. This gas then supplies power to the domestic market as well as to manufacture products for export.

The coronavirus-induced slump in the price of oil last year, to which gas prices are linked, sharply reduced Iraq's revenue base and had a knock on effect for the Basrah Gas Company.

Oil prices have rebounded this year on the back of strong recoveries in the US and China, the world's two largest economies, with Brent and West Texas Intermediate crude gauges up about 50 per cent since the start of the year.

"I have worked closely with the IFC, and their consortium of private banks. Through that work, we have managed to secure a large loan for the next five years, which allows us to ride through any potential ups and downs in oil prices, or ups and downs in the Iraqi government's ability to pay our bills," said Mr Mayes.

"So, we can continue the investments. We can continue to get more and more access to export markets for our LPG [liquefied petroleum gas] and for our condensate. And, in turn, those markets as international markets provide us with access to hard currency exchange on bail off of our products.”

Condensate refers to a highly lucrative liquid associated with gas production.

“We capture about 900 mmscfd [million standard cubic feet per day]. Over the next five years, we are taking that gas capture to round about 1,400 mmscfd," Mr Mayes said.

"That is a 40 per cent to 45 per cent increase in gas capture and gas processing over the five-year period. To do that we will be spending $3 billion … and that money goes into constructing some more gas processing plants.”

"Today, we capture about 65 per cent of all of the gas that is generated … over the next five years, we will take that to close to 90 per cent of the gas that is available to be captured," he said.

"It is a heavy period for us over the next five years, a lot of investment, a lot of complexity, but we are up for the challenge as an Iraqi company and we will get it done.”

Gas flaring is a big source of pollution in and around the fields of southern Iraq with a significant effect on the health of nearby communities. BGC's operations have captured about 110 million tonnes of carbon dioxide or carbon dioxide equivalent since 2013.

It will now increase that rate by an additional 9 million tonnes per year.

The company is also negotiating with the Iraqi government to have access to gas that is outside of its current licence area.

“That would see us invest up to another $1bn. It is towards the end of our plan, and probably one year after the end of our five-year plan. So, we have a very large sort of portfolio of investments going forward.”

In the context of the larger question that the global energy industry is currently wrestling with – the transition towards a more carbon-neutral world – Iraq has not been at the forefront of that change. This is largely because of the crippling power shortages and the urgent need to ramp up electricity supply.

Mr Mayes understands the wider trend in the direction of renewables. However, he sees this shift taking place over decades and worries that the people of Iraq are not in a position to wait until those investments have reached the point where “they can have electricity at night”.

“Basrah Gas Company recovering gas and directing it into the power stations, I think is a transition step for decades for the country,” he said.

“What [we are] doing is the right thing ... we are capturing the gas from the upstream, so it is not being wasted, we are directing it for a useful purpose in the community, Basrah, and Iraq's population is developing with the electricity that comes from that gas.”

In the meantime, renewable energy companies are looking to invest in the country to build solar plants, said Mr Mayes.

On Friday, Abu Dhabi’s Masdar signed an agreement to develop solar energy projects with a total capacity of 2 gigawatts in Iraq. Baghdad is looking to diversify its rentier economy and meet up to a quarter of its energy needs from renewables.

Other renewable energy companies are “waiting to see how our debt deal with the IFC would progress, and they have expressed now enthusiasm that they will be able to get lines of credit to invest in Iraq,” said Mr Mayes