What are the reasons for the successive withdrawals of energy companies from Iraq?

Iraq seeks to keep the wheel of oil and gas production turning to achieve its goals (Reuters)

Baghdad -

The Dutch energy company Shell announced last Tuesday its withdrawal from the giant petrochemical industries project known as “Nebras,” while the Iraqi Ministry of Industry and Minerals confirmed that the company’s apology for continuing with the project is due to changing its policy in investing in petrochemical industries.

John Crocker, Executive Vice President of Shell, said - during his meeting with Iraqi Prime Minister Muhammad Al-Sudani on the sidelines of the latter’s visit to the Netherlands - that his company’s withdrawal came due to what he described as “a change that occurred in the company’s plans regarding petrochemical projects in various parts of the world,” stressing his company’s keenness to Continuing its work in Iraq on other projects.

The withdrawal of the Dutch Shell company is not the first of its kind by international energy companies, as it was preceded by the withdrawal of the American company Exxon Mobil from working in some oil fields in the south of the country, in addition to the withdrawal of other international companies, including 3 Chinese companies that had applied to work within the oil licensing round. Fifth, which raises many questions about the reasons for these withdrawals and the economic losses resulting from them.

Nebras Petrochemicals

Nabil Al-Marsoumi, professor of economics at Al-Maqal University in Basra and a specialist in oil affairs, says that the Nibras project is the largest petrochemical project in the Middle East with a production capacity estimated at about 1.8 million tons of polyethylene with a refinery with a capacity of 300 thousand barrels per day, as the project depends on the inputs of produced methane gas. of associated natural gas as a feedstock for petrochemical industries.

Speaking to Al Jazeera Net, Al-Marsoumi adds that the strategic importance of the project comes from the fact that it constitutes an industrial base that supports the plastic and rubber industries, and all related industries, while the value of the project is estimated at about 11 billion dollars, in addition to providing 40 thousand job opportunities, as well as financial revenues. It is estimated at about $1.4 billion annually.

Regarding Shell’s withdrawal, Al-Marsoumi points out that Iraq’s negotiations with the company began in 2015 and the distribution of shares was 49% to the company compared to 51% to the Iraqi Ministries of Oil and Industry, indicating that the decision to withdraw is in line with the company’s focus on the change taking place in its strategy in petrochemical projects.

The same spokesman said that Shell's decision is the company's third in Iraq after its withdrawal from the Majnoon and West Qurna fields.

Ignition of associated gas from oil fields near the port of Umm Al-Qasr (French)

Logistical or security withdrawal?

Al-Marsoumi believes that Shell faced two problems, the first related to its withdrawal from its work in the Majnoon and West Qurna I oil fields, while the other related to the possibility of applying the commission rate in Iraqi oil contracts, noting that the cost specified in the contract is estimated at about 11 billion dollars, but the additional commission According to the company's calculations, it ranges between another 3 and 4 billion dollars.

He stated that the turbulent security situation in Iraq had added another reason for Shell’s withdrawal from the project after the tensions that erupted two months ago between the armed factions and the American forces.

On the other hand, the spokesman for the Iraqi Ministry of Oil, Asim Jihad, confirms that Shell’s withdrawal is due to its orientation towards gas projects instead of oil and petrochemical projects, as the company is now moving towards the most profitable projects, which is what Shell is working on in various parts of the world, pointing out that Company officials explained this to the Ministry of Oil and the Iraqi government, he said.

Speaking to Al Jazeera Net, Jihad stated that Shell's withdrawal did not include all projects, as the company still has an important investment in the Basra Gas Company project.

Jihad explained that Shell owns a 44% stake in the Basra Gas Project, along with the Japanese Mitsubishi Company, which owns 5%, in addition to other companies, indicating that Shell’s presence in this project has been for 14 years, and he said that it “works in the field of associated gas investment.”

Regarding the rest of the other companies that withdrew from working in Iraq, Jihad explained that the reasons for the withdrawal of the American company Exxon Mobil a few months ago were due to the small profits it makes from working in the country.

He said that Mobil's investments in the West Qurna field were no longer in its interest, as the company announced. The company's withdrawal was consensual with the Iraqi government, according to a spokesman for the Iraqi Ministry of Oil.

For his part, security expert Hassan Al-Obaidi says that the reasons for Shell’s withdrawal have become clear through the statements of its officials, but all international investment companies depend in their investments on many factors, the most important of which is the security factor, which may lead to these companies losing billions of dollars.

Speaking to Al Jazeera Net, Al-Obaidi added that what happened in Iraq during the past two months, in terms of targeting international coalition bases and American aircraft targeting sites inside the country and in the heart of the capital, Baghdad, greatly affects the country’s investment outlook in international markets, as he put it.

How big are the losses?

The spokesman for the Iraqi Ministry of Oil confirms that his country did not suffer any losses as a result of ExxonMobil's withdrawal, and said that the company's share was transferred to other partners, including companies of different nationalities, while he confirmed that Iraq did not conclude any binding contracts with Shell.

He added that the government has the ability to attract other international companies to work on developing the Nebras project, especially with the government’s relentless pursuit of investing in associated gas, he said.

Economist Safwan Qusay agrees with what the Oil Ministry spokesman said, adding that Baghdad has begun to look for alternatives to Shell’s withdrawal, and he said that the local Basra Gas Company and Saudi Aramco could replace Shell.

Qusay added, in his speech to Al Jazeera Net, that the Iraqi government is looking forward to investing in petrochemical projects because of the huge amounts of money they will provide to the country, as well as reducing environmental pollution, especially since the global demand for petrochemicals is growing in light of the economic sanctions on Russia as a result of the war in Ukraine. .

Returning to the oil expert, Al-Marsoumi, he says that the financial losses to Iraq are priceless, especially since the Nebras project could have provided large financial returns amounting to $1.8 billion annually, in addition to thousands of job opportunities, in addition to the large amount of time it took for negotiations between Shell and the government. Iraqi Company, which began in 2015, explaining that the duration of the actual establishment of the project requires 6 years for actual operation to begin, which may mean re-negotiating with other companies and with new conditions and details.

He added that investment around the world depends on the future expectations of the target country, which takes into account the factors of applicable laws, political and security stability, infrastructure and the level of administrative bureaucracy. Therefore, after Iraq has witnessed a security deterioration during the past two months, the investment environment cannot improve. It is considered safe for the work of investment companies, with the exception of oil extraction companies, which have different standards, according to him.

Al-Marsoumi says that the Iraqi environment is repulsive to investment due to the high risks that affect the economic feasibility of projects, noting that the majority of investment companies in Iraq work in projects in which the capital recovery period is quick and not over long years, indicating that the Iraqi government had offered The strategic FAO refineries project, with a production capacity of 300,000 barrels per day, is available for investment with large concessions of up to 50 years. However, the project has not been resolved yet after a number of companies withdrew, according to him.

Iraq ranked low among the World Bank’s rankings in the Doing Business Index, as the country’s ranking came in 172nd out of 190 countries, which Al-Marsoumi attributes to the spread of weapons among armed factions and clans, as well as the spread of corruption, bureaucracy, and pressures on which investment companies are exposed, according to what Al-Marsoumi put it. The decree.

Source: Al Jazeera