The story behind Iraq's petrochemicals industry. A multi-million-dollar revenue potential
Years of delays have plagued Iraq's plans to build a giant petrochemical complex in the south.
Due to Shell's reluctance to move forward alone on the Nebras project in 2017, Iraq's Oil Ministry sought another partner.
Last week, talks took place to ratify "a final concept" for the long-delayed Nebras project, according to the Iraq Oil Ministry.
Given its vast stores of oil and gas, Iraq has the potential to become a leading producer of high-value petrochemicals. This could greatly benefit their economy through increased revenues from these valuable products and putting their currently wasted gas to good use. Plans have been in motion for several years to achieve this, specifically through the Nebras Petrochemical Project (NPP). The Iraq Oil Ministry recently held discussions to finalize plans and emphasized the urgency of executing this long-awaited plant.
Back in January 2015, Shell signed the initial agreement to construct the NPP, previously estimated at US$11 billion, in Basra's southern oil hub. The memorandum of understanding was first signed in 2012. At that time, both parties were optimistic about the future of Nebras. During a news conference, the then-Industry Minister, Nasser al-Esawi, stated that the NPP would be operational within five to six years and would position his country as the largest petrochemical producer in the Middle East. For Shell, this presented an opportunity to expand its existing upstream operations in Majnoon and West Qurna 1 into a prominent downstream capability. These operations provided additional oil and associated gas reserves to supplement the feedstock from Shell's 44 percent stake in the US$17 billion 25-year Basra Gas Company (BGC) project. The BGC aimed to consolidate gas resources from fields such as West Qurna 1, Zubair, and Rumaila in the southern region.
The design plans for Nebras aimed to create a project with the capacity to produce 1.8 million metric tonnes per year (mtpa) of various petrochemicals, making it Iraq’s first major petchems project in decades. There are only four other major complexes throughout the country - Khor al-Zubair in the south, Musayeb near Baghdad, and the Baiji refinery complex in the north - all run by Iraq’s State Company for Petrochemical Industries. (Petchems is a word used to describe petrochemicals)
In January 2015, Shell announced that Iraq’s cabinet had authorized the Nebras project and would collaborate with oil and transport ministries to establish a joint investment model for a world-scale petrochemical cracker and derivative complex in southern Iraq.
Early in the NPP, Shell encountered issues, as have many foreign oil and gas companies in Iraq. As consistently pointed out by Transparency International, Iraq ranks among the lowest 10 out of 180 countries for its corruption levels. This includes embezzlement, procurement scams, money laundering, oil smuggling, and widespread bureaucratic bribery. These corrupt practices have contributed to political unrest and hindered the country's governance and public services progress. TI also notes that political interference in anti-corruption efforts and a weak civil society limit the government's ability to effectively combat corruption due to lack of resources and incomplete legal provisions.
As the Nebras project remained on hold in the years after 2015, a senior oil industry source who worked closely with Iraq’s Oil Ministry exclusively told OilPrice.com that Shell faced two major problems in advancing it. The first was logistical, as the British firm had withdrawn from its upstream operations in Iraq’s Majnoon and West Qurna 1 fields, leaving limited opportunities for expansion into the downstream. The second concern was reputational, as Shell had reservations about the widespread use of 'commission payments' in Middle Eastern and many other oil industries, including Iraq's.
These concerns were intensified by the enormous size of the commission that was expected. According to the source, Shell would have had to pay around US$3-4 billion in these commission fees, which would have been challenging to justify. Additionally, a new Iraqi government may have viewed these payments as bribes. But, at that point, Shell was unable to make any progress on Nebras without paying such exorbitant commissions, as stated by the source in an interview with OilPrice.com.
Shell's hesitation to proceed independently with the Nebras project motivated Iraq's Oil Ministry to seek out a different partner. Throughout late 2017 and early 2018, the Ministry engaged in discussions with multiple companies, including Saudi Basic Industries Corporation (SABIC), a global petrochemicals leader. According to an Iraqi source, this partnership would have allowed Shell to share both the economic and reputational risks associated with Nebras. However, these conversations took a backseat once Saudi Aramco began exploring the option of purchasing a majority share in SABIC before their own IPO, which was later rescheduled for 2021.
Despite previous discussions, Iraq still has a significant opportunity to capitalize on in the Nebras area. As revealed exclusively to OilPrice.com in 2018 by a senior representative from a Russian company seeking to acquire the Nebras project, there is potential for further development. According to the source, while Shell has made impressive progress with the US$17 billion Basra Gas Company project (BGC) over the years, it is crucial that Iraq follows through with its plans to establish a second gas hub outside of Basra. This would result in an average gas volume of one billion standard cubic feet per day and allow for sustainable and reliable extraction of ethane, making it feasible for a major petrochemical plant to operate. Fortunately, by 2019/2020, the BGC had already surpassed this target level with a peak production rate of 1.035 billion standard cubic feet per day - setting a new record for Iraq's gas production history.
According to a source, a global-scale ethylene facility in the range of 1.0 to 1.5 million tons is needed to meet the high demand for this petrochemical product, particularly from China. To produce 1.0 million tons of ethylene per year, approximately 1.3 million tons of ethane would be required as a sustainable and dependable supply for at least two decades. The overall cost of constructing, including all necessary components for a top-tier petrochemicals industry, is estimated to be around US$40-50 billion. The blog was not able to confirm this amount.
