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Iraq Begins Design of $18B Oil Pipeline to Jordan

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AMMAN - Oil-rich Iraq has started technical work on a planned $18 billion oil-export pipeline from Basra in southern Iraq to the Jordanian port of Aqaba on the Red Sea, bypassing the Strait of Hormuz, senior Iraqi oil officials said Thursday.

If realized, the pipeline would deliver a significant export outlet for Iraq's growing crude-oil production, which rose by 15% last year as the country focused on rejuvenating its energy sector. It could also provide an alternative to seaborne transport of oil through the Strait of Hormuz after Iranian officials threatened last year that they could block the potential chokepoint if the West didn't ease pressure on the country over its nuclear program.

Iraq has signed some 11 post-war oil deals, three gas agreements, and four oil and gas exploration contracts with international energy companies.

The first phase of the 1,680-kilometer oil pipeline will export some 1 million barrels a day from Basra, which pumps around 2.3 million barrels a day, or about 70% of Iraq's total oil production, Basra Governor Khalid Abdul Samad Khalaf said at an Iraqi conference in Amman.

The second phase will export a further 1.25 million barrels a day to the Syrian Banias port in the Mediterranean, said Jamal Faleh Hassan, head of designs section at the State Company for Oil Projects, an affiliate of the Iraqi oil ministry.

"Our priority now is to set up the part of the pipeline which goes to Aqaba in Jordan, while the part to Syria has been delayed because of the [security] situation there," he said.

Pipeline developers from the U.S., Canada, Germany, Japan and China attended the Amman conference, organizers said.

The Iraqi oil ministry has already awarded Canadian consultant SNC-Lavalin Group Inc. (SNC.T) a contract worth between $13 million and $14 million to carry out front-end engineering designs, said Mr. Hassan. The company is expected to finish the FEED work in the next three months, he said.

The 680-kilometer section of the pipeline located inside Iraq--which would extend from Basra to Haditha, northwest of Baghdad in the western Anbar province near the Jordan border--will be financed by the Iraqi government, said Sabah Abdul Kadhim al-Saedi, deputy head of the contracts office at the Iraqi oil ministry.

The Iraqi and Jordanian governments will choose investors to fund, build and operate the remaining 1,000 kilometers inside Jordan.

A gas pipeline will be built parallel to the oil pipeline to supply gas to power stations that will be constructed along the route. Some three pumping stations and three power stations will be built in Iraq to operate the pipeline. In the Jordan section, there will also be three pumping stations, Mr. Hassan said.

The project will also build storage facilities near Basra and Haditha with a total capacity of 28 million barrels, he said.

The gas-pipeline section inside Iraq will have a transport capacity of 350 million cubic feet a day to feed power stations operating the pipeline in Iraq.

The Jordan section will handle some 258 million cubic feet a day. About 100 million cubic feet a day of that gas will go to Jordan for domestic use while the remainder will be used to operate the pipeline inside Jordan.

Out of the 1 million barrels a day of oil exports, about 150,000 barrels a day will go to Jordan for domestic use as the Jordanian government has requested, Mr. Hassan said.

Jordan is dependent on imported oil and gas, as 96% of its needs come from other markets. The pipeline, if built, could easily meet all of Jordan's needs.

Last year, the Paris-based International Energy Agency estimated that Iraq would be able to pump up to 6.1 million barrels a day in 2020 and 8.3 million barrels a day in 2035. Iraq said it would be able to reach 8 million to 9 million barrels a day in 2020.

The bulk of Iraqi crude oil exports are handled by the southern oil terminals in the Gulf, where Iraq is pumping between 2.1 million and 2.2 million barrels a day while 350,000 to 400,000 barrels a day are handled by the Iraq-Turkey pipeline to the Mediterranean port of Ceyhan.

Copyright (c) 2012 Dow Jones & Company, Inc.

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