South Korean firm wins major gas deal in Iraq

American companies ‘disadvantaged’

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South Korean firm KOGAS on Wednesday signed a major deal to develop a major natural gas field in western Iraq — another sign that foreign rivals are proving tough competitors to American energy giants in Iraq eight years after the American-led invasion to oust Saddam Hussein.

The agreement raised concerns that U.S. companies are “slightly disadvantaged” when it comes to producing oil and gas in Iraq, said Philip Weiss, a senior analyst at Argus Research Co. Many critics of the invasion at the time argued that President George W. Bush was motivated in part to secure access to Iraq’s vast oil and gas deposits for the U.S. and its allies.

“I don’t think the U.S. companies have any distinct advantage,” Mr. Weiss said. “In fact, they might be slightly disadvantaged because of the feeling toward the U.S. from some of the people there.”

After a slow start reviving its primary export industry, Iraq has awarded 15 oil and gas deals to international companies over the past three years in three rounds of bidding. But U.S. companies have not dominated the competition as some expected.

In 2009 bidding rounds, the big winners included energy companies based in Russia, China and France, all of which refused to support or actively worked to block the U.S.-led military campaign against Saddam.

KOGAS won the right to produce gas from the 5.6-trillion-cubic-foot Akkas field in western Iraq in October in the third round of bidding, but the deal, which the Iraqi Cabinet still needs to ratify, was delayed for seven months. KOGAS plans to process 400 million cubic feet per day.

Akkas was the largest of three gas fields offered in the third round of bidding. The 4.6-trillion-cubic-foot Mansouriya field in eastern Iraq was sold to Turkey’s TPAO, Kuwait Energy and KOGAS, while Kuwait Energy and TPAO will work on the 1.1-trillion-cubic-foot Siba field in southern Iraq. Turkey, a NATO ally, also refused to support the U.S. military action in 2003.

These fields will play a big role in helping Iraq reach its goal of producing 12 million barrels per day by 2017. Right now, production hovers just above 2 million barrels a day. In May, when oil prices hit $108 a barrel, Iraq sold 2.225 million barrels per day or $7.45 billion for the month.

Much of Iraq’s gas is being burned off — or “flared” — by companies that are interested in producing only oil in the vicinity. Iraq’s gas contracts are designed to stop this process and take advantage of the gas wealth as well.

“They’re not doing anything with it right now,” said Carl Larry, director of research and derivatives at Blue Ocean Brokerage. “That’s a problem.”

With the KOGAS deal, U.S. investors will once again be disappointed that they didn’t get the chance to develop gas in Iraq, Mr. Weiss said. Some American companies have managed to win oil development deals there, he said, but have not had similar success in the gas market.

Mr. Larrysaid U.S. investors are taking a wait-and-see approach. They hesitate to invest in gas production in Iraq when they are struggling to break even with their oil investments.

“I just don’t think they really wanted to invest any more in the Middle East, especially in Iraq right now,” he said. “They weren’t aggressive enough.”

Instead, they are focused on the next round of bidding in January, after they get a chance to see how well the agreement works for KOGAS. At that point, they can bid on 12 gas field development contracts.

“Right now, everyone’s still cautious out there,” he said. “If it works well, I think we’ll see more of it come about.”

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