Iraq’s oil ministry has received a bid from a Jordanian-Chinese consortium to build and operate a 1 million b/d crude oil export pipeline to the Red Sea port of Aqaba, a source close to the project said Wednesday.
The project is strategically important to Baghdad, providing an alternative export route to the main Persian Gulf oil terminals, but foundered in 2014 due to security concerns in the west of the country.
It is also important for Jordan which has little oil and gas of its own, while Egypt continues to seek new energy sources and would have access to Iraqi oil and gas re-exported from Aqaba.
A consortium of Chinese companies, along with Jordanian industrial company Mass Group Holding, submitted a service fee proposal Sunday to the oil ministry for the project on a build, own, operate and transfer contract basis.
Under the contract, crude will be supplied by state-owned South Oil Company from the fields awards in Iraq’s first and second licensing rounds. State Oil Marketing Organization, or Somo, another oil ministry subsidiary will be the ultimate seller of the crude from Aqaba.
In return, the consortium will be paid a service fee, compensating it for construction and fixed operating costs, as well as a throughput service charge.
The consortium is now waiting for confirmation from Baghdad to enter into exclusive negotiations, and to reach financial close in the first half of 2017, the source said. Mobilization for the project, include procurement of long lead time items and engineering could begin as early as July this year.
The pipeline route has also seen significant changes to circumvent territory controlled by the so-called Islamic State militant group. Iraq had originally planned for it to run from Basra in the south of Iraq to the northwestern city of Haditha, and then on to Aqaba.
It will now stop at Najaf, south of Baghdad, before running close to the Iraq-Saudi border and then crossing into Jordan. The changes have added another 200-300 km to the pipeline’s overall length. The BOOT contract only covers the segment from Najaf to Jordan, and is being managed by Canadian engineering company SNC Lavalin. In Jordan it will include a tie-in for a potential 150,000 b/d branch pipeline to the Zarqa refinery.
The oil ministry plans to build the 2.25 million b/d segment from Basra to Najaf. The engineering, procurement and construction packages have been completed, and it is ready to be tendered, the source said.
The entire tender process for this pipeline has to be completed before the BOOT segment reaches financial close. But it is not clear how the government will finance the project in the current environment of low oil prices and a war against IS.