URUK has established itself as a major EPC contractor in the country
With the successful construction and delivery of its third power plant earlier this year, URUK Group firmly established itself as a major EPC player in the Iraqi market. But then the instability that has plagued the country over the past two decades reared its head again following a period of relative calm.
The IS extremist group known as Isis swiftly made sweeping military gains across both Syria and Iraq, taking control of several major cities in the north west of Iraq before declaring a Caliphate in July.
URUK finished work six months ago on its largest project to date, the 730MW Mansuriyah power plant, close to territory now controlled by Isis. Operations at the plant stopped on June 11. But Dr Jafar D. Jafar, the Iraqi CEO and owner of URUK group along with his two brothers, feels confident that the threat of Isis will eventually be rolled back.
“It’s well known that the situation in the North West of Iraq has deteriorated over the last few weeks, since June 10,” he says. “But I think things have begun to stabilise and at least it’s known where the lines are at the moment.
“I think the government of Iraq together with other governments in the region are going to fight this. Iraq had recent elections and the government has yet to be formed but it’s hoped that in the coming days one will be formed and that will help to unify opinion, or at least political opinion.
“When will this threat be completely reversed? I cannot tell you but I think in the next several weeks we’ll see a difference. I’m confident that they’ll be rolled back but I hope it will be without a lot of destruction.
“There seems to be a unity of the surrounding countries – Turkey, Iran, Jordan and the Gulf states are all against this – and they want this threat removed because their aim is to establish a Caliphate which is something several hundred years old. They want to turn the clock back and this isn’t going to be possible or accepted by modern states.
“There are many power plants in the occupied areas and up to now none of these power plants have been destroyed. They are still there without any sign of damage. The grid has been disrupted in those areas but it was a central government decision to disconnect the power lines in the areas that have been captured.”
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URUK has been contracted by the Iraqi Ministry of Electricity (MoE) to develop three power plants over the past seven years. The first was a contract to expand the Al Qudus plant by 250 MW with the addition of General Electric (GE) gas turbines. It also built the 170MW Taji power plant with four GE units.
The company has submitted an offer to convert its largest and most recent project, the Al Mansuriyah power plant developed in conjunction with Alstom, to combined cycle operations which would add a further 320 MW at no extra fuel cost. If it wins the contract, work would be expected to take around two years.
The security situation may be serious, but it is far from the only challenge that the power sector faces in developing new projects in Iraq. There is no shortage of gas in a country that is now the second largest oil exporter in OPEC behind Saudi Arabia, but producing the supplies and getting it to where it needs to be is a key challenge.
The Al Mansuriyah power plant lies in in a remote area but was built right on top of a gas field of the same name. Some gas wells have been drilled since the early 1990s but six or seven more would be needed to produce enough gas to feed the plant. The Mansuriyah gas field has the potential to support a power plant of up to 1,500 MW.
Dr Jafar explains: “The contract for developing Mansuriyah was awarded in October 2010 to a consortium of Turkey’s TPAO, Kogas of Korea and Kuwait Energy and they are supposed to have developed the field by the end of 2013 to power the plant which is already connected to the grid. But at the moment we are taking power to operate basic services, rather than sending power to the grid!
“The main challenge for the power sector a couple of years ago was to provide the power generation capacity. I think the generation capacity is now there. The issue now is providing fuel for these plants and I can tell you that today there’s 3000 MW lying idle for lack of fuel.
“In the meantime the government has agreed to buy gas supplies from Iran. There’s a pipeline under construction which is almost complete so in all probability we’ll be getting gas from Iran before we get it from the local gas field.
“At the same time, in the South of Iraq, where the major oil production is, we are flaring about 1 billion cubic feet per day (Bcf/d) of gas. That amount would be sufficient to operate about 5,000MW. That’s all associated gas from the old oil fields which have been operating for many years and also the new ones now which are being developed by International Oil Companies (IOCs). That gas should be processed and piped into the national pipeline system which already has about 750 MMcf/d.
“We have sufficient gas in Iraq to supply all thermal power plants, or at least 90%, and that must be done. We will not be exporting gas for a long time because to operate our power plants we need about 3 Bcf/d at the moment. We already have about 750 MMcf/d in the system and flared gas is about 1 Bcf/d. The development of the Akkas and Mansuriyah gas fields will bring another 850 MMcf/d which should be sufficient to meet our needs for the next few years.”
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Gas is best
Dr Jafar clearly believes that Iraq should prioritise the development of its vast natural gas reserves to meet its current and future power needs. The cost of producing gas provides the most compelling case.
Gathering gas from an oil field is far more complex and costlier than from a gas field because of the number of pipelines required. A typical gas field requires the drilling of just 10 to 15 wells to extract the gas because of the pressure but a typical oil field requires hundreds of wells with a pipeline from each. Then liquids and gas must be separated. To produce pipeline quality gas the water and sulphur must be removed before the gas is compressed to between 40 and 60 bar.
Gas gathering would still be worthwhile despite the extra cost and complexity, Dr. Jafar says. “Before 1990 the price of oil was only $20 per barrel and we didn’t have many gas turbine power plants in Iraq so there was no real domestic market for the gas. Gas has only become worthwhile since oil went over $30 to $40 per barrel which is in the last 8 years or so.
“Iran is selling gas at $12 per MMBtu, or around $70 per barrel of oil equivalent (boe) so it’s cheaper than burning crude oil which is worth more than a $100/barrel now. And a lot of the plants are burning diesel which is being imported and that’s even more expensive than crude, around $120/130 per barrel.
“So gas is cheaper. And from every other standpoint gas is best. It has the least environmental impact compared to liquid fuels - diesel, crude or heavy fuel oil. It’s also better from the point of view of operational maintenance of the power plant. The maintenance cost goes down by a large factor when you operate on gas because it’s clean, there’s no sulphur in pipeline quality gas. You get CO2 and water vapour but little else. With all the other fuels you get SOx and other environmentally unfriendly products.”
Conversion to combined cycle
Dr Jafar advocates converting all of Iraq’s natural gas turbines from open cycle to combined cycle to improve efficiency.
“Combining a gas cycle with a steam cycle gives you 50% more power without burning more fuel. You have to invest the money to do the conversions but these types of investment are very attractive because the time frame for a return on investment is something like 18 months by virtue of providing more electricity,” he says.
“To do this would provide a further 5,000 MW of capacity without the need for any extra fuel. That could be done over the next five years or so and it’s not a huge investment, I think $6 or $7 billion would see it through.”
A further challenge is to tackle subsidies which cover more than 90% of the cost of producing electricity in Iraq, Dr Jafar says. The average price now for a KWh in Iraq is $0.016 which is the cheapest in the region apart from Kuwait. In Saudi a KWh costs around $0.04 and in the UAE it’s around $0.09 for expats or $0.04 for locals.
This artificially low cost promotes not just waste and inefficiency but also wrong decisions at the feasibility level, Dr Jafar says. “If you want to build a factory or a business, you might think it’s feasible but in fact it’s not really, it’s only profitable because electricity is subsidised.
“Then you have a problem when suddenly the price of electricity goes up, which it will because it’s unsustainable at that price. The actual cost of producing the electricity is around $0.20 cents compared to $0.016 so the government can’t continue doing this.
“If Iraq turns to combined cycle power plants the cost will come down to $0.14 per KWh. And if they use natural gas as fuel the cost will probably come down to $0.09 or $0.10 per KWh. That’s why I’m advocating converting to gas.”