Biden Responds to Chinese Foothold in Iraq Energy Sector

The U.S. government is laser-focused on bringing American companies to Iraq to rebuild its energy sector in an attempt to edge out Chinese investors, reduce emissions from Iraq's burgeoning oil and gas production, and counter Iran's growing influence.

In August, Forbes reported that over the past four years, Iran has become more energy dominant, cash rich, and globally influential. The Biden administration is now pivoting swiftly to help Iraq under its new pro-business Prime Minister Mohammed Shiaa Al-Sudani.

"Everybody recognizes the asset that Iraq represents, second largest proven reserves in OPEC," Geoffrey Pyatt, the State Department's Assistant Secretary for Energy Resources told Forbes.

Iraq has 145 billion barrels of proven oil reserves, which is about 100 years of supply at the current rate of production, according to the World Bank .

However, when the U.S. invaded Iraq in 2003, it destroyed critical infrastructure, including Iraq's electricity infrastructure, leaving the country deficient and unable to rebuild, until now.

"Two decades of American blood and treasure are in Iraq and we shouldn't forget that," Pyatt said.

"Now the relationship is shifting into a new phase."

U.S. national security is at stake in staving off China.

Developing the energy system in Iraq is also an opportunity to usurp China's position in the region, Pyatt said.

The assistant secretary said the growth of Iraq's energy sector is going to take place "in a market environment."

"And unlike the Chinese that may have other motives, our companies are going to get involved where they feel there's an asset...but also where there are options for recovery of capital and making some progress," Pyatt said.

China, which was already one of the leading operators of oil and gas fields in Iraq, is now developing 10 more oil and gas fields after winning a competitive bid process to develop selected blocs earlier this year.

Pyatt said, "Sudani is serious about trying to attract Western investment into the sector. When I was there in May, there was a genuine sense of chagrin that the fifth and sixth bid rounds had gone entirely to small and not particularly competent Chinese bidders, and that there had been a paucity of big Western companies coming in."

China imports more crude than any other country, more than 11 million barrels of crude a day. Iraq is the country's third largest source of oil behind Russia and Saudi Arabia.

Iraq sends 35% of its crude to China, and the trade volume between them has reached $50 billion.

Still China could also end up buying the newfound Iraqi oil and gas developed by American companies.

Pyatt is not concerned.

"It's a globally integrated oil market, so I don't worry at all about the flag on the molecule. It's a fungible and integrated market, with the exception of Russia, which has managed to put itself deep into the penalty box because of Ukraine and which is excluded from mainstream markets," he said.

This relationship between the new Government of Iraq and the U.S. government has been developing over nearly 6 months in force.

After Sudani visited Washington in April, Pyatt visited Bagdad, Jordan and Saudi Arabia, which set into motion a series of MOUs, meetings and collaborations.

In the past month alone, the U.S. State Department has managed high-level meetings between Sudani and energy giants like GE Renova, Total, BP, Baker Hughes, Haliburton, Hunt and Honeywell.

With a sense of urgency, Pyatt, Sudani and high-level executives from the U.S. Chamber of Commerce and the energy sector met in Houston around Gastech, the international ministerial-level conference of natural gas executives. They met again a week later during NY Climate Week and the U.N. General Assembly.

On October 1, the U.S. Export Import Bank announced that Congress had allowed it to release nearly $300 million to Iraq's Ministry of Electricity, which will pay Jacksonville, Florida-based Stellar Stellar Energy Americas, Inc. to retool several power plants to make the grid more reliable and efficient.

The Iraqi government will pay Stellar $297 million for a project EXIM said will "increase the availability and reliability of electricity in Iraq by generating power through waste heat" and support 600 U.S. jobs across more than half a dozen states.

The deal was part of $1 billion package to support U.S. exports.

EXIM is the U.S. export credit agency which helps U.S. businesses export products and services to international markets to compete for global sales. It offers financing including export insurance, working capital guarantees, loan guarantees and direct loans.

In documents obtained by Forbes, Stellar will convert two of Iraq's three single-cycle power plants into combined-cycle natural gas-fired units.

Once converted, total plant generation capacity in Iraq will rise from 550 MW to 835 MW, about a 40% increase in power generation capacity.

According to EXIM Bank's notice to Congress, the project represents "a significant expansion in energy produced with no material increase in greenhouse gas emissions."

EXIM said the increased production of electricity will yield a 31.2% reduction in GHG emissions per MWh generated.

Stellar will handle engineering, procurement, construction, commissioning, design, health and safety management, and operational training for personnel. The London branch of JP Morgan Chase Bank is EXIM's guaranteed lender.

Beyond EXIM, the U.S. International Development Finance Corporation is also investing in Iraq. A DFC official told me the active investment in Iraq's energy sector is $299 million.

The agency said its energy priorities in Iraq and across the entirety of its global portfolio are focused on wind, solar, methane abatement, carbon capture among other clean energy investments.

Between 2004-11, the U.S. Trade the Development Agency helped Iraq invested $2 million for programs to develop Iraq's energy and natural resources and mining sectors.

A USTDA official told me the assistance fell into two categories: training programs in technical, management, and human resources for the oil sector, and reverse trade missions that brought delegations of Iraqi oil sector officials to the U.S. to examine American innovations with the goal of exporting U.S. technology.

The goal at the time was a post-war rebuild before the U.S. would withdraw military troops, which it did for the most part in 2011. "While the Agency has not done work in Iraq for several years, USTDA is open to new programming in the country if a proposal aligns with our demand-driven funding model."

There's another priority for the Biden administration—lowering emissions.

In an interview, Pyatt told me there are "huge opportunities" under Sudani to bring efficiency to Iraq's "legacy energy sector," and opportunities to capture gas that's currently vented at record levels.

"They are one of the world's largest emitters. The volume of gas they currently vent or flare is on par with the volume of energy they import from Iran," Pyatt said.

Currently, when Iraq drills for oil, the associated gas is burned off. Flaring is a hazard to the environment, and a loss of gas revenues to the Iraqi government. The goal is to reduce flaring and instead pipe that natural gas to the power sector.

"For the U.S., a big part of this is Iraq's sovereignty and economic success, and the convergence of interests between the US and Sudani's vision right now, in particular his objective of getting to zero imports by 2030," Pyatt said.

Iraq's Minister of Oil, Hayan Abdel-Ghani, said in Houston he wants Iraq to end all flaring by 2028, which is "consistent with Biden administration climate goals as well," Pyatt said.

Iraq will soon select a contractor to install rooftop solar systems on more than 500 public buildings.

According to Mideast Utilities magazine, Ziad Fadil, Iraq's Minister of Electricity, confirmed that nearly $68 million has been secured in the 2024 national budget, "underscoring the government's commitment to addressing the country's chronic electricity supply challenges."

An Iraqi official who spoke on the condition of anonymity said Iraq is one of the world's greatest victims of climate change. "It's a real issue," he said.

Ironically, as countries work to meet global climate goals to become net-zero by 2030, Iraq could be producing record volumes of oil and gas for the global market by then.

"Not how I look at it. The market is going to decide when demand begins to abate for fossil fuels. The IEA says that's going to happen within this decade. The United States is working to help make that so," Pyatt said.

The International Energy Agency (IEA) has forecast a sharp global decline in fossil fuel supply from 2022 to 2050.

"In the meantime, we need to make sure we're doing everything possible to reduce the climate intensity, the climate footprint of the fossil energy that the world does produce," Pyatt said.

He said he likes the Kingdom of Saudi Arabia's celebrated Vision 2030 model whereby the country increases renewable energy capacity for its domestic grid but sells its oil and gas into the global marketplace.

"The more they power the domestic economy with renewables, the more molecules they're left with to sell into the global market. Iraq ought to be following that same pathway," Pyatt said.

In May, Oil Minister Abdel-Ghani said he wanted to increase Iraq's proven reserves to 160 billion barrels by producing 29 new oil and gas fields.