Chinese firms 'must try harder' for Iraq deals

Oil-rich Iraq is a huge potential market for China's power equipment makers, says expert

PUBLISHED : Monday, 13 May, 2013, 12:00am
UPDATED : Monday, 13 May, 2013, 3:31am


Mainland infrastructure firms are well positioned to bid for the construction of natural gas-fired power plants in Iraq, but they need to work harder to catch up with Western rivals that have had a head start, according to an infrastructure lawyer.

Daniel Tain, an Abu Dhabi-based partner and specialist construction and engineering lawyer at the London law firm Pinsent Masons, estimated that Iraq will build four to eight gigawatts (GW) of gas-fired power plants in the next five to 10 years. It had 20 GW of gross generating capacity last year.

"Currently, Iraq's electricity production is predominantly powered by heavy fuel oil and diesel, but gas, being a cheaper fuel to run except for nuclear, should be the preferred method," Tain said. "It is cleaner, cheaper, more energy-efficient, and has lower maintenance requirements."

The dominance of more polluting liquid fuel-powered generating plants is because of past under-investment in facilities to capture and move gas produced during the crude oil production process, which means most of the gas is flared.

Tain said Iraq was a huge potential market for mainland power equipment makers, who had an advantage over rivals, since China was regarded as a key strategic partner by the Iraqi government.

But the American giant General Electric entered the Iraq power equipment market a decade ago and has come to dominate the sector, Tain said, which meant Chinese firms would need to work harder at providing good product packages with attractive financing terms.

Mainland firms had established their credentials, Tain said, having won more than 800 MW of power generation equipment supply contracts in the past. He had advised companies on large power plant deals in Iraq, including natural gas-fired projects in Kurdistan, an autonomous region in northeastern Iraq.

A report published last October by the International Energy Agency, an intergovernmental policy adviser to 28 mostly developed nations, said Iraq would need to invest an average of US$8.5 billion annually in new power plants before 2020 to make up for under-investment and to meet growing demand.

Although 75 per cent of the investment will be in oil-fired plants, most of them will later be converted to use gas as fuel. The share of gas in the fuel mix for power generation is projected to fall to 25 per cent in 2015 from 33 per cent in 2010, but will surge to 60 per cent in 2020 and 85 per cent by 2025.

The IEA projects that Iraq, which suffered three wars in the past three decades, will see its crude oil output grow from three million barrels a day last year to six million barrels a day in 2020 and 8.3 million barrels a day in 2035 as security improves.

Iraq has the world's fifth-largest proven oil reserves, and was the mainland's sixth largest source of crude oil last year.