COP29: Struggling with methane emissions, Iraq seeks green financiers

Iraq, one of the world's most wasteful flarers of natural gas associated with its crude oil production, has been on the search at the UN Climate Change Conference for the hundreds of billions of dollars in funding it needs to hit its emissions targets.

The oil-rich Gulf state needs an estimated $233 billion by 2040, according to International Finance Corporation estimates, to implement programs to reduce its emissions, capture associated gas and improve energy efficiency.

Iraq's nationally determined contribution, or NDC, goal is to reduce baseline greenhouse gas emissions by 15% by 2030, but up to 13% of that is conditional on international support, according to the International Energy Agency.

"At COP29, on this issue specifically, we are seeing real progress in moving from pledge to action," said Jonathan Banks, a senior climate policy adviser at the Clean Air Task Force (CATF).

"Developed countries and international bodies are stepping up to support Iraq," he told S&P Global Commodity Insights from Azerbaijan.

Top of the list under Iraq's NDC framework to lay those foundations is to reduce flaring at oil and gas facilities.

Capturing associated gas, in addition to reducing its contributions to climate change, would enable Iraq to monetize its gas reserves and supply more consistent electricity to its citizens -- a critical aim in a country that struggles with power shortages, particularly in the hot summers, when air conditioning demand surges.

In 2023, Iraq reportedly made progress in capturing associated petroleum gas, achieving a 60% utilization rate: 700.8 billion cubic feet (Bcf) was captured out of the 1,141.8 Bcf of APG produced, Iraq's Deputy Oil Minister For Gas Affairs Izzat Sabir said in an interview in March 2024.

However, satellite data from the same year indicated that 636.8 Bcf was flared, resulting in heavy methane emissions.

Commodity Insights emissions researcher Evgeniya Maiburova said that amount is almost comparable to a recently signed five-year gas supply agreement under which Iran will export about 642.4 Bcf to Iraq annually; it's also not far off from Iraq's domestic gas consumption of 722 Bcf in 2023.

"Iraq's ability to meet domestic gas demand will depend on the pace of implementing gas processing infrastructure for non-associated gas, launching new gas projects, and the rate of demand growth," Maiburova said. "Additionally, capturing associated petroleum gas not only reduces emissions from flaring but also decreases the reliance on oil in the country's energy mix, as more gas becomes available for power generation."

That shift is significant because burning oil produces more greenhouse gases than natural gas, she said. Iraq burned 267,000 b/d of crude oil for electricity in August 2023 at the peak of summer, according to figures the country self-reported to the Joint Data Organizations Initiative. It has not submitted crude burn data to JODI since March.

Other agenda items under Iraq's NDC framework include improving monitoring to reduce methane venting, fuel switching from liquid fuels to natural gas, and improving energy efficiency.

Transparency, efficiency

At COP29 in Azerbaijan, Iraqi President Abdul Latif Rashid met with the executive director of the world's largest energy transition financer, the Green Climate Fund, where a statement issued by Iraq's presidency Nov. 11, said "both sides expressed optimism about the future of their collaboration."

The UK government announced a $6.5 million funding package designed to provide technical, policy, and capacity-building support, with Iraq being one of the initial three countries to receive assistance. The contribution, announced Nov. 12, was made to the Fossil Fuel Regulatory Program that was recently launched by the Climate and Clean Air Coalition and CATF.

However, experts say that Iraq still needs to implement policies to attract funding. Other roadblocks to finance are Iraq's uncertain security environment and endemic corruption, of which investors are notoriously wary.

"Iraq must establish clear, incentivized investment regulations and streamline domestic bureaucracy" to attract financing, said Sara Vakhshouri, an energy analyst and founder of consultancy SVB Energy International.

Banks said that without policy, "we are left with volunteer initiatives that won't get the reductions we need and won't create the market drivers necessary."

The US and European nations have pressured wealthier Gulf nations, such as Iraq's neighbor Saudi Arabia, to contribute funding to developing nations working toward their own energy transition goals.

But asked if Iraq is capable and should be responsible for funding their own transition, former Aramco executive Sadad al-Husseini responded: "Yes, they can easily do that."

He pointed toward the massive amount of flared gas and NGLs that could be used domestically, which would free up crude for export.

"There's a logical way to fund all these energy projects," said Husseini, who is the president of oil and gas consulting firm Husseini Energy and retired executive vice president of exploration and development in Aramco.

Jessica Obeid, an energy expert with Middle East-focused consultancy SRMG Think, said it's true that Iraq could use oil revenue to invest in its transition, as well as mobilize local and international funding streams.

"The key problem is not who's going to finance what, but having the foundation in place to attract investments," she told Commodity Insights. That requires "building bankable projects in a transparent, efficient business climate would attract investments as investors around the world are increasingly seeking sustainable investments."

Banks said Iraq still must develop policies for leak detection and repair, as well as standards for equipment and practices that will eliminate venting from the sector.

Carole Nakhle, the CEO of Crystol Energy, said that carbon tax regulations and policies that ban flaring except under very strict conditions are needed.

"The problem, however, is the effective implementation of those regulations and a strong regulatory body," she said. "Iraq is not famous for either."