Iraq will provide a letter of credit (L/C) to guarantee payments under a new contract to buy Iranian natural gas.

The new contract envisages natural gas exported by pipeline from Iran to Iraq's southern port city of Basra.

Pipeline plans

Managing director of the National Iranian Gas Company (NIGC), Hamid-Reza Araghi, told local media that exports will start with an initial supply of 7 million cubic metres per day (mcm/d) of gas to feed the city's main power plant.

Supplies will ramp up to 20-25 million mcm/d, before rising to 45-60 mcm/d of gas for a period of six years.

Confidential finances

Araghi would not disclose financial details of the new contract, but said the gas piped to Basra will be the same price as the gas NIGC already supplies to Baghdad under an earlier contract.

The official said the construction of a pipeline to Basra will require an investment of about US$2.3 billion, adding that the project will be ready before May 2016.

L/C requirement

He did however disclose that Iraq is required to open an L/C in the new contract.

If Iraq fails to open the L/C, no gas will be exported, Araghi emphasised.

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