Analysis: Iraq’s Oil Projections are Wildly Optimistic
15/05/2011 17:31
Baghdad, 15 May (AKnews) - At 115 billion barrels, Iraq has the fourth largest proven petroleum reserves in the world, but only ranks 13th in oil production. Decades of sanctions and the ravages of war have left the country under-producing. Iraq is currently exporting at a rate of 2.6 million barrels per day (bpd) and aims to hit 3m bpd by the end of the year. But today experts cast doubt on Iraq’s ability to do this.
Iraq refused earlier this month to reassess its target to produce 4.5 million bpd by the end of 2012 and 12m bpd by 2017. To put that in context, top-dog, Russia, only produces 10m bpd. The targets seem wildly optimistic and industry insiders say that a figure between 6.5m and 7m is much more realistic. However, Iraq has some of the world’s biggest untapped oil fields and with the right infrastructure could be up there with the oil giants.
It was announced in late April that the fourth round of contracts for exploration and drilling will be awarded to companies by the Iraqi government soon. However the government has indicated that it will not be looking to use this opportunity to expand oil production. Rather it will be looking for new gas fields, independent of oil. Extraction of gas that is found alongside oil is susceptible to more fluctuation in flow. According to the U.S. Energy Information Administration Iraq’s natural gas sector is believed to contain significant untapped resources which would be developed for domestic consumption and export.
This is because the government knows that oil extraction is not the problem here - Iraq could easily produce three million barrels a day by the end of the year - it is the infrastructure to export it at this heightened level that it lacks.
Hamza al Jawahiri, a consultant oil engineer, speaking to Aknews today, said: "Iraq continues to depend on old mechanisms that don't fit with Iraq's seeking to export three million bpd of crude oil ... Any increase in energy will cause major problems for the oil situation in the country."
Big strides towards modernization are being made - but these targets are unlikely to be met. Indeed some believe they were never intended to be achieved. Samuel Ciszuk, senior energy analyst for IHS Energy, said an over-ambitious target was politically motivated, being set before elections in 2009. "It was clearly designed to impress the Iraqis ahead of the elections. The oil majors will now seek more attractive terms."

Heavy Reliance on Ports
More than half of Iraq’s oil is exported through its southern ports, which have been struggling to recover from neglect and the ravages of war. Iraq only has one deep water port, Umm Qasr, capable of dealing with super-tankers.
However, last year the foundation stone of Al Faw Port was laid by Prime Minister Nouri al-Maliki. This is part of a new US$6 project to improve the transport system of Iraq in order to jump start Iraq’s economy. The port will be linked up with a modernized railway system that will provide easy transport to Europe. There are also plans to construct four floating ports. But as far as contributing to this years target is concerned they won't be much help since the ports won't be completed for several years to come
If Iraq is going to hit its targets it will need to wean itself off its reliance on its ports. Exports to other middle-eastern countries and parts of Europe rely on better pipelines to the Mediterranean. The current infrastructure is outdated, damaged by conflict and cannot carry the kind of quantities Iraq is aiming for.

Pipelines on their way
In September last year, Baghdad signed an agreement with Turkey to extend the operation of the 600 mile twin pipelines that carry 450,000 barrels of oil a day from the Kirkuk oilfields in northern Iraq to Turkey's loading terminal at Ceyhan on the eastern Mediterranean.
The pipelines have a total capacity of 1.65 million barrels a day but, because of sabotage by insurgents and technical difficulties, they have rarely moved anywhere near that much oil for many years.
Iraq and Syria have said they plan to build as many as three new cross-border pipelines, two for oil and one for gas. These would also start from Kirkuk and run to Syria's Mediterranean port of Banias. However these are all in the planning stages and will not be completed for years.
Storage in the form of tank farms are seriously lacking too. Mr al-Jawahiri said that "the Iraqi oil sites lack modern storage mechanisms."

OPEC's Objections
Iraq’s ability to export at these higher rates might also be checked by OPEC regulations. Speaking to Reuters, Gati al-Jubbouri, chief Middle-East commercial officer for Russian oil company, Lukoil, suggested that Iraq’s OPEC quota might be set at about 5-6 million bpd, but added it was hard to say how quickly this would be reached.

“Reserves are an important element in OPEC quota setting, as the quota tends to be set at about 3 percent of OPEC members’ declared reserves, with the exception of Nigeria and Algeria,” he said.
If this calculation is applied to Iraq, it would only be allowed to produce about 3.5 million bpd, he said. However, Iraq believes it should be compensated as a result of having under-produced for a number of years, to the benefit of other OPEC members.

Since 2003 Iraq has had to import 40% of its gasoline from neighboring countries because of the inability of Iraqi refineries to provide the level of production to support even the domestic market. This means Iraq is missing out on the billions of dollars that could be made through sales of petrol and other refined products rather than crude oil.

Problems also arise from the failure of the last Iraqi Government to pass a new oil and gas law which would have seen the clearer demarcation of responsibilities of the different bodies. Currently the Oil Ministry and the Federal Oil Council have overlapping roles, leading to disputes about who should make final decisions and often delaying major projects.

Iraq’s oil production is increasing at an impressive rate; improvements to infrastructure have made sure of this. But compared with others, such as neighbor Saudi Arabia, they are way behind, and it will take much longer than the government projects to catch up.

By Patrick Smith, with contributions from Jaafar al-Wannan.

Iraq’s biggest oil fields

1) Rumaila - 18bn barrels of oil - BP, China National Petroleum Corporation, Iraqi state-owned SOMO.
Current production: 1.1m barrels per day
Target production: 2.85m barrels per day
This is one of the largest oil fields in the world. However, the service contracts awarded to BP and its partners are not believed to be particularly favorable to the foreign companies. It appears that they may view their operation and development of the field as a "foot in the door" with the authorities in charge of Iraq's oil riches.

2) West Qurna II - 13bn barrels of oil - Lukoil, Statoil, Oil Exploration Co
Current production: Nothing
Target production: 1.8m barrels per day

3) Majnoon - 12.6bn barrels of oil - Royal Dutch Shell, Petronas, Misan Oil
Current production: 55,000 barrels per day
Target production: 1.8m barrels per day

4) Kirkuk - 8.7bn barrels of oil - Iraq Petroleum Company
Current production: 1m barrels per day
Target production: -
This field is in Iraq's semi-autonomous Kurdistan region and has been a major producer since the 1930s.

5) West Qurna I - 8bn barrels of oil - ExxonMobil, Royal Dutch Shell, Iraqi state-owned NOC
Current production: 270,000 barrels per day
Target production: 2.35m barrels per day

6) Zubair - 4bn barrels of oil - Eni, Occidental, Misan Oil, Kogas
Current production: 205,000 barrels per day
Target production: 1.2m barrels per day