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Global Energy Review

Iraq: Prospects for Oil Production

A Report by Dr Paul McDonald
Consulting Editor, Oil and Energy Trends

• A survey of Iraq’s oil industry;
• With an outlook for oil production and export capacity;
• Together with an assessment of Iraq’s oil reserves;
• Includes links to achieve material from Oil and Energy Trends and hyper-links to relevant web-sites.

Contents

• Introduction
• Oil Production
  • Raising Production
  • Production Plans
  • First Licensing Round
  • Second Licensing Round
  • Field Developments
• Short Term Plans
  • Does Irag have Sufficient Reserves?
• Long Term Plans
  • Upstream Legislation
  • Border Disputes
• Outlook to 2015
  • Export Capacity Legislation
  • Production Capacity
• Latest Developments

List of Tables

• Table 1 Iraq: Oil Profile, First Half, 2009
• Table 2 Iraq: Production History, 2000-9
• Table 3 Iraq: First Licensing Round
• Table 3A First Licensing Round: Pre-qualified Companies
• Table 4 Iraq: Second Licensing Round
• Table 4A Second Licensing Round: Pre-qualified Companies
• Table 5 Iraq: Planned Short Term Production Increments
• Table 6 Iraq: Reserves and Production, First Half, 2009
• Table 7 Iraq: Fields selected for Long Term Development
• Table 8 Iraq: Present and Proposed Export Routes
• Table 9 Iraq: Potential Production Capacity, 2015

Introduction

Iraq is struggling to keep its oil production above 2.4 mn bpd. In the period since the US-led invasion of March 2003, its production capacity has fallen from 3.0 mn bpd to 2.5 mn bpd; and may decline further unless remedial action is taken swiftly. The upstream sector has been starved of funds and denied access to up-to-date production technology for much of the last two decades as a result, first of the sanctions that were imposed by the United Nations following the invasion of Kuwait in 1990 and, since then, of the invasion and occupation of Iraq by the US and its allies and the subsequent breakdown of law and order.

Amid signs that the security situation inside Iraq is beginning to improve, the Iraqi government has begun a programme to address the problems outlined above. It has launched two upstream licensing rounds and announced that it plans two more in 2009. The rounds are open to international oil companies. Foreign companies are also top be invited to develop fields not included in the formal licensing rounds.

The aim of these measures is to increase Iraq’s production capacity by about 0.5 mn bpd in the short term, and to add a further 1.5 mn bpd by 2012. This would enable Iraq to produce up to 4.5 mn bpd by the latter date. After that, the intention is to add a further 1.5 mn bpd to capacity by about 2015.

All these plans, however, depend on the continuing pacification of the country. They also require agreement within Iraq on the terms to be offered to foreign investors and the establishing of a proper legal framework governing the upstream sector. The government in Baghdad must also resolve its differences with the Kurdistan Regional Government over the terms under which oil and gas can be developed in the north of the country.

Oil Production

Iraq produces 2.4 mn bpd and has the capacity to produce around 2.5 mn bpd. It plans to raise its capacity in stages to 6-8 mn bpd before 2020, at an estimated cost of $50 bn. International oil companies (IOCs) are being invited to play a major role in all this.

Raising Production

Iraq’s oil production may be described as ‘modest’ in relation to the size of its claimed reserves. Output is now running just below 2.4 mn bpd. At this level, its reserves could last for 131 years; but production cannot rise by much without major new investment. Iraq’s maximum sustainable production level is about 2.5 mn bpd: just 0.1 mn bpd above actual production during the first half of 2009.

As well as raising production, Iraq wants to increase its exports. These amount at present to 1.9 mn bpd, but Iraq needs to import nearly 0.1 mn bpd to make up for the deficiencies in its refinery system, making exports just 1.8 mn bpd (see Table 1)

Table 1
Iraq: Oil Profile, First Half, 2009

	(mn bpd)
Production	2.4
Consumption	0.6
Trade
Exports	1.9
Imports	0.1
Net Trade	13.8
Includes: NGL Source: GER Estimate

Iraq at present is struggling to maintain output above 2.4 mn bpd. Output fell from 2.5 mn bpd in 2000 to 1.3 mn bpd in 2003–the year of the US-led invasion–and took several more years to recover after that (see Table 2). Even now, it has failed so far to return to 2000’s level on an annualized basis.

At the beginning of 2003, Iraq managed a brief spurt up to 3 mn bpd. For some time after the invasion of March of that year, this figure tended to be reported as the country’s production capacity. It is now clear though that Iraq cannot produce more than about 2.5 mn bpd. An attempt to raise output to this level during 2008 met with only partial success: after four months at that level, output fell back to just under 2.4 mn bpd.

Table 2
Iraq: Production History, 2000-9

	(mn bpd)
2000	2.5
2001	2.3
2002	2.0
2003*	1.3
2004	2.0
2005	1.8
2006	1.9
2007	1.9
2008	2.4
2009+	2.4
* Invasion Year + First Half Includes NGL Source: (2000-7) OET Table 4.4c (2008-9) GER / Pearl Oil

Production Plans

Iraq wants to raise production to between 2.8 and 3.0 bn bpd by the end of 2009; then by a further 1.5 mn bpd by 2012.  This is much lower than previous plan targets.  The original plan was for production of 10.0 mn bpd by 2010, but this has been progressively lowered to 3.0 mn bpd.

Iraq’s recent targets have been subject to constant revision–always downwards–as production failed to rise as rapidly as planned.  Even before 2003’s invasion, output was running well below plan.  In 2002, output was 1.5 mn bpd, or 43%, below the year’s target of 3.5 mn bpd.  Targets were lowered after 2003, but still production lagged behind.  At the end of 2004, for example, it was 60% below the target of 3.0 mn bpd, at 1.8 mn bpd.

The target was raised back to its 2002 level of 3.5 mn bpd, for the end of 2005.  Output, however, was only 2.0 mn bpd: still 43% below the planned level.  Nothing daunted, the Oil Ministry talked of production of up to 10.0 mn bpd by 2010.  This was subsequently revised downwards as output continued to disappoint, and is now a more realistic 3.0 mn bpd.

OET ARCHIVE: ‘Iraq’s oil sector struggles for survival’, Focus, Dec06
‘Iraq tried to return to normal’, Looking Ahead, Feb08

The 1.5 mn bpd increment that is supposed to come after 2010 is meant to arise as a result of two upstream licensing rounds that Iraq has recently held, the results of which it hopes to announce during 2009.  Since the first round was launched, the Oil Ministry has amended some of the bidding terms to make them more palatable to foreign oil companies, including increasing the foreign share in upstream joint-ventures from 49% to 75%.  Iraqi state oil companies nevertheless retain an effective veto over any development, by means of a provision in the upstream contracts that requires all development decisions to be unanimous.  The two licensing rounds cover fields with reserves reported by the Iraqis as amounting to 79.1 bn bbl. 

First Licensing Round

The first round involves reserves of 43.8 bn bbl and includes several fields already in production (see Table 3).  These include some of the country’s most important fields, such as Kirkuk, Rumailah, West Qurna and Zubair.  The fields are to be developed under long term service agreements.  Several IOCs have now been short-listed to take part (see Table 3A)

Table 33

Iraq: First Licensing Round

Field	Reserves
	(bn bbl)
Rumailah
North	9.5
South	6.5
Total	16.0
Kirkuk	10.0
West Qurna I	9.0
Zubair	4.0
Bai Hassan	2.2
Buzurgan	1.5
Others	1.1
Total	43.8
Totals rounded Source: Oil Ministry

Table 3A

First Licensing Round: Pre-qualified Companies

Company	Nationality
Anadarko	US
BG International	GB
BHP Billiton	Australia
BP	GB
Chevron	US
CNOOC	China
CNPC	China
ConocoPhillips	US
Edison International	Italy
ENI	Italy
ExxonMobil	US
Hess	US
Inpex	Japan
Japex	Japan
JSC Gazpromneft	Russia
Kogas	Korea
Lukoil	Russia
Maersk	Denmark
Marathon	US
Mitsubishi Corporation	Japan
Nexen	Canada
Nippon Oil	Japan
Occidental Petroleum	US
ONGC	India
Petronas	Malaysia
Pertamina	Indonesia
Premier	GB
Repsol YPF	Spain
Shell	GB/Netherlands
Sinochem	China
Sinopec	China
Statoil	Norway
Total	France
Wintershall	Germany
Woodside	Australia
Source: Oil Ministry

Second Licensing Round

The second round generally involves fields with little or no production at present.  Two of the fields, though–West Qurna II and Majnoon–have reported reserves larger than any single field offered under the terms of the first licensing round (see Table 4).  The total reserves offered under this second round amount to a reported 35.3 bn bbl.  A short-list of companies has also been drawn-up (see Table 4A).

The two rounds also involve the development of associated gas production in various fields.  In the first round, some 22 trillion cf are reportedly on offer.  Gas reserves of 26 trillion cf have been offered in the second round.  The largest gas developments are likely to be in the Rumailah, Majnoon and West Qurna II field-complexes.

Table 4 Iraq: Second Licensing Round

Field	Reserves
	(bn bbl)
West Qurna II	12.8
Majnoon	12.0
Halfaya	4.1
East Baghdad	3.0
Gharraf	0.9
Najma	0.6
Qayara	0.6
Others	1.3
Total	35.3
Totals rounded Source: Oil Ministry

Table 4A

Second Licensing Round: Pre-qualified Companies

Company	Nationality
OJSC Rosneft	Russia
OAO Tatneft	Russia
KazMunaiGas	Kazakhstan
PetroVietnam	Vietnam
Sonangol	Angola
Pakistan Petroleum	Pakistan
Japan Oil, Gas and Metals National Corporation	Japan
Cairn Energy	GB
OIL	India
Source: Oil Ministry

The licensing rounds attracted a wide range of IOCs (see Tables 3A and 4A).  Amongst them are oil majors like BP, Shell, ENI, Total, ExxonMobil and Chevron; along with a range of national oil companies like Sinochem, Sinopec, CNPC and CNOOC from China, ONGC and OIL from India, Malaysia’s Petronas, Pertamina from Indonesia and Russia’s Gazprom.  Japanese interests are represented by Inpex, Japex and others, and several of the larger independents emerged as bidders, including Anadarko from the US, Woodside and BHP Billiton from Australia and Canada’s Nexen.

Field Developments

The fields on offer are expected to contribute significantly to the Oil Ministry’s plans to increase Iraq’s oil production.  The Prime Minister’s Office is talking in terms of additions of up to 5.5 mn bpd to capacity by 2013.  There is a short term plan for an extra 420,000 bpd from seven fields over the next 1-2 years (see Table 5).  After that, several larger fields are earmarked for larger increments (see Table 7), which it is hoped will raise national production to between 6 and 8 mn bpd by 2013.

It is difficult to see how precisely this is to be achieved.  The Oil Minister, Hussain al-Shahristani, said in March 2009 that “a number” of oilfields would be offered for “quick deployment”, and that their production would be raised by 100,000 bpd in each case “within eighteen months”.  He declined, however, to specify the fields, or to say when and under what terms they might be offered.

The Minister also announced on the same occasion that two further licensing rounds would be launched during 2009, bringing the total to four.  The result of these and other measures, he said, would be to boost production to 6 mn bpd within “five or six years”, at a cost, he estimated, of $50 bn.  Some of his officials have even mentioned a figure as high as 8 mn bpd by 2015, or shortly afterwards.  The Prime Minister, Nouri al-Maliki, has even made the unlikely claim that 8 mn bpd could be achieved by 2013.

Short Term Plans

The Ministry’s long-term forecasts involve a huge jump from today’s production capacity of 2.5 mn bpd.  What is more important is what Iraq plans to do in the near-term.  In February 2009, the government announced an ‘action plan’ to boost production from seven fields by up to 420,000 bpd (see Table 5).

Table 5

Iraq: Planned Short Term Production Increments

Field	Volume to be Added
	(th bpd)
Luhais	100*
Majnoon	80
Nahr Bin Umar	70
Nassiriyah	65
Halfaya	40
Ratawi	40
Safwan	25
Total	420
* Some Iraqi sources quote a figure of 40,000 bpd Totals approximate Source: Oil press

These short term additions are an important first step for Iraq since it needs–as a matter of urgency–to reverse the decline that is occurring in several of its older, southern fields.  Damaged by war, sabotage and–most importantly–years of undermaintenance during the 13 years of UN sanctions, output from these fields is declining annually at a rate of about 6%.  This year, production from southern Iraq is expected to fall by 100,000 bpd.  The decline is made all the more serious by the fact that the southern fields account for 71% of Iraq’s oil production (see Table 6).

Fortunately for Iraq, output has been rising at its northern fields, centred on Kirkuk.  The recovery in production has been brought about by improvements in security in the north, especially along the route of the pipeline from Kirkuk to Ceyhan in Turkey.  Constant attacks on the line forced the shutting-in of parts of the northern field-complex whilst the line was repaired.

Thus, any recovery in Kirkuk’s production is likely to be small and temporary.  The field-complex itself is in long term decline.  Kirkuk has been continuously in production since the 1940s.  Its output peaked around 1990 at 1.3 mn bpd and its capacity now is not much more than 600,000 bpd.  Like the southern fields, Kirkuk has suffered from years of neglect and undermaintenance.

Most Iraqi fields are affected by falling reservoir pressures owing to the lack of secondary and tertiary recovery in recent years.  Where secondary recovery has been possible, it appears to have resulted in many cases in an excess of water in some strata: a condition known as ‘coning’.  This may account for the expected decline in southern Iraq’s production this year.  Reports from Iraq mention water problems in West Qurna, where they are believed to have led to the shutting-in of some wells.

OET ARCHIVE: ‘Iraq forges ahead with production plans’, Focus, Apr09

Does Iraq have Sufficient Reserves?

Iraq claims proven reserves of conventional oil of 115 bn barrels–the third-largest national total in the world (see Table 6).  Decades of secrecy over reserve levels, however, make such numbers impossible to verify with any degree of accuracy.

During the mid-1980s, Iraq was reporting reserve levels of 43-47 bn barrels.  Then, in 1988, it raised them to 100 bn barrels.  No technical justification was provided at the time and it was clear that the 113% increase was politically-motivated, following–as it did–large increases announced by other OPEC countries at that time.  These reserve increases formed part of a campaign by some members to increase their production quotas.

Since 1988, Iraq has continued to report ‘proven’ reserves at or above 100 bn barrels.  In 1990, it became subject to a United Nations’ embargo on the supply of oilfield technology, following its invasion of Kuwait in that year.  In the years since then, Iraq’s oilfields have been damaged by a lack of investment, shortages of equipment and physical damage caused by the US-led invasion of 2003 and its violent aftermath.  It seems scarcely credible that its reserves could have risen over this period: more likely, reservoir pressures will have declined in several cases, causing the permanent loss of oil reserves.  In default of verifiable data from Iraq it is impossible to say with any accuracy what its ‘proven’ reserves might be (i.e. those recoverable from known reserves using current technology under existing economic conditions).  A more realistic estimate, however, might be 50-60 bn bbl: sufficient for 57-68 years at existing levels of production.

Table 6

Iraq: Reserves and Production, First Half, 2009

Proven Reserves:	115 bn bbl*
Reserves Remaining:	131 years†
Production
	(mn bpd)
Southern fields	1.7
Northern fields	0.7
Total	2.4
Production Capacity	2.5
Spare Capacity	0.1
* As at 1.1.09 † Based on 2008’s production Includes NGL Source:  (Reserves) Oil & Gas Journal (Other) Pearl Oil estimate

Long Term Plans

Iraq’s short term plans could raise production to about 2.8 mn bpd.  The extra production will come principally from the fields listed in Table 5.  It is then planned that a further 1.5 mn bpd-or so will come from the fields in the first licensing round (see Table 3) bringing the total to about 4.0 mn bpd.  The second licensing round is meant to provide a further 2.0-2.5 mn bpd, which might take Iraq near to 6.0 mn bpd, depending on how much of the increase in production is offset by the decline of the oldest fields.

A number of fields have been selected for long term development.  These include about a dozen large fields already in production or with development plans already in-place.  The total capacity of these fields is somewhere in the region of 3.8 mn bpd (see Table 7).

Two of these fields are in Kurdistan, where they form a major part of the KRG’s plans to raise production from the current level of just over 10,000 bpd to 300,000 bpd within a few years.  Contracts have been awarded for the Tawke and Taq Taq fields.  Unlike the contracts offered by the central government–which are all service contracts–the KRG’s contracts are production-sharing agreements.  These are seen in Baghdad as giving foreign companies too much control over the oil they produce and the central government refuses to ratify them.

The KRG claims it has been forced to act unilaterally over upstream contracts as a result of Baghdad’s inability to pass legislation covering the oil industry. 

OET ARCHIVE: ‘Iraq struggles to pass new oil law’, Focus, Sep07

Table 7

Iraq: Fields selected for Long Term Development

Field	Ultimate Capacity
	(th bpd)
Iraq
Kirkuk	1,000
Majnoon	600
Nahr Bin Umar	450
West Qurna	450
Nassiriyah	300
Halfaya	250
Subba/Luhais	200
Al-Ahdab	115
Khormala	100
Abu Gharab	40
Badra	30
Siba	10
Total	3,545
Kurdistan
Taq Taq	200
Tawke	100
Total	300
Iraq plus Kurdistan
Total	3,845
Source: Oil Ministry; oil press

Upstream Legislation

The government has promised an ‘Oil Law’ for some time but has been unable to secure sufficient parliamentary support for measures involving participation by foreign oil companies.  There is considerable opposition to outside involvement amongst many members of parliament.  The result of all this is the present piecemeal approach to upstream contracts.

OET ARCHIVE: ‘Iraq launches ambitious production drive’, Focus, Oct08

Border Disputes

There are international issues to be resolved as well.  Some of Iraq’s oilfields lie in disputed border areas, including Majnoon, which is supposed to play a major part in raising Iraq’s oil production.  The field is described as having proven reserves of 12 bn bbl.  Other cross-border fields include the 700 mn bbl Abu Gharab discovery, the 300 mn bbl Badra field, and Siba, which is said to contain 100 mn bbl.

All four fields lie along the border with Iran.  Iraq has held talks with the Iranians over their joint-development but, in default of any agreement with Tehran, has decided to go ahead with their development anyway.  Abu Gharab was offered to bidders in Iraq’s first licensing round whilst the other three appeared in the second round.  Iraq also has fields that lie partly under Kuwait.  Iraq formally denies that any part of the Majnoon field lies under Iran, but its status needs to be agreed by both sides if it is to be developed properly.  Baghdad says it has approached both Iran and Kuwait requesting talks to resolve their outstanding border disputes.

Outlook to 2015

Export Capacity

The aim of Iraq’s oil policy is to increase production and thereby raise volume of exports, which are the country’s principal source of income.  Thus, as well as increasing production capacity, Iraq also needs to add to its existing export capacity, which stands at 3.4 mn bpd, although less than 3.0 mn bpd of this is usable at any one time owing to its poor physical state.

There are plans to increase export capacity, but of those so far put forward, few have been finally agreed and some have been postponed or even cancelled (see Table 8).  The most likely net additions are the expansions of the Persian Gulf marine terminals and the existing pipeline to Ceyhan in Turkey.  This would provide an extra 2.2 mn bpd of export capacity: probably sufficient to accommodate any likely increase in output between now and 2015 (see below).

Production Capacity

Iraq’s production is in danger of falling over the next few years without remedial work to its existing fields.  It also requires new production to be brought on-stream.  A combination of these measures could result in a net gain of 0.5 mn bpd within 2-3 years, provided the security situation remains under control and there are no unforeseen problems with the upstream contracts now under discussion.

Further increments are possible between then and 2015, but it is difficult to see how anything like the capacity figures of 6.0-8.0 mn bpd indicated by the Oil Ministry might be achieved by then–if ever.  Allowing for the inevitable lapses into violence, further delays in approving upstream legislation and Iraq’s recent history of failing to meet its production targets, a likely scenario for Iraq’s production capacity might be as follows:

Year	Capacity
	(mn bpd)
2009	2.5
2011	2.7
2013	3.0
25015	3.5

Table 8

Iraq: Present and Proposed Export Routes

Route	Capacity
	(th bpd)
Present
Marine Terminals
Basrah Oil Terminal	1,800
Khor al-Amaya	400
Total	2,200
Pipeline
Kirkuk-Ceyhan	1,200
Total	1,200
Road Tanker
Iraq-Jordan 1	10
All Routes
Total	3,410
Proposed
Marine Terminal Expansions
Basrah Oil Terminal	200
Khor al-Amaya	1,200
Total	1,400
Pipeline Expansion
Kirkuk-Ceyhan	800
Total	800
All Expansion Schemes
Total	2,200
New/Reopened Pipelines
Basrah-Abadan 2	150
Haditha-Banias 3	250
Haditha-Haifa 4	100
Haditha-Zarqa/Aqaba	350
Rumailah-Kuwait	TBD
Zubair-Yanbu 5	1,650
Total	2,500
All Proposed Schemes 6
Total	4,700
Volumes approximate Expansion schemes subject to change TBD = to be decided 1 With option to expand to 30,000 bpd 2 Reported ‘under construction’ in November 2007 3 Closed March 2003 4 Scheme abandoned 5 Closed August 1990 6 Total shews additions only; not final capacities.

Table 9

Iraq: Potential Production Capacity, 2015

Field	Capacity
	(th bpd)
Kurdistan
Taq Taq	200
Tawke	100
Others	20
Total	350
Northern Fields
Kirkuk	600
Khormala	100
Total	700
Southern Fields
Rumailah	1,000
Nahr Bin Umar	400
West Qurnah	400
Nassiriyah	300
Halfaya	100
Subba/Luhais	100
Others	250
Total	2,550
Border Fields
Majnoon	500
Abu Gharab/Badra/Siba	75
Safwan	25
Total	600
Iraq
Total	4,200
Source: Pearl Oil estimate

Latest Developments

War Update

There were further outbreaks of violence in Iraq though–as in previous months–the targets were urban areas rather than oil installations.

Oil Exports

Discussions took place over the resumption of crude oil exports from Kurdistan via Ceyhan. The Kurdistan Regional Government (KRG) said it was ready to resume exports at the rate of 100,000 bpd, rising to 150,000 bpd by the end of the year. Kurdish output has fallen to 46,000 bpd since a dispute between Baghdad and Arbil over payment for the crude resulted in their suspension last October. If exports were to resume, output could rise to about 110,000 bpd, though some of this would be required for use within Kurdistan. Any final settlement of the issue will almost certainly have to wait until a new government has been formed. Discussions over a new coalition are still underway after March’s elections failed to provide any one group with an absolute majority.

Natural Gas

OET ARCHIVE LINK: ‘Iraq makes new moves on gas’, Gas & Power, Jun 10

Previous

War Update

Violence returned to Iraq, with a series of bombings of civilians and an attack on an oil pipeline. The Kirkuk-Ceyhan crude export pipeline was once again the target, suffering a five-day closure after the line was damaged following an explosion.

Pipelines

Baghdad has resumed discussions on a 150,000 bpd export pipeline to Iran, designed to reduce Iraq’s reliance on its vulnerable northern route.

The line to Ceyhan is nevertheless set to have an increasing role in future following an agreement with Turkey to raise throughputs on the line from 700,000 bpd to 1.4 mn bpd within six years.

The Kurdish Regional Government (KRG) said it was ready to export up to 200,000 bpd of crude from its region as soon as the disagreement with Baghdad over payment for the crude–which has halted Kurdish exports since late last year–is resolved.

Oil Production

The KRG also announced it hoped to increase production from its present level of under 100,000 bpd to 1 mn bpd by 2014.

Iraq’s South Oil Company said production at its Nassiriyah field would rise from 10,000 bpd to 50,000 bpd early next year.

Production and Exports

Iraq has begun talks with Turkey over the future of its crude export pipeline from Kirkuk to Ceyhan. Turkey is concerned that the Iraq-Turkey Pipeline (ITPL), which it helped to finance, is underused as a result of a decline in Kirkuk’s production and attacks on the pipeline by various rebel groups inside Iraq, thereby reducing Turkey’s income from transit fees. ITPL’s nameplate capacity is 1.5 mn bpd, but throughput averaged only 0.5 mn bpd during 2009. The line is operated under a 25-year agreement, which expires this year.

Baghdad has just announced that it intends to increase production from 2.4 mn bpd to 2.6 mn bpd by the end of this year, and to 3.0 mn bpd by 2012; but the extra production is set to come from southern Iraq and will therefore be exported via the Persian Gulf, leaving the future of Iraq’s northern export route in some doubt.

The Iraqis have further muddied the waters by reiterating their proposals for new export pipelines to Iran and Syria. The Syrian pipeline would terminate at Banias, allowing Iraq to export crude oil to the Mediterranean without going via Ceyhan. Turkey has long had the ambition to make Ceyhan the principal oil port of the Eastern Mediterranean.

ITPL could be used to export crude from Kurdistan. The region’s two fields at Taq Taq and Tawke could export about 100,000 bpd, but deliveries have been stopped following a disagreement with Baghdad over payments for the crude. The Kurdistan Regional Government said that Kurdish output will reach 200,000 bpd by the end of 2010; but this would require a resolution of the export problem, which cannot properly begin until a new government has been formed following the narrow victory in March’s parliamentary election by the faction led by Prime Minister Nuri al-Maliki.

Meanwhile, the government in Baghdad has created further uncertainty about its plans for production and exports by rejecting a scheme by Japan’s Nippon Oil Inpex and JGC for the development of the Nassiriyah field, which was designed to provide an additional 200,000 bpd of production capacity within two years.

Associated Gas

The government has resumed negotiations with Shell for the development of a gas pipeline gathering scheme covering oilfields in Basrah province, following the breakdown of earlier talks on the scheme.

War Update

The government has announced a two-year programme to clear the country of landmines, especially in areas due to be developed for oil and gas production. The mines date mainly from the war with Iran in the 1980s and the occupation of Kuwait in 1990.

Oil Production

Iraq signed the last of the contracts for blocks awarded under the terms of its two licensing rounds but still faces a number of hurdles before it can increase production and exports as planned. Details remain thin on the necessary infrastructure developments that are necessary to enable output to increase as planned.

In an attempt to forestall opposition inside Iraq to the allocation of a large role to foreign oil companies, the government has put forward proposals for Iraq’s regions to have a greater share of the country’s oil revenues and for foreign firms to invest in local projects such as hospitals and schools. There is also to be a new regional state oil company–Midlands Oil Company–to cover central Iraq, including the troubled Anbar province, where there has been considerable opposition to the central government.

Oil Exports

Iraq’s export crudes are to be offered to buyers on a cif basis to compete with other Persian Gulf crudes sold on a delivered basis.

Refining & Petrochemicals

South Korean refiner, SK Energy is to examine ways of modernizing Iraq’s 100,000 bpd Daura refinery and building new ones. Another Korean company, STX, has been asked to construct a 600,000 t/yr steam cracker for Iraq’s State Company for Petrochemicals.

Natural Gas

Iraq has failed to agree a deal with Shell to recover gas produced in association with oil in Basrah province, which was supposed to supply gas both to the domestic and export markets.

Oil Exports

Iraq’s State Oil Marketing Organization (SOMO) announced that it intended to raise crude oil allocations for export this year by 400,000 bpd to 2.3 mn bpd, split 1,750,000 bpd from Basrah and 550,000 bpd from Ceyhan. These figures represent quota allocations to the two export outlets rather than targets. SOMO expects actual exports to be around 2 mn bpd.

It is still not clear, however, whether the allocations include any exports from the Tawke field in Kurdistan. These have been suspended since September 2009 following a dispute over payment for the crude. The Kurdistan Regional Government (KRG) said that it was ‘ready’ for talks with Baghdad over the resumption of Kurdish exports, which the KRG said could reach 200,000 bpd by late-2010. Tawke’s production–which is all being used within Kurdistan–is currently around 40,000 bpd

Oil Production

Baghdad has been pressing ahead with the signing of service contracts with foreign companies that were awarded in its second licensing round. The country’s Oil Minister, Hussain al-Shahristani, said on 13th January that foreign oil companies would invest $100 bn over the next six years and that oil production capacity would rise to 12 mn bpd by 2017. During this period, Iraq would not have an OPEC production quota, he added.

War Update

Tension has been rising inside Iraq in advance of the election that is due in March 2010. Further uncertainty was caused when Iranian forces made a temporary incursion into Iraq in an area disputed between the two countries containing the 20,000 bpd Fauqa oilfield.

Oil Production

Iraq awarded seven oilfields in its second bidding round. The fields have estimated reserves of 32 billion bbl and projected production capacities of 4.8 mn bpd. In an outburst of euphoria following the awards, the Oil Minister, Hussain al-Shahristani, declared that Iraq’s production capacity would rise from its present level of 2.6 mn bpd to 12 mn bpd ‘within six years’. A more cautious note was sounded by one of the successful foreign bidders, Statoil, which referred to the security situation in Iraq as ‘demanding’. A former Oil Minister, Thamir Ghadban, said that foreign oil companies had set unrealistic targets for production from the fields that had been awarded in an attempt to have their bids accepted. One Iraqi Member of Parliament attempted to have the recent awards declared illegal on the grounds that they had not yet been approved by the Iraqi parliament.

Commenting on Iraq’s production plans, an OPEC official said that Iraq would be brought back within OPEC’s production quota system once its output equalled that of Iran, which is currently around 3.8 mn bpd.

OET ARCHIVE LINK: ‘Iraq makes large new upstream awards’, Looking Ahead, Jan 10

Pipelines

The government has postponed plans to refurbish a 300,000 bpd export pipeline from Kirkuk to Banias in Syria, which was closed at the time of the US-led invasion of March 2003.

War Update

Oil exports were hit when the pipeline from Kirkuk to Ceyhan was damaged in an explosion near the city of Baiji. The line was closed from 21st to 26th November. This was the second successful attack on the pipeline in less than a month, which also shut the line for six days.

Exports were also affected by the diversion of crude from the Kurdish fields of Tawke and Taq Taq to the local market following a dispute over payment for the oil between the Iraqi and Kurdish authorities. Condensate produced by the Pearl Consortium at the Kurdish fields of Chemchemal and Khor Mor is also no longer being exported via Ceyhan thanks to a separate dispute over payment for the feedstock. November’s exports through Ceyhan are estimated to have fallen to 360,000 bpd, compared with nearly 600,000 bpd before the disruption of the last two months. In a separate incident, two oil workers were kidnapped in Kirkuk in late November.

These latest developments appear to be related to the increasing tensions between the central government and the Kurdish Regional Government over the status of Kirkuk and the unilateral signing of exploration and production deals with foreign companies by the Kurdish authorities, to which Baghdad strenuously objects. Oil traders meanwhile report an improvement in the quality of Kirkuk crude now that it is no longer mixed with heavier crudes from Kurdistan.

Oil Production

Iraq signed contracts with eight international oil companies designed to raise its production by nearly 5 mn bpd.

OET ARCHIVE LINK: ‘Iraq pushes ahead with new production plans’, Focus, Dec 09

War Update

Large scale violence returned to Baghdad on 25th October as suicide bombers killed 150 and injured many more. Although the oil industry has not generally been affected by the recent upsurge in violence, the Iraqi parliament agreed to the return of up to 100 members of the British Royal Navy to provide security and training at oil installations in the south of the country, including the oil export terminals at Basrah and Khor al-Amaya, which handle three-quarters of Iraq’s crude oil exports. British forces formally withdrew from Iraq on 31st July. The Shi’ite Sadrist party strongly opposes the return of the naval personnel.

Kurdistan

The Kurdistan Regional Government lifted the suspension on the operations of the Norwegian company, DNO, imposed in September, following allegations of rogue share dealing. DNO’s exports of crude, however, have not resumed. In a fresh dispute affecting both DNO and the UK’s Heritage Oil, exports have been suspended from the Tawke and Taq Taq fields. The two companies say they have not been paid for the oil they have exported so far. The crude was handled by the State Oil Marketing Organization and the proceeds were handed over to the federal government, which says that the Kurdistan Regional Government must pay the oil companies out of the general allocation of state reserves it receives from Baghdad. For the time-being the oil from the two Kurdish fields is being sold within Kurdistan.

The cessation of Kurdish exports has led to an improvement in the quality of the crude sold at Ceyhan as Kurdish crude is heavier than the Kirkuk crude with which it was blended.

War Update

The Kurdistan Regional Government (KRG) suspended the operations of the Norwegian oil company DNO following a furore over the sale of $30 mn worth of shares in the company.  The Oslo Stock Exchange claims that the shares were bought by the KRG’s oil minister apparently on behalf of another company, Turkey’s Genel Enerji.  Denials have been issued all around but the KRG has nevertheless suspended DNO’s operations in Kurdistan because of what it calls “the damage to the KRG’s reputation”.

DNO operates the 60,000 bpd Tawke oilfield in Kurdistan and was the first foreign oil company to produce oil there.  Until the suspension, about 45,000 bpd of oil from the Tawke field was being exported via Ceyhan in Turkey.  Output at the field is now reported down to about 6,000 bpd and all exports have ceased.  The KRG denies having been a beneficiary of the deal and has threatened to revoke DNO’s licence.  DNO has threatened to sue the Oslo Stock Exchange over the disclosures and a member of the Iraqi parliament has called for an investigation by Baghdad.

The affair is politically sensitive since the Iraqi government disapproves of the award of production contracts by the KRG to foreign firms and has threatened to blacklist companies that do business with the KRG.

Oil Production and Exports

Baghdad has invited foreign companies to bid for the development of the Rafidain and Tuba oilfields.  Rafidain is undeveloped but is capable of producing 100,000 bpd, according to Iraqi officials.  Tuba produces 10,000 bpd but this could rise to 140,000 bpd say the Iraqis.  Baghdad is finding it difficult to attract bidders for some oilfields because of the stiff terms it offers.  A recent increase in violence is not helping and in September the Oil Ministry said that a major gas development involving Shell and Mitsubishi could be delayed. 

There have been problems also with Iraq’s oil exports.  Buyers have complained that both Kirkuk and Basrah blends are becoming heavier, apparently as a result of the addition of heavy fuel oil

War Update

Violence returned to Iraq during August with many bombings that caused considerable loss of life. The oil industry appeared to avoid much of the mayhem and was able to report a rise in production.  The Oil Ministry reported that July’s crude oil exports were the highest since the 2003 US-led invasion, at 2.04 mn bpd.

The Kirkuk field-complex also recorded its highest post-war production, at 731,000 bpd, though this is still well below its immediate pre-war level of 870,000 bpd.  A UN report released in August, however, shows that the northern fields were damaged by the reinjection of unsold crude into reservoirs during 2008 and that nearly 4,000 bpd of condensate had to be burned because there were no plants to process it.  The UN also reports that some 4,500 bpd of oil was ‘unaccounted for’ in an audit of 2008’s production.  Around 2,000 bpd of this appears to have been stolen.

Baghdad has expressed fears of attacks on export facilities in the Persian Gulf now that the Royal Navy has withdrawn from the area. 

Oil Production

The Oil Ministry announced it was backing plans to establish a single national oil company to replace the dozen or so existing ones.  It will also require signature bonuses from companies participating in the country’s second oil and gas licensing round.  Kurdistan’s Tawke field is reported to be producing at capacity and exporting nearly 50,000 bpd. 

Refining

A 10,000bpd topping unit has been commissioned at the Samawah refinery, bringing its capacity to 30,000 bpd.

War Update

Iraq pushed its oil exports above 2 mn bpd: the highest-level since the US-led invasion in 2003. The recent recovery in exports has been led by rising output from the Kirkuk field-complex, which is now producing at 700,000 bpd, and by the commissioning of the Tawke and Taq Taq fields in Kurdistan. Production at the Kurdish fields was reported to be running near 40,000 bpd in each case. Some of this oil is being exported.

Oil Production

Baghdad has meanwhile awarded a service contract to BP and China National Petroleum Corporation to raise production from the 18 bn bbl Rumailah field from 1.0 mn bpd to 2.9 mn bpd, as well as a management contract to Japan Oil Engineering to refurbish the Faw oil terminal in the Persian Gulf and to increase capacity there by 14% to 1.6 mn bpd.

The Rumailah contract was the only one awarded in the country’s first licensing round. Other international oil companies baulked at the low service fees offered by Iraq, which were around $2 per barrel for most fields. Most companies wanted more than twice that amount. Iraq has said it will develop some of the fields on its own. It has also reduced the number of fields to be offered for service contracts in the forthcoming second licensing round. Some of these fields are in areas disputed between Baghdad and the KRG.

Refining

Iraq’s first privately-owned refinery has been commissioned, near the Kurdish capital of Arbil. The 75,000 bpd unit, which is owned by the Kurdish company Kar, is reported to be running at 20,000 bpd capacity. The crude is being supplied from an oilfield in the Khurmala Dome, which lies in territory disputed between the Kurdistan Regional Government (KRG) and Baghdad, which may add to the existing tensions between the KRG and the central government.

Refining

OET ARCHIVE LINK: ‘EU seeks gas amid Iraqi confusion’, Focus, Aug 09

War Update

Iraq’s first licensing round has encountered fierce criticism both in parliament and in the Iraqi oil industry.  The state-owned South Oil Company–the country’s largest producer–has even called for the round to be scrapped.  The opposition centres on the amount of control the round’s opponents say is being handed over to foreign oil companies.

In another contentious move, Kurdistan began to export oil on 1st June.  Up to 90,000 bpd of crude oil from the Tawke and Taq Taq fields is reported to be being sent by road to Kirkuk in northern Iraq for export from there by pipeline to Ceyhan.  The exports are doubly controversial: the oil is produced by foreign companies and the Baghdad government sees Kurdish oil exports as a means of increasing the autonomy of the Kurdistan Regional Government at the expense of its own rule.

War Update

Production from Kurdistan’s Tawke and Taq Taq fields has been increased in anticipation of the beginning of exports on 1st June. The two oilfields are reported to be producing 50,000 bpd, of which 10,000 bpd is for export via the Iraqi pipeline system. The Kurdistan Regional Government says that its crude exports will rise to 100,000 bpd, probably later this year. There are, however, various issues still to be resolved with Baghdad over both the legal status of production contracts in Kurdistan and the level of exports Iraq is prepared to sanction. The Oil Ministry says that volumes of 100,000 bpd could adversely affect the quality of crude oil exported from Ceyhan. Meanwhile foreign companies continue to announce new fields. Heritage has discovered oil at Miran and a large new gasfield has been identified by MOL and OMV.

Further south, bids for Iraq’s first licensing round are being delayed by problems with contract terms.

The number of bombings appears to be on the rise. In one attack, the 160,000 bpd Daura refinery was damaged and two people were killed.

War Update

Iraq is seeking $2.6 bn from oil companies wanting to participate in its upstream licensing rounds.  The government has changed its licensing rules to require firms that are awarded the 20-year service contracts on offer to provide soft loans of up to $500 mn per field, to be repaid over a seven-year period from the revenues generated by the production. Baghdad is also pressing bidders for licences to undertake to raise production above the target levels set by the Oil Ministry.

The government is preparing to award procurement and construction contracts for a 300,000 bpd refinery at Nassiriyah, in the south of the country.

A scheme to allow oil produced in Kurdistan to be exported has been delayed, according to Oil Ministry officials, because the Kurdistan Regional Government has not yet connected its pipeline to the main Iraqi pipeline system. Kurdish exports were originally scheduled to begin by 31st March.

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