Global Energy Review

Iraq

The outlook for Iraq is subject to even more uncertainties than any other OPEC country.  Even the statistics are misleading at present since production is artificially constrained by the lack of security in the country, which makes exports from the Kirkuk field impossible, forcing the authorities to curtail production and to re-inject most of the output.  Production in the south is constrained, though to a lesser extent, by insufficient export capacity.

The situation at the end of 2003 was as follows:

  (mn bpd)
Theoretical output capacity
Basrah Light 1.70
Kirkuk 0.60
Total 2.30
Operating capacity
Basrah Light 1.70
Kirkuk 0.40 (0.30 reinjected)
Total 2.10
Export capacity
Pipeline to Turkey 1.20 (closed)
Mina al-Bakr marine terminal 1.50
Khor al-Amaya marine terminal 0.40

The oil ministry plans to restore output capacity to 2.8 mn bpd by 2004.  This is not far off the 3.0 mn bpd capacity level that obtained just before the US-led invasion in early 2003.  Various wild projections of future capacity have been made by members of the US-imposed interim authority, including forecasts as high as 8 mn bpd or even 10 mn bpd by 2010.  Iraq's highest output historically was 3.5 mn bpd, which occurred in 1979.  Since then, oil production has been subject to war, international sanctions, and, most recently, sabotage.  Pressure has dropped in many reservoirs, coning has occurred, and hundreds of wells have been lost owing to a prolonged shortage of spare parts.

No real progress can be made until peace and security have been restored in Iraq.  It may well be years rather than months before order can be fully restored.  In the meantime, the situation in several oilfields will continue to deteriorate.  The pace at which capacity is increased will further depend on the flow of funds from the US government, which will have to finance much of the rebuilding of Iraq until sufficient funds start flowing from oil exports.  Private foreign investment in oil production may be several years off, and may not even be permitted by a future Iraqi government.

Tackling the purely technical problems of more than two decades of neglect in the oil industry will also take several years.  The history of other countries where oil production has collapsed for political or military reasons suggests that it will take at least three years just to regain some kind of stability in the upstream sector in Iraq.  That was certainly the experience in Kuwait between 1990 and 1993.  Production of 2 mn bpd fell to virtually nil after Iraq's invasion of the emirate in 1990, and only returned to that level on a sustained basis some three years later: and that was without any of the security problems now evident in Iraq.  Iran's output at the start of the 1980-88 Iran-Iraq war was around 4 mn bpd, and it is still below that level (see section on Iran).  The collapse of Russia's oil production following the break-up of the Soviet Union was only finally reversed after 11 years in 2003.  After falling from 8 mn bpd in 1992, Russian output hit 6 mn bpd in 1994 and remained about that level until early 1999.  It then took four years for it to climb slowly back to the 8 mn bpd mark.  The good news for Iraq is that Russia's production is still going up.

There is nevertheless plenty of bad news for Iraq, as well.  Its two main fields, Kirkuk and Rumaila, were discovered more than 50 years ago.  Both have been damaged by years of sanctions, political direction of oil production1 without regard to proper depletion policies and, most recently, war damage and sabotage, especially in the case of Kirkuk.

Kirkuk is in long-term decline.  Its output capacity has fallen from 0.9 mn bpd to about 0.6 mn bpd in less than five years.  Rumaila seems to be in reasonable condition but needs extensive enhanced oil recovery if it is to avoid a sharp decline later in the decade.  Iraq will have to rely mainly on new fields to increase its output over the longer term: in particular the 'four giant fields' of Halfaya, Bin Umr, Majnoon, and West Qurna, identified in the 1990s as Iraq's most important recent discoveries.  At that time they were expected to contribute a combined 2.1 mn bpd to Iraq's future production.

War Update:

Iraq 's latest round of elections, on 15th December, returned mainly Shi'ite parties, to protests from Sunnis and some secular parties. The country continued to suffer from high levels of violence. Oil installations were bombed, and road-tanker drivers were attacked in what was clearly a move designed to stop the delivery of refined products to Baghdad. The oil minister, Ibrahim Bahr al-Ulum, resigned in protest against a government decision to increase Iraq 's heavily subsidized fuel prices. He has been temporarily replaced by the Deputy Prime Minister, Ahmad Chalabi. Opposition to the price rises led to a 10-day strike at Iraq 's main refinery at Baiji. Operations continued to be adversely affected after the strike because of sabotage to the 200,000 bpd pipeline bringing crude oil to Baiji from Kirkuk . Sabotage to a pipeline serving the Daura refinery cut production there, and severe gasoline shortages were reported across the Baghdad region. The export pipeline from Kirkuk to Ceyhan was reopened after being idle for most of 2005, but throughputs are nowhere near capacity levels. Exports of crude oil from Basrah were disrupted by power cuts and bad weather.

Production Outlook

No real progress on expanding oil production can be made until Iraq is sufficiently peaceful to allow extensive access by oil workers.  This could still be a few years away.

Crude-oil production is forecast as follows:

2003 1.3 mn bpd
2010 3.5 mn bpd

Iraq, Reserves & Production, 2003

Reserves: 112.5 bn bbl
Reserves remaining: 236.8 years
Production capacity: 2.3 mn bpd
OPEC Quota (Nov '03): None
Production: 1.3 mn bpd
Consumption: 0.4 mn bpd
Net trade: 0.9 mn bpd
Peak output *
Peak year *

Production 1991-2003

Production 1991-2003

OET Archive

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1 Oil production was frequently changed to suit the political objectives of Saddam Hussain's regime, allowing no opportunity for wells to be shut down and reopened gradually, according to standard depletion practices, thereby greatly increasing the risk of permanent damage to oil reservoirs.