Iraqi oil minister Hussein al-Shahristani said April 23 that the recent government crackdown in the southern oil hub of Basra had been a success and had created a safer environment for the oil industry.
Shahristani, speaking to reporters on the sidelines of the International Energy Forum in Rome, said that Iraq was making progress in raising production from northern and southern oil fields and hoped to be producing 2.9 million b/d, up 400,000 b/d over current levels, by the end of the year. "That is why we are confident that we can increase our production, both in Basra and in Kirkuk beyond our current production of 2.5 million b/d. Our aim actually by the end of the year is about 2.9 million b/d..."
The Iraqi oil ministry has been negotiating with foreign oil companies on short-term technical service agreements, which accordingly to Shahristani were meant to provide a short-term fix to increase production capacity until Iraq was ready to sign longer term development contracts.
The fact that Iraq had succeeded in the interim in raising production by nearly 400,000 b/d in the last six months meant any further delay would render the Technical Support Contracts (TSCs) irrelevant.
"We are planning to increase by another 500,000 b/d by the end of the year or early next year and this is giving us what we are planing to get through the technical service agreement," he said.
"If there are going to be delays, and the delays are not due to the Iraqi side, then the relevancy of these technical support agreements will be in question," he said, explaining that the technical services agreements were meant to help Iraq raise production by 500,000 b/d in the immediate future.
"That is why we have told the IOCs, those who are interested to go ahead, that they are losing time. June itself is a bit late and whoever is not ready by then, we might not really require technical service agreements," Shahristani said, adding later that they might be dropped altogether. "We may drop them if they are not signed soon, yes," he said.
Companies negotiating technical service agreements include: Shell, Total, BHP Billiton, ExxonMobil, Vitol, Anadarko and Dome Energy.
Shahristani said the oil ministry hoped to launch an international licensing round for brownfield oil fields and a few gas fields, including the giant Akas gas field, in the summer.
"The first licensing round is going to go ahead as quickly as we can get it through the procedures and we are planning to announce a call for bids by this summer," he said.
Despite this significant advance in turning around the fortunes of Iraq's oil industry, the reality is that a totally safe operating environment in Iraq remains a distant prospect.
The US military 'surge' launched in February 2007 has met with some success, improving the security situation and facilitating a rise in Iraqi crude production (see chart on Iraqi monthly oil production), which has in turn bolstered the government's finances.
In Q1 2008, the total oil production for the country averaged 2.4 million b/d, close to 250,000 b/d higher than the 2007 average of 2.181 million b/d.
This figure is some way short of the 2.85 million b/d average achieved in the final three months before 2003's US-led invasion and still remains far below the country's potential (see chart on Iraqi oil production).
The substantial increase in the average daily production rate from Iraq's northern oilfields, including the giant Kirkuk field, climbed to a post-war high of 619,000 b/d in March, up 180,000 b/d from the previous month, Iraqi ministry of oil figures obtained by Platts showed.
But this is still substantially below the pre-war average of 870,000 b/d.
Exports from the north averaged 320,000 b/d in March 2008, 74,000 b/d lower than February, and 1.598 million b/d from southern Gulf terminals, 56,000 b/d higher than in February.
Iraq's oil ministry figures also showed that production from southern fields fell to 1.796 million b/d in March 2008 from 1.905 million b/d during February.
It is unlikely that production will increase in the southern fields from current levels of 1.9 million b/d, due to the need for incremental work of drilling and of reservoir management, which would take months to implement under present circumstances and is largely dependent on the ongoing security situation. The March 2008 figures also showed that Iraq exported 1.918 million b/d, down from 1.936 million b/d in February.
Iraq's potential too big to ignore
Investing in a factionally, ethnically and regionally riven country in which institutions and the rule of law are weak and which depends on an outside force for its stability is never going to look like a great proposition, but IOCs know that Iraq's potential is simply too big to ignore.
Iraq offers world class hydrocarbon resources that make it perhaps the last bastion of 'easy oil' on earth open to foreign investment. Proven reserves are estimated at 115 billion barrels of oil with low extraction costs.
Tariq Shafiq, director of Petrolog and Associates, and a member of the team charged with drafting Iraq's subsequently amended petroleum law, estimates the finding and development cost of Iraqi oil at just $0.5-$1.0/barrel and the operating costs at $1-$2/barrel, although costs may be inflated by security requirements and rising oil field equipment prices.
As a result, it is not surprising that a large number of companies contested to be qualified in the first post-war licensing round. Iraq represents such a big opportunity that IOCs cannot afford not to be involved.
Technical service contracts (TSCs) represent a foot in the door, with the possibility of much more lucrative exploration and production ventures in the longer term.
According to the Centre for Global Energy Studies' (CGES) recent study, Hydrocarbon exploration and field development in Iraq, new known fields in Iraq could support a plateau of 3.8 million b/d in addition to current output of about 2 million b/d, but this will not be realized soon.
Iraq's current production export facilities can handle up to 3.5 million b/d. This implies that a rise in existing output could be accommodated, but realizing the long-term potential of Iraq's reserves - output between 6-9 million b/d - would require major investment in new export infrastructure.
CGES forecasts Iraqi output of 2.146 million b/d in 2008, rising to 2.385 million b/d in 2009 and 2.692 million b/d in 2010 (see table on Oil production and export forecasts).
An important caveat is the contribution of the northern oil fields, where security issues have reduced capacity to 30-40%.
An improved security situation could result in an increase in production of 500,000 b/d, says CGES. An additional factor will be the success of service contracts negotiated with the majors. In the north, capacity is not a problem so long as the security of the Iraq-Turkish crude pipeline can be maintained. In the south, the current export system and the Gulf terminals are barely sufficient to export at current levels.
Raising export capacity here from it's present level of around 1.7 million b/d to 3.0 million b/d would require the development contracts to include the rehabilitation of Sea Lines and the Khor Al-Amaya export terminal, the installation of extra storage tanks and pumping units, as well as pipeline system development, including the upgrading and completion of the second internal strategic pipeline.
Shahristani, speaking to reporters on the sidelines of the International Energy Forum in Rome, said that Iraq was making progress in raising production from northern and southern oil fields and hoped to be producing 2.9 million b/d, up 400,000 b/d over current levels, by the end of the year. "That is why we are confident that we can increase our production, both in Basra and in Kirkuk beyond our current production of 2.5 million b/d. Our aim actually by the end of the year is about 2.9 million b/d..."
The Iraqi oil ministry has been negotiating with foreign oil companies on short-term technical service agreements, which accordingly to Shahristani were meant to provide a short-term fix to increase production capacity until Iraq was ready to sign longer term development contracts.
The fact that Iraq had succeeded in the interim in raising production by nearly 400,000 b/d in the last six months meant any further delay would render the Technical Support Contracts (TSCs) irrelevant.
"We are planning to increase by another 500,000 b/d by the end of the year or early next year and this is giving us what we are planing to get through the technical service agreement," he said.
"If there are going to be delays, and the delays are not due to the Iraqi side, then the relevancy of these technical support agreements will be in question," he said, explaining that the technical services agreements were meant to help Iraq raise production by 500,000 b/d in the immediate future.
"That is why we have told the IOCs, those who are interested to go ahead, that they are losing time. June itself is a bit late and whoever is not ready by then, we might not really require technical service agreements," Shahristani said, adding later that they might be dropped altogether. "We may drop them if they are not signed soon, yes," he said.
Companies negotiating technical service agreements include: Shell, Total, BHP Billiton, ExxonMobil, Vitol, Anadarko and Dome Energy.
Shahristani said the oil ministry hoped to launch an international licensing round for brownfield oil fields and a few gas fields, including the giant Akas gas field, in the summer.
"The first licensing round is going to go ahead as quickly as we can get it through the procedures and we are planning to announce a call for bids by this summer," he said.
Despite this significant advance in turning around the fortunes of Iraq's oil industry, the reality is that a totally safe operating environment in Iraq remains a distant prospect.
The US military 'surge' launched in February 2007 has met with some success, improving the security situation and facilitating a rise in Iraqi crude production (see chart on Iraqi monthly oil production), which has in turn bolstered the government's finances.
In Q1 2008, the total oil production for the country averaged 2.4 million b/d, close to 250,000 b/d higher than the 2007 average of 2.181 million b/d.
This figure is some way short of the 2.85 million b/d average achieved in the final three months before 2003's US-led invasion and still remains far below the country's potential (see chart on Iraqi oil production).
The substantial increase in the average daily production rate from Iraq's northern oilfields, including the giant Kirkuk field, climbed to a post-war high of 619,000 b/d in March, up 180,000 b/d from the previous month, Iraqi ministry of oil figures obtained by Platts showed.
But this is still substantially below the pre-war average of 870,000 b/d.
Exports from the north averaged 320,000 b/d in March 2008, 74,000 b/d lower than February, and 1.598 million b/d from southern Gulf terminals, 56,000 b/d higher than in February.
Iraq's oil ministry figures also showed that production from southern fields fell to 1.796 million b/d in March 2008 from 1.905 million b/d during February.
It is unlikely that production will increase in the southern fields from current levels of 1.9 million b/d, due to the need for incremental work of drilling and of reservoir management, which would take months to implement under present circumstances and is largely dependent on the ongoing security situation. The March 2008 figures also showed that Iraq exported 1.918 million b/d, down from 1.936 million b/d in February.
Iraq's potential too big to ignore
Investing in a factionally, ethnically and regionally riven country in which institutions and the rule of law are weak and which depends on an outside force for its stability is never going to look like a great proposition, but IOCs know that Iraq's potential is simply too big to ignore.
Iraq offers world class hydrocarbon resources that make it perhaps the last bastion of 'easy oil' on earth open to foreign investment. Proven reserves are estimated at 115 billion barrels of oil with low extraction costs.
Tariq Shafiq, director of Petrolog and Associates, and a member of the team charged with drafting Iraq's subsequently amended petroleum law, estimates the finding and development cost of Iraqi oil at just $0.5-$1.0/barrel and the operating costs at $1-$2/barrel, although costs may be inflated by security requirements and rising oil field equipment prices.
As a result, it is not surprising that a large number of companies contested to be qualified in the first post-war licensing round. Iraq represents such a big opportunity that IOCs cannot afford not to be involved.
Technical service contracts (TSCs) represent a foot in the door, with the possibility of much more lucrative exploration and production ventures in the longer term.
According to the Centre for Global Energy Studies' (CGES) recent study, Hydrocarbon exploration and field development in Iraq, new known fields in Iraq could support a plateau of 3.8 million b/d in addition to current output of about 2 million b/d, but this will not be realized soon.
Iraq's current production export facilities can handle up to 3.5 million b/d. This implies that a rise in existing output could be accommodated, but realizing the long-term potential of Iraq's reserves - output between 6-9 million b/d - would require major investment in new export infrastructure.
CGES forecasts Iraqi output of 2.146 million b/d in 2008, rising to 2.385 million b/d in 2009 and 2.692 million b/d in 2010 (see table on Oil production and export forecasts).
An important caveat is the contribution of the northern oil fields, where security issues have reduced capacity to 30-40%.
An improved security situation could result in an increase in production of 500,000 b/d, says CGES. An additional factor will be the success of service contracts negotiated with the majors. In the north, capacity is not a problem so long as the security of the Iraq-Turkish crude pipeline can be maintained. In the south, the current export system and the Gulf terminals are barely sufficient to export at current levels.
Raising export capacity here from it's present level of around 1.7 million b/d to 3.0 million b/d would require the development contracts to include the rehabilitation of Sea Lines and the Khor Al-Amaya export terminal, the installation of extra storage tanks and pumping units, as well as pipeline system development, including the upgrading and completion of the second internal strategic pipeline.
Source: Platts|
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