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Is Iraq’s oil strategy too ambitious?

Published: Jan. 29, 2010 at 4:46 PM

BAGHDAD, Jan. 29 (UPI) — The chief executives of two of the world’s oil giants have been waxing lyrical about helping Iraq quadruple its oil production over the next decade, but questions linger about whether it can be done.

Some energy industry experts believe that given the plethora of problems that the Iraqi government of Prime Minister Nouri al-Maliki is having to deal with, Baghdad is being way too ambitious.

Others are less sanguine about the prospects of Iraq raising its production level from the current 2 million barrels a day to 12 million bpd by 2020.

Tony Hayward, CEO of BP, is confident it can be done. He said during the recent World Economic Forum in Davos, Switzerland, that even though Iraq has yet to finalize a long-delayed oil law, he believes that aided by foreign oil companies and their state-of-the-art technology Baghdad will hit its target.

BP and the China National Petroleum Corp. were awarded a 20-year production contract for the huge Rumaila field, with reserves estimated at 17.8 billion barrels, in southern Iraq in leasing auctions held in Baghdad in 2009.

Hayward, speaking at a Davos session on sustainable energy supply, reckons that BP will be able to boost Rumaila’s current output of 1 million barrels a day to 3 million bpd by 2020.

“All the current plans show more is possible, but 10 million barrels per day is realistic,” he said.

Peter Vosser, Hayward’s opposite number at Royal Dutch Shell, which has two large oil projects now under way in Iraq, was equally confident that the country is on track to rival Saudi Arabia’s production level.

Shell, along with Exxon Mobil, completed a deal on Monday to develop the vast West Qurna Phase 1 field, which holds 7 billion barrels of recoverable oil.

Shell also is part of a consortium with Malaysia’s state-owned oil company Petronas that won the Majnoon field in eastern Iraq. It contains an estimated 12.8 billion barrels of oil.

Shell has pledged to boost production there from a paltry 46,000 barrels a day to 1.8 million.

If Iraq gets anywhere near its production target, it will provide a new supply of oil at a period when world demand for energy is expected to swell from the current level of 85 million barrels a day to 100 million by 2030.

In that context, Iraq will have to pull out all the stops to boost production in an industry that has been battered by war and international sanctions over two decades and which has had no investment in that time.

Hayward stressed, “We’re cautiously optimistic about the potential that Iraq can play in providing a new source of supply to global oil markets.”

But he admitted that this could be jeopardized by what transpires in Iraq, where violence has surged recently as the country heads toward critical parliamentary election on March 7.

“The realities of the challenges of execution on the ground and the need to build capability on the grounds mean things will happen a little slower than all of us are perhaps planning for today,” Hayward said.

“The resources there are relatively easy to bring on stream and there is no reason to believe that Iraq can’t be producing 10 million barrels per day by 2020 or so.”

Iraq’s ambitions could be snarled if the Organization of Petroleum Exporting Countries imposes a new production quota. Iraq, a member of OPEC, has not had a quota since the 1990 invasion of Kuwait.

But in the meantime, the experts seem split on Iraq’s prospects as outlined by its go-get-em oil minister, Hussain al-Shahristani, who spent years in Saddam Hussein’s torture gulag.

“A major, rapid production increase, as envisioned by Dr. al-Shahristani, is not entirely unprecedented — Russia managed something comparable in the 1990s although that was a recovery to previous levels, not a new high,” according to energy analysts Richard Savage and Alex Martinos at Mirabaud Securities.

“However, in the case of Iraq, it must be seen as highly unlikely. Even though the worst of the post-invasion strife seems, thankfully, to have passed, Iraq still faces a raft of challenges.”

Savage and Martinos concluded: “The 12 million barrels per day target is, arguably, inflated after a licensing process that encouraged competing companies to set high production targets for each field, with limited economic penalties if these are subsequently missed.”

© 2010 United Press International, Inc. All Rights Reserved.

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