Dr Uqaili is an exploration and production consultant. This article is an update of Dr Uqaili’s ‘One Hundred Days In The Iraqi Oil Industry’ (MEES, 27 June 2011).

Iraq seems to be passing through difficult times with current ruling parties struggling to manage a semi-integrated country. This article is based on a close witnessing of events in Iraq during November 2011 to mid-January 2012 in addition to a continuous monitoring of the activities of the oil and gas sector in the country since 2003. Iraq has faced several challenges that delayed many of the targets of both the federal and the provincial governments, following the awards of Bid Rounds 1-3 and the start of activities in Kurdish Iraq. The views of technocrats and economists are still very much overshadowed by those of the politicians. Both federal and provincial parliaments seem to be non-effective in facing the challenges. In fact, both are seen as part of the problem. Democracy, in the absence of proper culture, transparency and law and order has not been of much help.

Both geopolitics and local politics are reducing planned targets for production and export of Iraqi crude oil.

Internal Politics

Bad relations between the governing political parties are the main cause of instability and poor security in Iraq. Security conditions are delaying the achievement of planned targets in Rounds 1 and 2 projects and lately the preparation prior to field activities in the case of Round 3, especially unexploded ordnance clearance and seismic data acquisition. Activities on the ground for the announced 12 blocks of Round 4 have not started yet. The country has been without defence and interior ministers for over a year. At least two serious incidents targeting seismic equipment and personnel have occurred during that period.

The current dispute with the Kurdistan Regional Government (KRG) over rights for exploiting domestic oil and gas has reached a very serious situation with the entry of ExxonMobil and the official declaration of that entry by the parties concerned. It is believed now that a few of the awarded international oil companies (IOCs) in southern Iraq may follow. Farming in and farming out would most probably follow, with Statoil expected to be the first with the sale of its stake in West Qurna-2.

The future of production and export from Kurdistan, now about 65,000 b/d instead of the 175,000 b/d promised by KRG, remains at stake unless a national integrated oil plan is agreed in the presence of strong federal government.

Geopolitics

International political relations are well below the desired level. Iran is still the biggest foreign power interfering in Iraq’s politics and security. It is also the source of a possible serious dispute over border issues, especially in Shatt al-'Arab and the shipping lane leading to Basra terminal. The undisclosed story of the delay in completion, inauguration and commissioning of the first single buoy mooring (SBM) at the terminal remains a serious threat and a point of pressure on Iraq that may delay completion of four more SBMs, forcing Iraq to reduce its export capacity. The first SBM of 850,000 b/d loading capacity was supposed to be completed and functioning in early November 2011 (according to Deputy Prime Minister Husain al-Shahristani, speaking on Al-Fayhaa television, 3 October 2011). The inauguration was delayed until late in January 2012 and there were no reports of loading by the end of February. Officially, the delay has been attributed to bad weather, but this seems to have continued for too long.

There have been many hints and unspecified claims by government officials that Saudi Arabia is backing terrorist attacks in Iraq. The IPSA pipeline, an outlet for Iraq’s oil export, was confiscated by the Saudi government and never returned to Iraq, despite many attempts by a few Iraqi officials to resolve the issue.

Kuwait has added a further problem, besides its insistence in keeping Iraq bound by Article 7 of the UN embargo that is choking off Iraq’s sea navigation rights due to the establishment of their Mubarak Port. The problem over the recognised land border and the joint exploitation of the relevant oil accumulations are still unresolved. The gas pipeline from South Rumaila to Kuwait that was built in the mid 1980s is still under the control of the Kuwaitis (within Kuwait) and it has not been recommissioned despite the presence of a joint committee that was established post-2003. Such Iraq-Kuwait relations have an own impact on the development and possible future of Kuwait Energy Company’s Siba Field and to a certain extent Mansuriya field.

The current instability in Syria is still a threat to plans to build new oil and gas pipelines through that country. Similarly the increased power, at least on the street, of the Islamists in Jordan, makes one hesitant about the revival of the old Iraq-Jordan Export Pipeline project.

The Economy

Iraq’s economy is weak and handicapped with many projects either still ‘on paper’ or not finished. Completed projects were late and below contracted specifications. Unemployment is high and the country still lacks main infrastructure amidst administrative and financial corruption everywhere, including Kurdistan.

Security

The security situation is not helping political stability after nine years of change. Security forces are not capable of eradicating terrorism – they are infiltrated by terrorists who have already taken roles in carrying out notable attacks and organized crimes on well-selected places and ordinary people on the street.

Border Fields

Dr Shahristani completed a successful political move by awarding the border fields or those near the border to three companies backed by superpowers, although results are yet to be seen. These are:

• Badra field to a consortium led by Gazprom (Russian).
• Fuqi, Buzurgan and Abu Gharab to a consortium led by CNOOC (Chinese).
• Majnoun to a consortium led by Shell (Anglo-Dutch).

Midland Oil Company and the Badra field’s operator plan to drill 17 wells and produce 25,000 b/d by mid- 2013 and 170,000 b/d at plateau in 2015. It remains to be seen how effective the Russians are in supporting the development plan of the field?

A joint Iraqi-Iranian committee has been formed with Iraq’s oil minister as chairman of the Iraqi side.

Chia Surkh, in Dyala governorate and bordering Iran, was awarded by KRG more than once, but no progress whatsoever has been recorded. The Kurds regard the location as being in a disputed area. Unlike the federal government, KRG was less successful in the choice of the awarded company.

Water Injection

The water injection mega-project that will support most if not all the awarded fields is in the balance after the Ministry of Oil withdrew the project from ExxonMobil recently. It needs $10-15bn and a huge amount of work and coordination. The ministry’s SCOP, with its modest facilities, is trying to replace ExxonMobil. This and many projects associated with field development are beyond the capability of the Iraqi oil management.

Achievements Since The Bidding Awards Were Signed

The trend of increasing field production achieved during the first quarter in three cases, Rumaila, Zubair and West Qurna-2, seems to be changing due to bottlenecks in storage, transportation and export in South Iraq, where most of the Iraqi oil is produced. The status in 2011 was as follows:

• Production from the awarded fields fluctuated between a low of 1.682mn b/d and a high of 1.829mn b/d (Table 1). Excluding production from the Ahdab Field (43,000 b/d added in September 2011), there is almost no growth in the total production of the southern fields.
• Exports during the year (Table 2) fluctuated between 1.744mn b/d in January 2011 and 1.632mn b/d, ending at 1.733mn b/d in December 2011.
• The contribution from Maisan province (four awarded fields with production plateau of 0.5-1.0mn b/d and few pilots run by Maisan Oil Company) has not changed much.
• Production from the national fields run by South Oil Company (SOC), all pilots, was decreasing, seemingly to allow some of the production from the awarded fields to be produced (a drop of about 60,000-100,000 b/d),
• Only BP-run South and North Rumaila kept a rate higher than the initial rate on award. The remaining fields (Table 2) were generally on the decline.
• Production from Majnoun field, although on pilot, was decreasing most probably due to local problems concerning tribal workers. These interrupted full pilot production before, when the field was under SOC. It has been reported lately that Shell is experiencing difficulties in choosing the right local workers due to pressure from the tribes and influential parties.

Dr Shahristani, on Al-Fayhaa television on 3 October 2011, was optimistic in revealing the following:

• Total production now is 2.8mn b/d and will be 3.0mn b/d before the end of the year. Now export is less than capacity because of pumping and export limitations. (Author: December total was 2.8mn b/d including feed to refineries and power stations plus Kurdistan 66,000 b/d, while there is about 450,000 b/d capacity in the southern fields that cannot be produced because of bottlenecks).
• Plan for 2012 is to produce 3.4mn b/d. Ahdab is producing 100,000 b/d now (Author: what was received in September-October 2011 was 43,000 b/d).
• Four SBMs of 900,000 b/d capacity each with one additional for reserve: the first one completed and will be open within about a month, the second will be available in two months time. (Author: the first is still not operative while the second has not been completed).
• Khor al-'Amaya has 200,000-300,000 b/d export capacity. (Author: 110,000 b/d in September 2011 and 84,000 b/d in October).
• We aim at 10mn b/d from the South; 600,000 b/d refining now will increase to 1mn b/d.
• Pipeline across Syria is closed down – we will have new lines.

Export Routes from Iraq

The threat of closing the Strait of Hormuz is motivating a few Iraqi politicians and experts to examine other options to export the Iraqi crude oil. Expansion of Iraq’s export facilities through Turkey seems to be ‘the lesser evil’. It will stay to be so as long the federal government stays impotent on disputes with KRG. Considering a pessimistic scenario, the maximum export capacity for Iraq may not be more than 4-5mn b/d.

The following needs to be borne in mind:

• Increasing the current limited capacity of the pipeline from 700,000 b/d to the original capacity of 1.5mn b/d with an additional 20% using drag reducers. The pipeline requires refurbishment.
• Possibility of building a third pipeline to Turkey to raise the capacity to some 2.25mn b/d.
• Refurbishing the current strategic line from Basra to pump the southern Iraqi crude oil through a northward to link with the Iraq-Turkish Export Pipeline. Two lines may have a capacity of over 1.5mn b/d to be fed from the southern fields.
• Rerouting the export line away from the Kurdistan-Dohuk entry point may require passing through Syria if stability in that country is restored. A bypass emergency arrangement is recommended.
• A pipeline through Jordan can add up another 1.5mn b/d.
• Export by trucks from Kurdistan plus other routes may total about 25,000 b/d.

An emergency transportation plan with a new pipeline network (may take two-three years) would look like:

• New Iraq-Turkey pipeline: 2.25mn b/d. Share of production: NOC fields and Kurdistan, 1mn b/d; feed from southern fields 1.5mn b/d.
• Iraq-Jordan pipeline: 1.5mn b/d (from southern fields).
• Road trucks (including Kurdistan: 25,000 b/d).

Total emergency production for export: 5mn b/d plus 0.75-1.0mn b/d for refining during the coming five years. IPSA pipeline, if returned to Iraq, can transport more that 1mn b/d.

Future Outlook

With the above factors and challenges the Iraqi Ministry of Oil needs to revise its forecast, noting that the years 2012 and 2013 will be critical:

• The period will include the start of actual field development of the new reservoirs in the awarded fields of Rounds 1 and 2.
• Measures to be taken by the Ministry of Oil and awarded companies to resolve the storage, transportation and export bottlenecks. This includes the issue of water injection.
• The future of the awards of the three fields of Round 3, after completing the seismic data acquisition and working over few wells.
• The extent of expectations from awards in Round 4 as some seismic and a well or two in some of the 12 blocks are executed, if initial seismic is encouraging.
• Iraq most probably will not be able to produce more than 6mn b/d and export more than 5mn b/d under normal conditions by 2015. Iraq needs serious steps towards looking for safe options to transport its crude oil during an emergency, due to the worsening political situation in the Middle East. The option seems to be through Turkey and Jordan, offering a new setup of export capacity of some 5mn b/d.

Table 1: Monthly Production Rates During 2011 ('000 b/d)

Table 2: High And Low Southern Field Rates During 2011 (‘000 b/d)