Middle East Economic Survey

VOL. LII

No 14

6-Apr-2009

Development Of Iraq’s Petroleum Capacities

By Husain al-Shahristani

The following paper was presented by Dr Shahristani, Iraq’s Minister of Oil, at the 4th OPEC International Seminar, held in Vienna on 18-19 March.

Iraq’s strategy for efficient utilization of its petroleum resources is based on a fair market share of crude oil and gas in the world energy market, on the one hand, and on adding value to our petroleum through oil refining and gas processing activities on the other.

This strategy endeavors to maintain energy market stability globally, and sustainable social and economic development locally, taking into consideration the urgent need for reconstruction of Iraq’s vital infrastructure that was damaged during decades of wars, sanctions and neglect. This requires substantial financial resources that may not be readily available, given the current world economic crisis and its effect on crude oil demand and subsequently on crude oil prices. Thus, cooperation with international oil companies (IOCs) is a key element in our policy for the development of Iraq’s petroleum resources and sourcing the financial investments required.

Targets set in the Iraq 10-year strategic plan 2008-17 have focused on three crucial objectives. The first is to increase oil production capacity from 2.5mn b/d currently to 6mn b/d, thus reaching an annual depletion rate of nearly 1.9% of our proven oil reserves. The second is to increase gas production to about 70 bcm/year, and achieve full utilization of associated gas produced. The third is to increase our present oil refining capacity of about 600,000 b/d to 1.5mn b/d, in order to meet expected increases in internal and external demand, especially for light products, with the introduction of the necessary advanced refining technologies.

Licensing Rounds

The First Licensing Round for the development of oil and gas fields was announced on 30 June 2008, to rehabilitate six giant producing oil fields, in order to provide extra production of 1.5mn b/d within three-four years, with an estimated investment of $15bn. Oil fields offered include Rumaila (North and South), Zubair, and West Qurna Phase 1 oil fields in the Basra area, Misan oil fields in the Amara area, and Kirkuk and Bai Hasan oil fields in the North. Thirty five IOCs were pre-qualified and invited to tender for further development of these fields. Expected timing for the award of these contracts is mid-2009.

The Second Licensing Round was announced on 31 December 2008. This round is intended to execute full development of 10 explored but not yet fully developed oil fields, distributed widely throughout the country. They include Majnoun, West Qurna Phase 2, Halfaya, Gharaf, Badrah, East Baghdad, Central Euphrates oil fields (Kifil, West Kifil and Marjan), Diyala oil fields (Qamar, Gilabat, Naudoman and Khashm al-Ahmar), and Najmah and Qayara in the North. Contracts for the second licensing round are planned to be awarded by the end of this year.

The aim of this round is to add further production capacity of nearly 2mn b/d, costing an estimated investment of $20bn, thus approaching the aimed strategic production target of 6mn b/d by adding the existing capacity of 2.5mn b/d to the first round addition of 1.5mn b/d and the 2mn b/d of the second round.

It is anticipated that the production target of 6mn b/d could now be achieved within five-six years instead of the 10-year period envisaged previously in the strategic plan, thus hopefully pushing up the pace of our national economic development rate to a higher level.

Gas Resources

As regarding gas resources, we are consolidating efforts to achieve full utilization of associated gas to end all gas flaring. This will be implemented by rehabilitating our partially damaged gas processing plants in the south and erecting new ones, together with improving the gas pipeline network connecting gas fields under development. Gas will be mainly used for electricity generation and other industrial applications. Excess gas could then be made available for export after meeting all domestic needs.

In the first licensing round, two greenfield gas fields were offered, namely 'Akkaz in the western desert and Mansouriya in the east, with an expected $5bn investment, while in the second licensing round one additional gas field (Siba) in the Basra area was included. We have also reached a preliminary heads of agreement to make full utilization of available associated gas in the Basra province. An estimated quantity of 7 bcm/year, which is regrettably flared now, will be utilized for power generation and other industrial usage. It is, however, expected that a gas surplus will be available for export by 2012, both as dry gas and LNG.

Refinery Projects

The third objective of our strategic plan is to increase our present oil refining capacity from 600,000 b/d to reach 1.5mn b/d, to cover the increasing domestic needs of the rapidly growing population and anticipated economic development rate.

Iraq’s Planned New Refineries

Refinery projects under consideration include the erecting of two atmospheric distillation towers in Durra and Basra refineries, of 70,000 b/d capacity each, to be completed in 2010, and the construction of five new refineries of total capacity of 840 kb/d, planned to be completed by 2015. These are:

I conclude my notes with the fact that the overall investment requirement in Iraq’s petroleum industry will add up to more than $50bn over the coming five-six years in order to reach crude production capacity of 6mn b/d and a refining capacity of 1.5mn b/d. This cannot be achieved without full cooperation with IOCs and a conducive environment for international investment. The government of Iraq is committed to creating such an environment by passing the necessary laws.