The IEA focused on its Iraq Energy Outlook, which is part of its World Energy Outlook Special Report. I contributed to the Iraq Energy Outlook by participating in the related workshops, as a peer reviewer and through follow-ups with IEA team members.
My commentary focuses on the three scenarios adopted by the IEA Report and their implications for Iraq. The IEA report presents the scenarios for oil production for the years 2020 and 2035. A ‘High’ case gives 9mn b/d and 10.4mn b/d respectively; the ‘Central’ scenario gives 6.1mn b/d and 8.3mn b/d, and a ‘Delayed’ case gives 4mn b/d and 5.3mn b/d (MEES, 12 October).
The IEA Central Scenario appears at 6.1mn b/d in 2020 to be similar to the previously adopted but aborted targets. Namely, the 5.5mn b/d of the early eighties that was upset by the Iran-Iraq war; the 6.0mn b/d of the early nineties that was derailed by the invasion of Kuwait, the subsequent wars, sanctions and invasion, and the 6.0mn b/d adopted by the Ministry of Oil Plan 2009-19 that was soon eclipsed by the inflated plateau targets resulting from bid rounds one and two. In a way the IEA vindicates the feasibility and soundness of these targets drawn between three to 30 years ago, though the conditions in 2012 and beyond are very different from those which prevailed prior to 2003 regime change.
Three scenarios are also considered by a Booz & Company study: Iraq Integrated National Energy Strategy (INES) supported by the World Bank, but at higher production levels than the IEA’s report. For the Booz study the ‘High’ scenario of around 13.5mn b/d by 2017 is based on concluded contracts; while a ‘Medium’ scenario gives 9mn b/d 2020-21; and a ‘Low’ scenario suggests 6mn b/d by 2025.
In a keynote speech delivered early October, Thamir Ghadhban, the Head of the Iraqi Prime Minister’s Advisory Commission, endorsed a medium production plateau of just over 9mn b/d to be reached by 2020 and considered it the favored one. This level of production, according to Mr Ghadhban, is sufficient to satisfy expected domestic demand of 1.5mn b/d and 7.5mn b/d for export (including spare capacity). He reportedly asserts “nobody is talking about six or 12mn b/d.”
Also, Iraq’s Deputy Prime Minister for Energy Affairs, Husain al-Shahristani, was reported as saying at the launching ceremony of the IEA Report in Baghdad on 10 October that 9-10mn b/d in 2020 sustainable for 20 years is both feasible and desirable.
Finally, the discussion within the Ministry of Planning on the new National Development Plan (NDP – 2013-17) indicates that in September the Ministry of Oil was suggesting 7mn b/d in 2017 as benchmark for the NDP.
The latest information indicates that the IEA and INES (and to some extent the new NDP and the emerging views among high-ranking Iraqi officials) agree on the 9mn b/d as a desirable level but they differ on the likelihood of reaching it and the time horizon – it is a “High” case according to the IEA and “Medium” case for INES and the NDP. Most likely the forthcoming but still being formulated National Energy Strategy (NES) would endorse the 9mn b/d to be reached by 2020, and probably this would affect the subsequent NDP as well as annual state budgets.
The common denominator among all the efforts to assess appropriate Iraqi production levels is that they are much below the aggregate of around 13.5mn b/d envisaged for 2017 and resulting from the contracted long term service contracts and production from other oilfields (including the KRG).
The difference between this aggregate and any scenario of 6mn b/d or 9mn b/d is significant and could have many implications that need to be addressed by the Ministry of Oil and related Iraqi authorities and, accordingly, should be seen as a matter of urgency and priority.
These include the need to revise and renegotiate the concluded contracts, especially those for bid rounds one and two. Accordingly Iraq has to prepare its renegotiation strategy and form the negotiating team with proper care. This is particularly critical since according to the signed contracts of bid round one the Final Development Plans for the involved oilfields have to be in place within the first half of 2013.
Due to lower production levels and a longer plateau period comparing with the contracted ones, there are no compelling reasons to hold further bid rounds, especially for oil-prone exploration blocks, for a considerable period of time but at least until 2020 – the commencement of the new plateau target period. The ministry should instead focus its efforts and energies on ensuring proper implementation of the already concluded (and to be renegotiated) service contracts to avoid the possibility of the ‘Delayed’ case foreseen by IEA.
Under either scenario of 6mn b/d or 9mn b/d in 2020 the magnitude of the cash flow is tremendous. The IEA report envisages up to 2035 a required investment of $400bn under the central case, and $580bn under the high case. The expected revenues up to 2035 are $5 trillion under the central case, and much more than that in the high case scenario.
Therefore, as a matter of urgency and necessity there is a need to prepare and have in place a functional, effective and comprehensive good, democratic and transparent governance system on cash flow, investment requirements, and cost of development, which according to the Ministry of Oil are taking an unreasonably higher trend. The same is also true for export revenues, which depend primarily on export volumes and oil prices. This has to be done through specific institutional arrangements and legal/constitutional frameworks.
Also there should be coherent and harmonious systemic linkages between the NES and NDP commensurate with the principle of using petroleum for the best interests of the Iraqi people, as enshrined in the current constitution.
* Mr Jiyad is an independent development consultant and scholar. He is the founder of Iraq/Development Consultancy and Research (Norway) and Associate with the Centre for Global Energy Studies, London, with 40 years of international experience in Iraq, US, UK, Norway and with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway, and can be reached at [email protected]