Iraq’s Oil Minister, Ihsan Abdul-Jabbar, last week stated that the country aims to increase its crude oil production to 6 million barrels per day (bpd) by the end of 2027. This sort of statement, with the amount or year changed slightly in each variant, has been made by several oil ministers on several occasions, but with oil prices still at supportive levels for producers this latest statement prompts three key questions: can it be done; can even more be done; and will it be done? The answer to the first question is yes. As analysed in depth in my new book on the global oil markets, Iraq – even more so than Iran - remains the greatest relatively underdeveloped oil frontier in the world. Officially, according to Energy Information Administration (EIA) figures, Iraq holds a very conservatively estimated 145 billion barrels of proved crude oil reserves (nearly 18 percent of the Middle East’s total, and around 9 percent of the world’s). Currently, it is producing around 4.1-4.2 million bpd, compared to its April OPEC quota of 4.414 million bpd, and its quota is due to increase to 4.5 million bpd in June.
Although Iraq is currently only managing to produce around 4.1-4.3 million bpd, this shortfall is largely attributable to field outages in the south for maintenance reasons, most notably the 400,000 bpd West Qurna 2 oilfield being offline for 12 days of maintenance, and to ongoing upgrading work being done on its export infrastructure. From 2015 to 2020, Iraq crude oil production was frequently recoded at over 4.5 million bpd, with its highest monthly production being 4.83 million bpd in December 2016, according to OPEC figures.
In the relatively short-term, certainly before the end of 2027, there certainly appears scope to increase crude oil output from several fields in Iraq – concentrating on those in the south, given ongoing difficulties in the semi-autonomous region of Kurdistan in the north – without too much in the way of costly and time-consuming build-out of the country’s fundamental oil infrastructure. Last August, Iraq approved plans to enable BP to spin off its operations in the supergiant Rumaila oil field with the creation of Basra Energy Ltd that would hold BP’s interest in the site and be jointly owned by China National Petroleum Corp (CNPC).
This is expected to release a considerable new line of financing for the field, which has been producing around 1.4-1.5 million bpd for many years, since its discovery in 1953. With remaining recoverable crude oil of around 17 billion barrels, the field has a plateau target of 2.1 million bpd. As with the vast majority of Iraq’s oil fields both north and south, the lifting cost for oil remains the lowest in the world at around U$2-3 pb, on a par with that of Saudi Arabia.
Recent increases in Rumaila’s crude oil output can be attributed to improvements put into place by BP and CNPC, including the renovation of the Qarmat Ali Water Treatment Plant. This is now capable of treating up to 1.3-1.4 million bpd of river water, allowing for greater extraction of oil from the field’s Mishrif reservoir (triple the amount, in fact, that was extracted in 2010). According to industry figures, Rumaila requires around 1.4 barrels of water for each barrel of oil produced from the north of the field, whilst the Mishrif formation in the south will require much higher water injection rates to support production.
The Qarmat facility has also supported, and will continue to support, crude oil production increases at the adjunct Zubair field, principally operated by ENI (plus KOGAS and Iraqi partners), as around 14 percent of the water from the Qarmat Ali Water Treatment Plant goes to Zubair. With an initial target of 201,000 bpd, Zubair now produces around 360,000 bpd, and is due to receive a further boost from the construction of a 380 megawatt power plant. These advances are likely to increase oil production to around 600,000 bpd, and there is even further scope for major production increases, given Zubair’s initial plateau target of 1.2 million bpd.
Pressure has been brought by Iraq’s Oil Ministry in recent weeks on the developers of several fields in the ThiQar province, most notably Gharraf and Nasiriya. In the context of this 6 million bpd crude oil production target, the Oil Ministry has called on Japan’s Japex to speed up its work increasing production at the 1 billion+ barrels of oil reserves Gharraf field, up from the current 90,000 bpd to at least 230,000 bpd. This was the original plateau figure, after the initial target of 35,000 bpd had been reached. As an incentive, good progress on Gharraf would be regarded positively by Iraq’s Oil Ministry in assigning favourable development contracts on the nearby 4.36 billion-barrel Nasiriya oilfield.
Such increases, although they would allow Iraq to hit its 6 million bpd target, pale into insignificance when considering question two: can even more be done? The answer here, again, is yes. In 2013, Iraq launched its ‘Integrated National Energy Strategy’ (INES), which formulated the three forward oil production profiles for Iraq. The INES’ best-case scenario was for crude oil production capacity to increase to 13 million bpd (at that point by 2017), peaking at around that level until 2023, and finally gradually declining to around 10 million bpd for a long-sustained period thereafter. The mid-range production scenario was for Iraq to reach 9 million bpd (at that point by 2020), and the worst-case INES scenario was for production to reach 6 million bpd (at that point by 2020).
These figures were based on solid facts and figures from several renowned and trusted external sources, as also analysed in depth in my new book on the global oil markets. According to a limited-circulation report produced at around the same time by the International Energy Agency (IEA), a 1997 detailed study by respected oil and gas firm, Petrolog, had already provided figures that were in line with the Iraq Oil Ministry’s later statements that the country’s undiscovered resources amount to around 215 billion barrels. Even using the most conservative figures, according to the IEA back in 2012/2013, Iraq had at that time produced only around 15 percent of its ultimately recoverable oil resources, compared with 23 percent for the Middle East as a whole, and further exploration and development was: “Highly likely to add substantially to the proven reserves figure over the coming decades, particularly given the high success rate of drilled prospects in Iraq.”
The third and final question, then: will it be done, meaning the 6 million bpd and then significantly higher production than that? On the first figure, yes, for the reasons outlined above. On the second figure, everything depends on the proper build out of the interminably-delayed Common Seawater Supply Project (CSSP). As shown with the limited but extremely successful water projects of Rumaila and Zubair, the CSSP - which involves taking and treating 12.5 million bpd of seawater from the Persian Gulf and then transporting it via pipelines to six oil production facilities for water injection to boost pressure at these key reservoirs – is essential for significant increases in Iraq’s crude oil production over and above 6 million bpd.
For this, the only company in the world that has proven it can finance and complete such a technically and logistically challenging hydrocarbons project within a deadline is the U.S.’s ExxonMobil. For this company to come back into the CSSP, from which it removed itself for reasons analysed in depth by OilPrice.com, would require a sea-change – at least for this project if no others – in the culture of corruption that has pervaded many elements of Iraq’s oil sector (and many other sectors) over many years. This has been repeatedly highlighted by OilPrice.com and independently over many years by Transparency International (TI) in various of its ‘Corruption Perceptions Index’ publications, in which Iraq normally features in the worst 10 out of 180 countries for its scale and scope of corruption. “Massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic bribery that have led the country to the bottom of international corruption rankings, fuelled political violence and hampered effective state building and service delivery,” TI states. “Political interference in anti-corruption bodies and politicisation of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government’s capacity to efficiently curb soaring corruption,” it concludes.
By Simon Watkins for Oilprice.com
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Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for… More