• 4 minutes Is The Three Gorges Dam on the Brink of Collapse?
  • 8 minutes The Coal Industry May Never Recover From The Pandemic
  • 11 minutes China Raids Bank and Investor Accounts
  • 8 hours In a Nutshell...
  • 5 hours During March, April, May the states with the highest infections/deaths were NY, NJ, Ma. . . . . Today (June) the three have the best numbers. How ? Herd immunity ?
  • 7 mins Putin Paid Militants to Kill US Troops
  • 1 day Is OilPrice a cover for Green Propganda
  • 1 hour Why Wind is pitiful for most regions on earth
  • 1 day Victor Davis Hansen on Biden's mental acuity " . . unfit to serve". With 1 out of 5 Democrats admitting it. How many Dem's believe it but will not admit it?
  • 16 hours Putin Forever: Russians Given Money As Vote That Could Extend Putin's Rule Draws To A Close
  • 1 day Tesla Model 3 police cars pay for themselves faster than expected, says police chief
  • 17 hours Happy 4th of July!
  • 15 hours Apology Accepted!
  • 2 days The Political Genius of Donald Trump
  • 3 days Why Oil could hit $100
  • 3 days Biden admits he has been tested for Cognitive Decline several times. Didn't show any proof of test results.
Alberta Lays Out Plan To Recover From Oil Price Collapse

Alberta Lays Out Plan To Recover From Oil Price Collapse

Alberta's Conservative government is taking…

Is The UK Doing Enough To Stimulate EV Sales?

Is The UK Doing Enough To Stimulate EV Sales?

Electric vehicle sales in the…

How The Fed Bailed Out U.S. Oil And Gas

How The Fed Bailed Out U.S. Oil And Gas

In March, the U.S. Congress…

Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views set…

More Info

Premium Content

Iraq Plans Production Surge In The Face Of New OPEC Cuts

Iraq needs a positive impetus to leave behind the travails of 2019 – the widespread demonstrations, the geopolitical flare-up engendered by the assassination of Major General Soleimani in Baghdad, the fall of the Abdul-Mahdi government – and demonstrable success upstream might provide a new narrative for the embattled country’s oil industry. Cognizant of this (and of all the pressure Baghdad is going to face at the OPEC+ meeting soon for its notorious non-compliance), the new Iraqi government has approved the results of the 2018 licensing round, allocating 6 blocks to prospecting investors. And yes, one would have great trouble finding any majors on the list.

In April 2018 the Iraqi authorities have awarded 6 licenses (out of the 11 available) to Chinese firms United Energy and Geo-Jade, as well as the UAE-based Crescent Petroleum. Having only recently shook itself free from the scourge of the Islamic State and still suffering from exorbitant layers of red tape, Iraq failed to attract any serious interest from Western majors and had to content itself with relatively small investors. Initial draft contracts with the winners were signed on June 4, 2018, with remuneration rates ranging from 4.55% to 19.99% (i.e. ranging from UEG’s Huwaiza Block to Crescent Petroleum’s Khashm Al Amar Block). Indeed, for almost 20 months there was little to no progress, right up until now.

Graph 1. 5th Licensing Round Blocks.

Source: Iraq Energy Institute.

But what has changed for and within Iraq now? One of the root causes for streamlining upstream operations lies in the pressure exerted by the US Administration on Baghdad to rid itself free of any energy links to Iran. Iraq continues to import 1.2-1.5 BCf per day of natural gas from Iran (and also electricity), a crucial source of supply given the dire condition of Iraq’s electricity generation infrastructure – and it seems that the White House’s patience seems to have evaporated on the issue. Having awarded 90 or 120-day sanctions waivers for Iraq, the latest exemption is valid only for 45 days – a feat unseen since November 2018. If Iraq is to stick to its commitment of becoming self-sufficient in gas and electricity within 3 years, it needs new sources of gas. Related: Putin Hints Russia May Participate In Newest Round Of OPEC Cuts

The Iraqi Energy Ministry believes that the 6 blocks could in total add more than 0.75 BCf per day of natural gas production, equaling to roughly half of what Iraq currently imports from its eastern neighbor. The choice of Geo-Jade and United Energy might raise a couple of eyebrows as to whether they have the know-how required – the former is a real estate developer-turned-oilfirm with 3 operated assets in Kazakhstan. If one is to set aside Crescent Petroleum, there is a poignant irony in that Iraq’s replacing of Iranian imported gas volumes takes place with the aid of Chinese companies. Especially considering that Iraq’s purported aim of ramping up gas production does not really correlate with the peculiarities of the fields about to be developed.

Geo-Jade was awarded the Naft Khaneh and the Huwaiza fields, both straddling the Iranian border. The two blocks are united by the fact that they seem to be a continuation of oilfields which are already being developed by Iran on the other side – in case of the former the Iranian part even carries the same name. Essentially, of the 6 blocks to be allotted only one wields substantial gas reserves – previous assessments carried out at the Khashm Al Ahmar field put its gas potential at 2.2 TCf (and 252 MMbbls of oil). This might explain why the Iraqi Oil Ministry acquiesced to such a high remuneration rate – 19.99%, just one hundredth below the Ministry-set maximum level.

Somewhat blowing the Iraqi government’s cover, Crescent Petroleum has claimed that it could ramp up gas production from the Khashm al-Amar and Gilabat fields to 0.2 TCf per day, equivalent to some 15% of the aggregate imported Iranian gas volumes. It is not the company’s credentials that are inadequate – Crescent’s subsidiary Dana Gas has had a series of successes in the Iraqi Kurdistan region – rather the insufficiency of Iraq’s drive to have a standalone gas industry, devoid of all the wasteful flaring. Apart from Crescent’s assets, the other fields either do not contain commercially viable reserves of gas or lack information thereabout, it is difficult to see any growth beyond that point. It is interesting that no one dared to bid for the Arabian Gulf block, the only offshore block made available for the 5th licensing round – even though there was no previous assessment of its reserves.

Thus, even though tensions run high within Iraq and the United States and whoever will end up leading the new government would be compelled to remain dead serious on seeing through that US troops leave the country, Iraq is compelled to take strides to bring heretofore stranded gas assets onstream and decrease its import dependence on Iranian gas and electricity. The lack of Western majors, with their own skillset of technological solutions, is a seeming weakness in Iraq’s drive to ramp up gas output but inadequate federal target-setting might be an even bigger problem. The idea of an Allawi-led government has ran ashore and even if President Barsam Salih manages to find a candidate acceptable to the Iraqi parliament, the usual dilly-dallying will extend the entry into vigor for further months if not years.

By Viktor Katona for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News