Tapping Iraq's Potential
Pipeline Magazine
WEDNESDAY, 02 NOVEMBER
DAVID MANUEL
Ranked among the world's largest proven oil reserves, Iraq has the potential to massively increase conventional oil production, report Robert Bailey and Glenn Freeman
Iraq''s Oil Ministry announced an increase in the country's estimated crude reserves, from 115 billion to 143 billion barrels, in October last year. This huge opportunity is reflected in the number of international oil companies and major oilfield services firms prepared to make serious investments in a country still smarting from its troubled and violent past.
In spite of the difficult task of national recovery, the country is embarking on bold initiatives. In particular, its aim is to increase crude oil production capacity to 12 million bpd by 2017, more than five times greater than existing production.
If Iraq meets the huge crude target it is aiming for, it will almost certainly change the dynamics of the world oil industry.
Such a level of production would rival that of Russia as well as neighbouring Saudi Arabia and Iran, and define the country as a major influence on the supply and price of oil in world markets.
"If you look at the global oil industry and oil companies' access to reserves, there is nothing really that can match Iraq's volumes, which are suddenly becoming available for IOCs and NOCs, so it's clearly a very important emerging country within the industry," said Samuel Ciszuk, Senior Middle East & North Africa Energy Analyst, IHS Energy.
Other commentators also agree on the significant impact Iraq's sizeable reserves could have on the global energy market.
"Iraq is the waking giant of the global oil industry. The country has the fourth largest reserves in the world with virtually no new exploration since 1981," said Kyle McEneaney, head of energy consultancy Ergo's Middle East practice.
Such a level of production would rival that of Russia as well as neighbouring Saudi Arabia and Iran, and define the country as a major influence on the supply and price of oil in world markets.
"Iraq's reserves were revised upward last year after just a few months of work by IOCs on first- and second-license round fields in the south, and I expect more revisions as these IOCs continue, and also after the issue of fourth round licenses for new exploration, primarily in Central and Western Iraq. It is probable that Iraq has more oil than Saudi Arabia," he added.
Indeed, Iraq has announced plans to achieve 12 million bpd production, surpassing Saudi Arabia. Technical and other obstacles make this an ambitious goal, but Iraq has among the lowest extraction costs in the world, and even if it gets to 6-8m bpd this is a game changer.
This would be enough to satisfy projected demand growth from China, India, and emerging markets, and would put Iraq on a par with Saudi in terms of its ability to influence oil markets.
Obstacles in the road
The task ahead for Iraq though is immense. Reaching just half the targeted capacity figure poses huge engineering challenges not least overcoming the country's infrastructure constraints.
Not only does it need to upgrade and triple its pipeline infrastructure as well as to build more storage and oil terminal facilities, it also needs to increase power generation as well as desalination facilities to provide water for oilfield injection.
The cost is going to be prodigious. Standard Chartered Bank estimates Iraq requires $150 billion of investment in its oil and gas industry to secure its projected production volume increases. With the costs difficult to quantify at this stage, Ciszuk thinks this estimate is a reasonable ball-park figure, but perhaps not high enough.
"Yes, in essence, over a very long term, a decade or 50 years, it could even be more - it's not an outrageous number if you look at what neighbouring countries have invested over 10 to 15 years" he said.
"There is a very big investment need [and] Iraq has also so far been quite successful in bringing in foreign companies for such investment."
McEneaney agrees, though also accepts that prices are hard to determine in these early stages: "The costs will ultimately depend on the target level of production, but yes, estimates of the development costs just for the first and second license rounds range from US$100 to US$150 billion."
Apart from cost, he points to other obstacles that are even more important in opening up the country's potentially lucrative oil industry.
"The primary obstacles are with the oil sector's infrastructure, both physical and bureaucratic," said McEneaney. "Last week I asked the COO of an oil major working in Iraq about the challenges there, and he told me the single biggest obstacle is the Iraqi bureaucracy: the layers of permissions and approvals needed from various ministries, local and regional governments."