Fifty billion dollars will be needed to get Iraq’s oil industry back on its feet – $40billion for developing already discovered, but undeveloped, oilfields, and $10billion for exploration.
The Centre for Global Energy Studies (CGES) argues in a milestone report on the state of the Iraqi petroleum industry that foreign contracts and western expertise will be vital to realising the potential of the strife-racked Middle East nation’s petroleum industry.
Moreover, despite current difficulties, there is ample scope for foreign companies active in the upstream oil&gas supply chain to win work.
CGES says the expected revenue from well services is about $10million in 2008, increasing to about $60million by 2010.
Oil&gas investment opportunities in Iraq range from immediate needs to medium and long-term requirements. While many projects are available for immediate execution, others will have to await the passing of the Federal Oil and Gas Law.
The current official figure for proven reserves is 112billion barrels, compared with an independent estimate of 125billion barrels. Within five to seven years, exploration could boost this to as much as 150billion barrels, but stability is a prime requisite for this to happen. Gas exploration has been slow in Iraq. The proven reserve is 110trillion cu ft, with an upside potential of 50-65TCF.
Step back to 1979 and oil output was 3.5million barrels per day and Iraq National Oil Company had laid plans in the early-1980s to increase the production capacity to 6million bpd. But this plan was wrecked by three wars – 1980-88, 1991 and 2003.
CGES points out that the looting and vandalism that followed the two Gulf Wars caused great damage to oil installations. UN sanctions against Iraq added further damage due to the difficulties created in getting spare parts and in performing well services. The pre-2003 production capacity has not recovered and, despite the reconstruction efforts, a great deal of work is yet to be executed.
“Foreign contractors have not been able to provide vital services due to the poor security conditions,” warns CGES.
“The overall impact has been further decline in the production rates of oilfields, though the decline has been partially compensated by adding the pilot production from a few southern fields.
“The main reasons for the rate decline have been insufficient water for injection, the shutting of wells due to increasing water shortage and poor reservoir management.
“Field capacity in the north was not affected by the second Gulf War, but the continued attacks on the Iraq-Turkey export pipeline have kept actual production at 30-40% of the capacity of the northern fields.
“The oil sector, like everything else in Iraq, has suffered from the poor security environment. The fact that the nation is composed of different sects and races has contributed less to the problem than politics, the security vacuum post April, 2003, and the very slow process of building up and equipping the national army and security forces.”
CGES considers that conditions in Kurdistan have been safe enough for business; also, in the southern governorships of Basra and Maisan, security conditions have been relatively satisfactory for field activity to continue.
The two main Kurdish parties (KDP and PUK), along with the two main Shiite parties (SCIRI and DAWA) bolstered by the support of the Shiite Arabs, control the political scene. Although these four parties enjoy a majority in the National Assembly, two other groups are making life difficult for them: the Sunni and Al Sadr.