Are Iraq’s ambitious oil production targets achievable?

Iraq plans to increase its crude oil production to achieve incremental targets of 5-8 million barrels per day (bpd) over time, according to the first vice president of the Iraq National Oil Company (INOC) , Hamid Younis, last week. Iraq Oil Exploration Company (IOEC) Managing Director Ali Jassim added that the next phase will see “remarkable activity” in the exploration sector, including operations in the Western Desert and Ninewa Governorate. . Given the current delicate balance between supply and demand in the global oil price matrix, significant new supply would help mitigate the economic damage caused to many countries by enduring high oil and gas prices, but to How realistic are these statements about rising oil prices? volumes from Iraq?

Broadly speaking, the claims are quite realistic, with Iraq holding a very conservative estimate of 145 billion barrels of proven crude oil reserves (nearly 18% of the Middle East’s total, around 9% of the globe and the fifth largest in the world). However, according to the International Energy Agency (IEA) in its 2012 country report, the extent of Iraq’s ultimately recoverable oil resources is subject to a high degree of uncertainty and may well prove to be much more important. Much of the earlier data that fueled the 145 billion barrel reserve figure came from the 2000 USGS (United States Geological Survey) assessment and, using that data, the analysis of the The 2012 IEA put the level of ultimately recoverable crude oil and natural gas liquids resources in Iraq at approximately 232 billion barrels. At the end of 2011, only 35 billion barrels out of this figure of 232 billion had been produced.

That said, as the IEA itself has pointed out, there are other estimates from reliable sources that Iraq’s undiscovered oil resources are considerably higher than the IEA’s figures. When Iraq’s Oil Ministry presented its own figure for crude oil reserves of 143 billion barrels in 2010 – before it was raised to 145 billion barrels two years later – the ministry said that undiscovered resources from Iraq amounted to about 215 billion barrels. Moreover, said the IEA, a detailed study by Petrolog, published in 1997, reached a similar figure, but even that did not include in this figure of 215 billion barrels, crude oil resources in parts of the northern Iraq under government administration. of the semi-autonomous region of Kurdistan (KRG).

In 2012, and even using the more conservative USGS figure, Iraq had produced only 15% of its ultimately recoverable resources, compared to 23% for the entire Middle East, according to the IEA, and the Agency expected exploration efforts to increase. substantially to proven reserves in the future. Moreover, drilling in Iraq has long had an exceptionally high success rate: of 530 potentially hydrocarbon-bearing geological prospects identified by geophysical means in Iraq at the time of the IEA’s 2012 report, only 113 had been drilled, with oil found in 73 of them. The IEA also noted that before the recent increase in exploration activity in the KRG region, more than half of the exploration wells in Iraq had been drilled before 1962, a time when technical and low oil prices gave a much tighter outlook. definition of a commercially successful sink than it would be today.

It should be noted at this point, however, that it is one thing to have huge levels of recoverable reserves and resources, but quite another to drill them and export them, and over the period from from which the IEA report was produced in From 2012 to present, crude oil production in Iraq has fallen from just over 3 million bpd to just over 4 million bpd. You could say that’s an impressive 25% increase, but in absolute terms that’s an extremely low return on the crude oil resources Iraq has, especially if the consideration is given to the ease with which its oil is recoverable, as evidenced by the country’s crude oil having the world’s lowest lifting cost of US$1-2 per barrel, alongside crude oil from the Saudi Arabia and Iran.

Contrary to the actual oil production figures, Iraq launched its “Integrated National Energy Strategy” (INES) in 2013, which formulated the three oil production forecast profiles for Iraq, as analyzed in depth in my latest book on world oil markets. INES’ best-case scenario was for crude oil production capacity to increase to 13 million bpd (at that time by 2017), peaking at around that level through 2023, and eventually gradually declining to around 10 million bpd over a long period thereafter. The medium production scenario was for Iraq to reach 9 million bpd (at that time by 2020), and the INES worst-case scenario was for production to reach 6 million bpd (at that time by 2020). 2020). These different trajectories of crude oil production were also consistent with those presented in the 2012 IEA report. Specifically, in the IEA’s 2012 “central scenario”, Iraq’s oil production increased to over 6 million bpd (by 2020) and then to 8.3 million bpd by 2012. by 2035. In the IEA’s “high scenario”, crude oil production would exceed 9 million bpd in 2020 and then rise to 10.5 million bpd in 2035.

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The foundations for Iraq to achieve these massive increases in crude oil production are therefore absolutely solid. So why hasn’t he done it yet? There are two fundamental reasons for this, both – and other tangential reasons – are analyzed in full in my last book: the first being the endemic corruption that has plagued Iraq’s oil sector, especially since the fall of Saddam Hussein in 2003, and the second – depending in part on the first reason but not entirely – is the failure of construction of the Common Seawater Supply Project (CSSP). The culture of corruption in Iraq has been covered in many of my previous articles but has also been repeatedly attested by the independent organization Transparency International (TI) in various of its “Corruption Perceptions Index” publications, in which Iraq normally features in the 10 worst countries out of 180 for its scale and scope corruption. “The massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic corruption that have driven the country to the bottom of the international corruption rankings, fueled political violence and hampered effective of state building and service delivery,” TI said. “Political interference in anti-corruption bodies and the politicization of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government’s ability to effectively fight against growing corruption,” he concludes.

This may be one of the main reasons why the CSSP did not follow through, but if Iraq could protect the project as much as possible from corrupt elements, then it could begin to realize the huge increases in crude oil production he envisions. The CSSP itself involves taking seawater from the Persian Gulf, then treating it before transporting it through pipelines to oil fields to build pressure and increase oil uptake. Initially, the CSSP was expected to cost around $10 billion to be able to supply around 6 million bpd of water to at least five oilfields in the southern region of Basra and one in the Maysan region. To put the risk-reward profile of the CSSP in context: the huge fields of Kirkuk and Rumaila, which together produced about 80% of Iraq’s combined oil production, require a large continuous injection of water, the pressure of the first reservoir decreasing considerably after the production of only about 5 percent of the oil in place (OIP). Another huge oilfield in Iraq – Rumaila – was able to produce around 25% of its OIP before water injection was needed, as its main reservoir formation in the south connects to a large natural aquifer which has helped to push the oil out of the tank. The water requirements of most Iraqi oilfields fall between these two cases, but the need for water injection in the oilfields is highest in southern Iraq, where water resources are also least available.

By Simon Watkins for Oilprice.com

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