Iraq ‘s oil industry faces a range of challenges in 2017, including the implementation of «OPEC» agreement to cut production by about 200 thousand barrels per day, although it is ranked the second largest oil producer in OPEC, but it suffers from huge financial pressures because of the deteriorating economic situation and the war against State organization (Daesh), and the liberation of oil fields (Qayyarah & Hamrin), and the reconstruction of devastated provinces, noting that it despite the lack of opposition to the decision of reduction, however , Iraq finds it difficult to apply it , because of wars and sanctions, and weakness of cash inventory due to lower oil prices, and financial and administrative corruption.
The Iraqi oil minister Jabbar said the sharp decline in oil prices in late 2014, paralyzed the Iraqi economy , as sales of the GDP amounted to 60% and 90% of government revenues.
And he said : “It is not wise or logic that the engineering of Iraqi state’s economy be designed on a single source in a rentier state that the oil is a leading supplier of income ,” stressing the availability of the elements of successful development and integrated construction process in Iraq because of its physical, natural and human resources.
And if we look at the map of distribution of oil fields on Iraqi provinces and the quantities produced , we will find that the province of Basra in southern Iraq has the largest oil wealth in it, and characterized by abundant capacities and wide expertise of all forms of natural and human resources .
Despite what hit Basra from the devastation and destruction and mismanagement and neglect over the past four decades , but it still carry prescription of vast land that its territory contains the richest wealth of hydrocarbon and mineral sources, and probably the highest in the world, so it embraces 15 fields, including 10 producing, and 5 are still waiting for development and production. These fields contain in its rocks the oil reserves estimated at more than 65 billion barrels, or about 59% of the total oil reserves in Iraq.
Basra is a home of the largest oil fields and produce according to official statistics about 80% of the Iraqi oil exported abroad, it is possible to be an incubator to attract foreign and domestic investments.
In Maysan province in southern Iraq , there are 11 fields including 3 productive and 8 non – productive, and contain a total of 8.5 billion barrels of oil reserves.
The fields of the province of Kirkuk contains six fields, including four producers and two non – productive, all waiting for development, estimated oil reserves located in approximately 13.5 billion barrels, of which 12.35 billion barrels in the current producing fields and the rest in new fields undeveloped. This means that the oil reserves in Kirkuk represents about 12% of Iraq ‘s oil reserves. And up to Baghdad, it contain one discovered field so far east of Baghdad and is located in the provinces of Baghdad and Salah al-Aldin and extends southward within the province of Wasit and now produces 20 thousand barrels per day
Iraq ‘s oil reserves
• Iraq contains the largest oil reserves in the world after Saudi Arabia, and estimated to equal four times to the US oil reserves.
• the certain quantities of Iraqi oil reserves amounted about 112 billion barrels, with total of declared gas reserves , according to the data of Iraqi Oil Ministry about 126 trillion cubic feet.
• the uncertain oil reserves are estimated up to 360 billion barrels, since 80% of Iraq ‘s oil is still uncertain, and therefore , Iraqi oil reserves are about 10.7% of the total world reserves.
• Iraqi oil is characterized by the existence of all the fields in the land, so the production costs are lowest in the world ranging between 0.95 and $ 1.9 per barrel, compared to the cost of producing a barrel of North Sea up to ten dollars.
• There is in Iraq all types of oils : light, medium and heavy oils .
• human element working in Iraq ‘s oil sector is described as one of the best efficient elements in the Middle East.
Oil production
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Iraqi oil production fell after 2003, then rose in 2004 to around 2.3 million barrels per day, but production was in February 2007, about 1.54 million barrels a day.
Official data showed that Iraq produced 4.7 million barrels per day in 2016, but the oil industry has been suffering since 1980, the lack of maintenance and MRO operations, where there are facilities and equipment older than twenty years, in addition to the exposure to operations of sabotage and looting , that the pipes were destroyed.
In spite of the availability of large financial potential of investment activity , but that what has been achieved in recent decades does not rise to the degree of ambition, and it requires certainly to conduct a comprehensive review based on the scientific criteria and clear approach of new laws and regulations , with a focus on the introduction of a radical and fundamental changes in the restructuring of the sector and to correct the paths of its work.
Investment also requires a focus on the sector of energy and the development of oil and gas resources in Iraq and establish clear scientific plans in the contribution of foreign investment , with expertise in the improvement and development of electric power systems, and the adoption of the Program for the development of renewable energy in some service and home areas and expand its uses.
The decline in crude oil prices to low levels led to panic and fear not only among those in charge of management of the affairs of the country but included large segments and sectors of the Iraqi society, it is known that the price volatility and economic circles of oil that have emerged since the first epochs of the oil industry and increased in the fifties of the last decade and then the organization of Petroleum exporting countries OPEC was emerged that it has taken varying paths sharply increased during the October war with Israel in 1973 and then it was increased during the Iran-Iraq war, even the price of a barrel reached less than $7 and then the balance returned to come down to lower levels immediately after the war ended in the eighties , which led to the continuation of the oil wars incessantly but to varying degrees , which is probably one of the motives in Iraq’s occupation of Kuwait .
Iraq today faces great challenges, especially in the oil sector due to several reasons , including the presence of an empty treasury and fierce wars , exorbitant costs in addition to thennrampant corruption at all levels that weaken the potential of the basic elements of the economy.
There is an important and influential factor in the Iraqi economy is in higher inflation in the extraction, production, operating and rising profitability quotas for oil operations associated with the oil companies in the complexity and rounds of licenses .
To maintain the oil wealth of Iraq , the oil minister stressed on the fight against corruption, reform and assigning positions away from quotas and sectarianism and raise the banner of reform and the fight against corruption and factionalism.
He called on “to solve the oil dispute between the Kurdistan Regional Government and the federal government , ” stressing that “there is no difficulty in that there is no such thing as impossible.”
the Kurdistan Region exports about 500 thousand barrels per day , independently of Baghdad as Iraq produces about 4. 7 million barrels of crude oil a day, mostly from the southern region, as the company”SOC” state-owned announced , which indicated the presence of 13 refinery need to be developed to increase the production of oil derivatives.
Al-Laibi stressed on a plan to strengthen the oil sector in the country, including an increase of oil export and gaseous rates as well as expand the store, and to increase oil production and gaseous rates and raise export capacity, and expand the national reserves of oil and gas, which leads to the result that Iraq takes influential status it deserves in OPEC organization and international forums.
Iraq is one of the most oil – affected countries by the fall in oil prices, especially after the decline in prices to less than $ 40, which means doubling the fiscal deficit in the annual budget, since Iraq will depend on the proportion exceeds 90% of fiscal revenues from oil.
the oil minister, said the ministry ‘s future plans are gas investment in an optimal way, indicating the presence of large amounts of gas produced with oil extraction without investment.
He stressed that ” the ministry will enter a new era of labor at all levels , and in 2017 it will be large projects in the oil and gas sector, calling on Shell to continue to work and develop through increased production and gas investment and to engage in electricity activities in the country.”
“The Oil Ministry is looking to strengthen and develop the relationship with Shell for the advancement of the oil sector in Iraq, which will reflect positively on the oil and gas sector.” And open new horizons for expansion in the global marketing process through SOMO to benefit from the vast experience owned by Shell in this area, and attention to the preparation of scientific cadres and rehabilitation.
He was holding a meeting in the province of Basra with officials of the national oil companies, and he has a discussion of plans and programs for the years 2020,2019,2018,2017 for sectors of extraction and filtering, drilling and gas industry and the distribution of oil and vocational education and training.
He stressed that the ministry has set ambitious plans for the upgrading of infrastructure and stimulate investment sector in the development and the development process in order to achieve the typical investment of oil wealth and the development of the oil sector, stressing that the ministry and thanks to the efforts of workers in the Iraqi oil sector succeeded in achieving unprecedented increases in the production and export and to the meet the needs, and make extraordinary efforts to meet the needs of the displaced families and citizens in the liberated areas.
Al- Laibi pointed out that one of the important oil projects in Iraq is a project of supplying Iraq to Kuwait by about 200 million cubic feet of gas per day, and this project is not new, but was prepared since a long time, particularly between 2004 and 2008, it was agreed to supply Kuwait with 200 million cubic feet per day It starts at 50 million feet and ranging up to 100 and then 200 cubic feet a day, but this project has encountered some difficulties and then stopped and we aspire to bring it back to the fore again.
And the former oil minister Adel Abdul Mahdi disseminated a study entitled ” The financial accounts of the companies for the period 2011-2015″, shed light on an important information about Iraq ‘s oil, including: –
- Thetotal production from the fields = 4,669,898,152 billion barrels?
2. The production basis = 2,348,437,726 billion barrels (production before the rounds ,calculated including the production drop 5% annually).
3. The increase in production (above production basis) = 2,321,460,426 billion barrels.
4. Financial revenues of total production = 395,549,902,281 billion dollars.
5. paid to companies (petroleum and additional costs) = 46,039,214,618 billion dollars.
6. profitability of contracting companies = 2,257,271,507 billion dollars.
7. Tax paid to the Treasury = 1,213,567,268 billion dollars.
8. Gross Net financial return for the State = 348,356,488,855 billion dollars.
Abdul – Mahdi described contracts over the years as good, such as investments with natural prices of oil. And that all facilities and oil wells and reserves are the property of Iraq when the contracts expire.
He pointed out that the contracts may seem expensive when calculated over the days and months , especially when oil prices decline, but sparked a revival in the oil sector in terms of quantities and the resources and the future, and also revealed some of the economic and structural and procedural gaps and in work patterns that must cooperate with the House of Representatives, ministries and companies to correct their tracks.
Basrah-Aqaba line
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The Jordanian city , located on the coast of the Red Sea , looking for a lifeline to provide its economy with flourishing and provide its geographic location with new investments, while Iraq looking for new markets for its oil which is witnessing a declined prices globally , noting that in the April 9, 2013, Iraq and Jordan signed a agreement to build a pipeline to transport Iraqi crude oil from Basra to the ports of export in the port of Aqaba, on the Red Sea coast at a cost of about $ 18 billion, and the former Iraqi oil minister, Adel Abdul – Mahdi, announced the formation of a global coalition to establish this line from the Iraqi city of Basra to the port of Aqaba, pointing out the Chinese company and other foreign companies signed the Beijing agreement to form a coalition (consortium) to invest in the establishment of an oil pipeline linking the southern city of Basra to the port of Aqaba on the Red Sea.
The Basra –Aqaba line is one of the important projects for both countries (Jordan, Iraq) and extends from the southern Iraqi city of Najaf and runs along the border with Saudi Arabia down to Aqaba in southern Jordan, and will be built in accordance with the system of Building, Operating and Transfer of ownership (BOT) for a period of 15-20 years and then return the tube to the ownership of the two countries to the city of Aqaba, and extends this tube distance of $ 1 700 km through two phases, the first stretch of Basra into Hadetha , western Iraq, and the second stretch that ends at the port of Aqaba to export oil to the rest of the world.
And the first part of the tube will transport about 2.25 million barrels of oil per day, while the total quantity of oil that will reach the port of Aqaba through the tube million barrels per day and will transport 850 thousand barrels to the Jordan Petroleum Refinery, as well as another pipeline to transport 100 million cubic meters per day of gas that Jordan will be using it to produce electricity. The expected completion of the implementation of the project in 2017, and is estimated to cost about $ 18 billion, the Iraqi government will provide for fully extended tube at their own expense.
Finally Oil Minister Jabbar said during the International Energy Forum in Abu Dhabi on 01.13.2017, that Iraq is about to develop its oil industry despite the economic crisis is taking place.
He pointed out that “Iraq and in spite of all the challenges faced by it against terrorism and the global economic crisis , Iraq is going forward towards the development of its oil industry.”
He pointed out that Iraq is committed to the decision of OPEC to reduce production in order to support the stability of the global oil market, “stressing that ” concerted efforts of everyone to work together through the balance in supply and demand in order to stabilize the market and to the security of energy to be reflected positively on the countries and peoples. ” He stressed the need to move forward in increasing Iraq ‘s oil and gas production through the promotion of local efforts and the efforts of companies which had gained the licenses during 2017 .
ShathaKhalil
UnitEconomicStudies
Translated by : Mudhaffar al-Kusairi
Rawabet Center for Research and Strategic Studies