Iraq’s Oil Energy between Ambition and Challenges, 2019

Iraq’s Oil Energy between Ambition and Challenges, 2019

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Shatha Khalil *
Iraq… Production capacity and global challenges
Since the discovery of oil in Iraq early in the last century by a group of German experts and then the English, oil has become a key factor in determining the policies and directions of the great powers in the Middle East in general and Iraq in particular.
There are divergent views on the size of proven and potential oil reserves in Iraq, but they agree that there is a huge reserve, perhaps unparalleled in another part of the world, where the size of proven reserves according to the latest official figures of the Iraqi Ministry of Oil and approved by most references (112) billion barrels.
As for the size of the potential reserves, there is a difference in their estimate, but in any case it exceeds 200 billion barrels. A substantial part of it can be converted , no less than 50% , to proven reserves using modern technology in seismic surveys , exploratory drilling and evaluation , and then development drilling , and in addition of another important factor which is the cost of exploration and drilling , and then the cost of finding of the oil and developing it , which is considered to be one of the lowest costs not only in the world, but also in comparison with the oil reserves in the Middle East. These costs range between (1.5-2) Dollars per barrel.

Production capacity of Iraq :
It is clear that the objectives of Iraq became possible and realistic in the export of four million barrels per day and the production of five million barrels per day by 2020, despite the difficulties and challenges still facing the sectors of production and export, according to the monthly Energy Research Bulletin of the Arab Petroleum Investment Company (APICORP) in its last edition , the recent federal government is working to achieve and sustain these productive and export targets after years of political unrest and turmoil that have delayed the development of the Iraqi oil industry.
Due to many reasons including the problem of investment allocations, the lack of contribution of the private sector, the absence of culture in the oil industry, which has purely technical dimensions, and not to know the experiences of other oil-producing countries, and political differences that have been and still have negative repercussions on the development of the oil industry.
The most important factor is the external interference: The oil industry, like other industries, is subject to international economic competition, and the progress of Iraqi oil production is constituting a threat to the economies of the producing countries, especially for the countries that derive their economic and political power from it. It is not strange that they do their best to oppose the development of the Iraqi oil industry to maintain its position, and this is proven when we find that these countries are involved in the Iraqi political affairs.
Iraq’s production reached 4.65 million barrels per day last October, according to the Epicorp bulletin. Despite the international obstacles and blockade during the 1990s and the subsequent internal shocks in the past two decades, Iraq has managed to increase its production capacity from about two million barrels per day 2003, to more than four million barrels per day at present, which puts it in the second production after Saudi Arabia in OPEC, and these increases in productivity indicate, despite the difficult situation, to Iraq’s potential oil potential.
Iraq’s important reserves lie in the south of the country, especially in the province of Basra, close to export ports, with an export capacity of 3.6 million barrels per day in 2018.
APICORP Bulletin indicates that the current production of the following southern fields: Nasiriyah (managed by the Iraqi Dhi Qar company ) , 90 thousand barrels per day, and the Graaf (managed by Petronas company of Brazil) 87 thousand barrels per day, and Halfaiya (run by China National Petroleum Corporation) 250000 barrels per day , Misan fields(managed by China Snook company ) 230000 barrels per day , al-Zubair (run by Eni – Italian corporation ) 454000 barrels per day , Rumaila ( run by BP), 1.475 million barrels per day, and West Qurna (managed by US Exxon) 455 thousand barrels per day, Barrels per day.

According to the information available, the sustainable production capacity of these southern fields is estimated at more than twice the current level of production. Al-Ghadhban, an oil expert with solid experience in this field for more than forty years, confirms that the ministry is taking scientific steps to address the difficult economic and financial challenges it faces. Country, promote the real development of its economy, and plan to increase the financial revenue of national enterprises.
In addition to the potential production capacities in the fields under development, this indicates to the additional productive capacities available to Iraq.
There is a production of the northern fields, and exports of both the Iraqi government and the Kurdistan Regional Government through the port of Ceyhan in Turkey, and there is the possibility of export increases in the event of communication after the differences between the parties, on the responsibility of production from the Kirkuk field, and there is a draft agreement between the former oil minister and the current prime minister Adel Abdul Mahdi and the Region government to produce and export the last 100 thousand barrels per day from Kirkuk and other disputed areas.
And there are talks to increase the export capacity of the pipeline of the region from 700 thousand barrels per day to one million barrels, and it was agreed between the North Oil Company and BP to develop the capacity of the Kirkuk field of 750 thousand barrels per day, which has declined in recent years by almost half, and bring it back to 750 thousand barrels per day, but increase it to one million barrels per day.
Iraqi oil experts confirm that the volume of oil wealth and the size of Iraqi reserves are large, and not commensurate with the size and level of oil industries.
The main challenge for the country is not only to increase the rate of oil production, but also to meet several challenges in the oil sector and the rest of Iraq’s economic facilities (the General budget and government appointments), and other challenges of improving the performance of the state departments and its employees , where the performance is lagging behind .
and the rampant Corruption, which has become the biggest concern in the local public opinion, which some politicians have talked about through the local media , the rampant corruption in Iraq is not only widespread in most state agencies, especially the oil sector, but also the amount of money stolen through the sector’s tenders or the smuggling of crude oil. Since the crude oil sector is the largest and most important economic sector, corruption has become more widespread, especially by influential political parties, and the country needs a strong campaign to fight corruption through the prosecution of those responsible for it and the recovery of billions of stolen dollars.

And the need to implement the infrastructure plans for the oil sector including pipelines, pumping stations and reservoirs in the southern fields and export ports to achieve the required increase in production capacity and export, which means that the issue of continued export increase is a matter of time until the completion of construction of the necessary infrastructure.

And the oil issues which are still suspending with internal political dimensions related to the importance of the provision of larger allocations to the provinces in general, noting the necessary funds are not allocated for it , accompanied by local and federal mismanagement that exacerbated matters, and the ongoing demonstrations in Basra since the beginning of last summer are only evidence of loss of confidence among the people of the provinces , that the continuation of the demonstrations in Basra for a longer period will be constitute gradually a threat to the oil industry, in the event of continued neglect of the demands of the provinces.
And the political differences with the Kurdistan region (the relationship of the fate of the Kurds with the Iraqi state) and economic ones (oil and financial ), this challenge was left open without solutions, creating a gap in the oil system, which became almost separate from the system and the state oil institutions .
And the new differences on the systems and method of establishing the Iraqi National Oil Company, which may lead to the emergence of several differences and obstacles to the identity of the Iraqi oil industry in the near and distant future, as these differences are still about the national company before the judiciary.
Therefore, plans should be made to deal with the situation and to proceed with any oil policy that should be based on the principle that natural resources must remain under the full national sovereignty of the State and to support the Iraqi citizen with the wealth of his country.
The management of the oil industry must remain subject to the central authority, regardless of the nature of the political system, but how the distribution of oil resources is another issue can be addressed according to the need of the Iraqi provinces to those resources for the purpose of building infrastructure and the development of a clear development policy, taking into consideration the suffer of each province from neglect and deprivation in previous eras.
Parallel plans must be adopted to deal with the problems of the oil industry, and that the strategic objective is not to develop the production and export capacities at the expense of the transfer sector, and to provide the petroleum products to the consumers at home in quantity and quality required, but to follow parallel programs and give the transfer sector the same importance and proceed with plans in parallel.

OPEC adheres to reduction 2019:
OPEC and its allies have made a cut, especially Saudi Arabia and Russia, but there is also plenty of speculation about the possible increase in shale oil. Shale oil production has recently increased, despite the fact that major US oil industrialists had indicated potential obstacles to limit the increasing production capacity of the Shale oil such as the lack of sufficient pipeline infrastructure to transport oil from the huge Permian basin in Texas and New Mexico to export harbors, which should have made it difficult to obtain increased and rapid production in the foreseeable future for additional supplies of shale oil to global Markets , statistics of US «Energy Information Administration» indicates that it is expected to increase the production of oil shale about 135 thousand barrels per day, as the US administration estimated oil production rate during 2018 around 10.9 million barrels per day, rising to 12.06 million barrels per day in 2019.
OPEC and its allies have adopted a decision to reduce production by 1.2 million barrels per day in the first half of 2019. This reduction is expected to reduce the glut of about 100 thousand barrels per day by next June, reducing the surplus oil reserves to 700 thousand barrels per day in the beginning with the second quarter, and hence the decline in the glut to a reasonable level by the end of 2019, through balance of supply and demand in the second half of the year and price stability at that time .

Translated by : mudhaffar al-kusairi
Economic Studies Unit
Rawabet Center for Research and Strategic Studies