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Sat 19 Feb 2011 12:00 AM

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Iraq snapshot

With a newly revised 143 billion barrels of crude in reserve, Iraq will is pressing ahead to convert its black gold into cold hard cash.

Iraq snapshot
Iraq has fast-tracked spending on its refining sector, and major IOC consortia are now making steady progress with its upstream rehabilitation.

Iraq was the
world’s 12th largest oil producer in 2009, and has the world’s fourth largest proven
petroleum reserves after Saudi Arabia,
Canada, and Iran. Just
a fraction of Iraq’s known fields
are in development, and Iraq
may be one of the few places left where vast reserves, proven and unknown, have
barely been exploited. Iraq’s
energy sector is heavily based upon oil, with approximately 94 percent of its energy
needs met with petroleum. In addition, crude oil export revenues accounted for over
two-thirds of GDP in 2009.

Iraq’s
oil sector has suffered over the past several decades from sanctions and wars, and
its oil infrastructure is in need of modernization and investment. As of June 30,
2010, the United States
had allocated$2.05 billion to the Iraqi oil and gas sector to begin this modernization,
but ended its direct involvement as of the first quarter of 2008.

According to reports by various U.S.
government agencies, multilateral institutions and other international organizations,
long-term Iraq
reconstruction costs could reach $100 billion or higher. The proposed Hydrocarbons
Law, which governs oil contracting and regulation, has been under review in the
Council of Ministers since October 26, 2008, but has not received final passage.

Reserves

Iraq raised
its proven oil reserves figure by 25% Monday in a bid to match the clout of leading
producer Saudi Arabia
and strengthen its case for OPEC to grant it a higher output quota. Deputy Prmime
Minister for Energy (then Oil Minister) Hussain al-Shahristani said in October new
estimates of reserves at the West Qurna and Zubair
fields helped push the total figure to 143 billion barrels. West
Qurna was now the second largest field in the world, he said, and more
fields were likely to be discovered.

Until the revised estimate, Iraq’s
proven reserves had been put at 115 billion barrels, already the world’s third largest,
however it was based on outdated data.The return of international oil companies
to Iraq
had boosted oil reserves, Shahristani told a news conference.

“The oil reserve is for 66 discovered oilfields in Iraq and there are
many others that have not been discovered yet.
“It is expected this figure will be increased when these oilfields are discovered,”
he said.

The majority of the known oil and gas reserves in Iraq form a belt
that runs along the eastern edge of the country. Iraq has 9 fields that are considered
“super giants” (over 5 billion bbls) as well as 22 known “giant” fields (over 1
billion bbls).

In 2009, Iraq’s
crude oil production averaged 2.4 million barrels per day (bbl/d), about the same
as 2008 levels, and below its pre-war production capacity level of 2.8 million bbl/d
in 2003. About two-thirds of production comes from the southern fields, with the
remainder from the north-central fields near Kirkuk. At present, the majority of Iraqi oil
production comes from just three giant fields: North and South Rumaila in southern
Iraq, and Kirkuk.

Currently, the Ministry of Oil has central control over oil and
gas production and development in all but the Kurdish territory through its three
operating entities, the North Oil Company (NOC), the South Oil Company (SOC), and
the Missan Oil Company (MOC), which was split off from the South Oil Company in
2008.

Kurdistan issues

The Kurdistan Regional Government (KRG), the official ruling
body of a federated region in northern Iraq that is predominantly Kurdish,
passed its own hydrocarbons law in 2007. Despite the lack of a national Iraqi law
governing investment in hydrocarbons, KRG has signed oil production sharing, development
and exploration contracts with several foreign firms, and began exporting its own
oil briefly.

Development plans

Iraq
has begun an ambitious development program to develop its oil fields and to increase
its oil production. Passage of the proposed Hydrocarbons Law, which would provide
a legal framework for investment in the hydrocarbon sector, remains a main policy
objective. Despite the absence of the Hydrocarbons Law, the Iraqi Ministry of Oil
signed 12 long-term contracts between November 2008 and May 2010 with international
oil companies to develop 14 oil fields. Under the first phase, companies bid to
further develop 6 giant oil fields that were already producing with proven oil reserves
of over 43 billion barrels. Phase two contracts were signed to develop oil fields
that were already explored but not fully developed or producing commercially. Together,
these contracts cover oil fields with proven reserves of over 60 billion barrels,
or more than half of Iraq’s
current proven oil reserves.

As a result of these contract awards, Iraq expects to boost production by
200,000 bbl/d by the end of 2010, and to increase production capacity by an additional
400,000 bbl/d by the end of 2011. When these fields are fully developed, they will
increase total Iraqi production capacity to almost 12 million bbl/d, or 9.6 million
bbl/d above current production levels. The contracts call for Iraq to reach this
production target by 2017.

Infrastructure
constraints

Iraq
faces many challenges in meeting this timetable. One of the most significant is
the lack of an outlet for significant increases in crude oil production. Production
increases of the scale planned will also require substantial increases in natural
gas and/or water injection to maintain oil reservoir pressure and boost oil production.

Iraq has associated gas that could
be used, but it is currently being flared. Another option is to use water for re-injection,
and locally available water is currently being used in the south of Iraq. However, fresh
water is an important commodity in the Middle East,
and large amounts of seawater will likely have to be pumped in via pipelines that
have yet to be built. ExxonMobil has coordinated initial studies at water injection
plans for many of the fields under development. According to their estimate, 10
-15 million bbl/d of seawater could be necessary for Iraq’s expansion plans, at a cost of
over $10 billion.

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