Why Iraq Can, But Will Not, Achieve 8 Million Barrels A Day Of Oil Production

Since no real change resulted from last week’s elections in Iraq, fiercely anti-American radical cleric Moqtada al-Sadr is still the de facto leader – his latest crude oil production ambitions should be seen as they always have been: that is, looking theoretically at what could be achieved, and that practically at what is likely to happen. The target announced last week – although it has been mentioned several times over the past year (and before that, albeit with a gap) is 8 million barrels per day (bpd) of by the end of 2027, according to the country’s petroleum minister (at least for now), Ihsan Ismaael. Discussions to reach this figure at this stage, he added, are underway between a number of international oil companies (IOCs), including several Westerners. The first point to emphasize is that Iraq is perfectly capable of producing 8 million barrels per day of crude oil, even its initial figure of 12 million barrels per day. As pointed out in my previous book in world oil markets, even more than Iran, Iraq remains the largest relatively underdeveloped oil frontier in the Middle East and therefore in the world. Officially, according to the EIA, it holds a very conservative estimate of 145 billion barrels of proven crude oil reserves (nearly 18% of the Middle East total, about 9% of the world’s and the fifth largest in the planet). Unofficially, it’s extremely likely that it contains a lot more of both than that. In October 2010, the Iraqi Oil Ministry increased its own figure for the country’s proven reserves to 143 billion barrels, nearly 25 percent more than the previous 115 billion barrels, practically where we are now and this increase. – unlike those observed in particular in Saudi Arabia recently. years – absolutely reflected reality, albeit at the bottom of the scale.

Related: Battle For Oil Market Share Intensifies Within OPEC In fact, at the same time as it produced the official reserves figures, the Oil Ministry said that Iraq’s undiscovered resources actually amounted to around 215 billion barrels. It was also a figure that had been obtained in a detailed 1997 study by a respected oil and gas company, Petrolog. Even that figure, however, did not include parts of northern Iraq in the semi-autonomous region of Kurdistan. This meant, as the IEA pointed out, that most of them had been drilled before the early 1970s, when technical limitations and a low oil price made a tighter definition of a commercially successful well. than would be the case today. In sum, the IEA underlined that the level of ultimately recoverable resources throughout Iraq (including the semi-autonomous region of Kurdistan) was around 246 billion barrels (crude and liquids of natural gas).

Currently, Iraq’s crude oil production has grown from 2.4 million barrels per day in 2010 to around 4.5 million barrels per day on average (excluding quotas imposed by OPEC +) in 2020, and its true level of production capacity has continued to hover around that level, making it OPEC’s second-largest crude oil producer. This trend has prompted many market players to believe that Baghdad’s much-vaunted “realistic” production target of 9 million barrels per day could once again be met. It was despite comments in 2018 and 2019 from Falah Alamri, then head of the Iraqi Petroleum Marketing Organization (SOMO), that the country had temporarily reduced its oil production targets for the end of 2020, by 8, 4 to 9.0 million barrels per day to 5.4 million barrels per day. -6.0 mbd. Later in 2020, however, Iraq’s new Petroleum Minister Ihsan Ismaael said the country was aiming for an oil production capacity of 7 million barrels per day by 2025 and, in the same year, was aiming for an oil production capacity of 7 million barrels per day. up to 6 million barrels per day of oil export (from the 2020 level of around 3.8 million bpd).

All of these figures fall within the parameters of the government-sponsored report – the Integrated National Energy Strategy (INES), launched in 2013 – which formulated the three oil production forecast profiles for Iraq. The INES best-case scenario predicted an increase in crude oil production capacity to 13 million barrels per day (at this point by 2017), peaking at around that level until 2023, and finally a gradual decline to about 10 million barrels per day for a long time. after. The mid-range production scenario predicted Iraq to reach 9 million barrels per day (at this point by 2020), and the worst case scenario INES was for production to reach 6 million barrels per day (at this point now until 2020). Therefore, the current target of 8 million bpd looks like a relatively reasonable case scenario.

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So why won’t this happen? As repeatedly pointed out in OilPrice.com for years the country has faced two major problems. The first one – underlined first here – is the persistent disagreement between the semi-autonomous government of Kurdistan in the north and the government of the rest of the country, centered in Baghdad, on the distribution of oil from the north and budgetary revenues from the south. Suffice it to say at this point that despite an agreement in 2014, no viable solution seems to have been found yet. The second problem remains rampant corruption across the country which is particularly prevalent in the area where there is the most money – oil. As pointed out initially here by OilPrice.com, according to a 2015 statement by then Petroleum Minister – and later Iraqi Prime Minister – Adil Abdul Mahdi, Iraq “lost US $ 14,448,146,000” from early 2011 to the end of 2014 in the form of cash “compensation” payments to the international community. oil companies and other entities. The precise way in which such a huge sum was lost is fully analyzed by OilPrice.com here, but for the most part it was about how gross remuneration, income tax and the partner state share were deducted and accounted for in the compensation paid for the decline in oil production. . Even without the very recent resuscitation of the Iraqi National Oil Company – which cynical minds might view as primarily an organized corruption mechanism – the scale of the theft of public money that can result from such structures in Iraq is staggering.

This raises a very specific – but enormous – practical problem for Iraq’s ability to achieve a significant increase in its oil production, and that is the construction, finally, of the Joint Seawater Supply Project (CSSP ). The CSSP consists of taking and treating seawater from the Persian Gulf, then transporting it via pipelines to oil production facilities with the aim of maintaining pressure in the oil reservoirs to optimize the longevity and yield of the fields. . It was initially to be used to deliver around six million barrels per day of water to at least five fields in southern Basra and one in Maysan province, and then built for use in other fields. To meet and then maintain Iraq’s future crude oil production targets over any significant period, the country will have total water injection requirements equivalent to about two percent of the combined average flows of the Tigris and Euphrates rivers, or six percent of their combined flow during the low season. ExxonMobil is the only company with all the facets necessary to put the whole CSSP in place in a fully functional and sustainable way – what the company itself knows, Iraq knows, China knows, and anyone who knows. what the CSSP actually implies knows – is ExxonMobil. However, as it stands, ExxonMobil is absent for the reasons mentioned above and reiterated in full here.

By Simon Watkins for OilUSD

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