Monday, 28 January 2013

Is Iraq’s Five Years Crude Oil Export Plan In Jeopardy?


Is Iraq’s Five Years Crude Oil Production Plan

2012 - 2017 In Jeopardy?

 

By: Ghanim Anaz

 

 Iraq’s crude oil export plan for the five years period 2012-2017 appears to be in jeopardy after the recent reports that Royal Dutch Shell is proposing to revise its rate of production from its Majnoon oilfield from its contractual rate of 1.8 million to 1.0 million barrels per day.

 So what is Iraq’s Five Years Oil Export Plan and why does it appear to be in jeopardy?

 An Overambitious Plan

 The declared five years Plan of the Ministry of Oil is to increase the country’s crude oil export from its present  level of around 2.5 million barrels per day by almost fivefold to 12.0 million barrels per day by the end of 2016.

 So where is this additional 9.5 million barrels per day of crude oil is supposed to come from?

 The answer could be found from the recent Production Service Contracts awarded by the Ministry of Oil to the various international oil companies as follows:

 

Oilfield

Reserves

Company

Current production

Planned Production by end of 2016

Net Increase

 

Billion barrels

 

Thousand barrels per day

Thousand barrels per day

Thousand barrels per day

West Qurna

Phase I

43.0

ExxonMobil/Shell

240

Say 1,240 by end of 2016

(contractually)

(2,250 by 2019)             

1,000

West Qurna

Phase II

Included above

Lukoil/Statoil Hydro

Nil

Say 600 by end of 2016

(contractually)

(1,800 by 2025)

 

600

Rumaila

30.0

BP/China National Petroleum Corp

1,000

2,850

1,850

Majnoon

12.0

Shell/Petronas

nil

800

(Revised from 1,8000)

800

Zubair

7.7

Eni/Occidental/

Korea Gas

200

1,250

1,050

Abu Ghurab/ Buzurgan/Jabal Fakka

4.0

Hong Kong/TPAO

115

1,450

1,335

Ahdab

1.0

Chinese National Petroleum Corp.

Nil

110

110

Badra

3.0

Gas prom/KOGAS/

Petronas/TPAO

Nil

170

170

Halfaya

4.1

China National Petroleum Corp/

Petronas

Nil

535

535

Gharraf

-

Petrobras/JAOEX

Nil

230

230

Jawan/Najmah/

Qaiyarah/Qasab

 

2.0

Sonagol

20

110

90

TOTAL

 

 

 

 

7,770

Add from other fields due for auction

 

 

 

Say 600

600

Subtract supply for planned new refineries and increase in consumption

 

 

 

Say 600

600

Net total expected increase in oil export

 

 

 

 

7,770

Current export rate

 

 

 

 

2,500

Total expected

Export capacity by end 2016

 

 

 

 

10,270

 Nearly all the figures in the above table are based on reports and various statements issued by the Ministry of Oil and as such represent a fair forecast at the present time.

  However, even with the above forecast of oil export capacity of 10.270 million barrels per day by the end of 2016,  there already seems to be  a shortfall of 1.730 million barrels per day from the Ministry’s target, representing some 14.4%.

However this forecast is expected to be subject to further down grading for the following reasons:

 1-It seems likely that other oil companies which were awarded Service Contracts may have presented similar unrealistic rosy production forecasts like Royal Dutch Shell when they were competing in the bidding to win their contracts and may now follow Shell in asking to revise their contractual production targets to a more realistic lower levels.

 2- There is a big doubt as to whether the country’s dilapidated crude oil facilities such as  pipelines, pump stations, tank farms, and export terminals will be upgraded in time to facilitate the export of the revised forecast of 10.270 million barrels per day.  

3- The dispute that had erupted recently between the Ministry of Oil and ExxonMobil after the Major had signed six Production Sharing Agreements with the Kurdistan Regional Government (KRG) which are considered by the Ministry as illegal. Furthermore the dispute has become more bitter since three of the awarded structures are located in the disputed territories which has enraged Baghdad. As a result the Ministry of Oil has threatened to cancel ExxonMobil’s  Service Contract for phase I of the super giant West Qurna field unless these six Agreements with the KRG are cancelled. Consequently, it has been reported that ExxonMobil had shown willingness to freeze its Agreements with the KRG but not to cancel them. However, there seems to be no confirmation that this is acceptable to the Ministry of Oil which has announced recently that ExxonMobil will not be allowed to participate in the forthcoming fourth round of auctions for the development of other fields. It is therefore possible that this very sensitive issue could have a profound negative effect on ExxonMobil’s ability to fulfil its contractual obligations in developing its phase I of the West Qurna field which will derail the country’s five years oil export  plan completely. 

 Conclusion

 It is clear from the above, that it seems very doubtful that Iraq’s official crude oil export target of 12.0 million barrels per day is achievable by the end of 2016. This may be a good thing, since the Plan is considered by  most Iraqi oilmen and economists as overambitious as well as unnecessary  and that a target of 6.0 to 8.0 million barrels per day seems to be more realistic and acceptable.

 It is of interest to record that this issue was discussed by the author in 2011 at the time of writing  his book (Iraq: Oil and Gas Industry in the Twentieth Century) which is being published at the moment by Nottingham University Press as follows:

 “Further criticisms are directed towards the Central Government’s overambitious future production policy which is expected to raise the country’s crude oil production from the current 2.5 million barrels per day to the staggering figure of 12.0 million barrels per day by the year 2017. This seems to be grossly unrealistic, difficult to attain, unnecessary as well as being a likely cause for future friction or even a possible confrontation with the Organisation of Petroleum Exporting Countries (OPEC), the very organisation that Iraq was one of its champions and founders in 1960. It seems that a more reasonable and realistic rate of production of six to eight million barrels per day is considered to be more acceptable to most Iraqi reservoir engineers, industry experts, economists, and mainstream independent politicians” 

 June 2012

 Reference - My book (Iraq Oil and Gas in the Twentieth Century)

Publisher - Nottingham University Press, May 2012