Iraq in Review

According to a report by the U.S. Energy Information Association (EIA), just a fraction of Iraq’s known fields are actually in development, and Iraq may be one of the few places left where much of its known hydrocarbon resources have not been fully exploited.

It was only after years of sanctions and wars that Iraq began to develop its oil and natural gas reserves, and there is certainly a long way for the country to go. The report states that in 2012, Iraqi crude oil production averaged 3 million barrels per day (bpd), pushing the country past Iran as OPEC’s second largest crude oil producer.

Impressive as this may be, the country originally sought even higher goals of approximately 12m bpd by 2017, says the report. However, these ambitious production targets have been revised down to 9.5m bpd for the same time frame.

The International Energy Agency’s (IEA) special report, ‘Iraq Energy Outlook’ has projected a central, more modest output of 6.1m bpd by 2020 to reach 8.3m bpd by 2035. The largest increase in production will come from the concentration of super-giant fields in the south, around Basrah, says the IEA.

Iraq has five super-giant fields (over 5 billion barrels) in the south that account for 60% of the country’s proven oil reserves. An additional 17% of oil reserves are in the north of Iraq, near Kirkuk, Mosul and Kahanaqin.

According to the EIA, the Kurdistan Regional Government (KRG) has stated the region could contain up to 45 billion barrels of unproven oil resources.

The country’s ability to ramp up production is dependent on a number of factors; infrastructure being one of the most immediate. Both Iraqi refining and export infrastructure are severely constrained, with bottlenecks preventing more crude oil processing, says the report.

Iraqi oil exports are currently running at near full capacity in the south, while export capacity in the north has been restricted by sabotage, deteriorating pipelines, and the inability to receive more oil from the south of Iraq via a deteriorated Strategic Pipeline.

Much of Iraq’s critical infrastructure is being rebuilt as such; there is a huge demand for reliable, high quality power.

“One of the major drivers of economic development in Iraq is the oil and gas industry. With very little grid infrastructure and power capacity in place around the main oilfields, companies need to source their own power supplies,” says Phil Burns, managing director, Aggreko Middle East.

The company currently operates a number of sites around the Basra oil fields including Zubair and West Qurna, and has an installation in Kabala. “Our projects are essentially providing power to extraction and refining processes on site, in the oil fields and at the refineries and range between 10 MW to 15 MW each,” explains Burns.

Article continues on next page …

The political friction between the Iraqi Federal Government and the KRG over which authority has the right to enter into petroleum agreements and manage oil and gas in Kurdistan has also slowed the increases in production.

According to George Booth, partner at Clyde & Co., the IFG maintains that the KRG has breached its constitutional obligation to act jointly with Baghdad in oil and gas matters by passing the Kurdistan Oil and Gas Law 2007 and signing Production Sharing Agreements.

The KRG on the other hand maintains that it has not breached its constitutional obligations and instead claims autonomy under the Iraqi Constitution to manage oil and gas in Kurdistan on the basis that this power is omitted from those powers exclusively reserved for the IFG.

“It is clear that only once an agreement between the IFG and the KRG has been reached, and federal oil and gas law is passed, will Iraq’s oil and gas industry be placed on a predictable legal footing,” says Booth.

“In the mean time, investors entering Kurdistan do so not certain whether the contracts they acquire with the KRG will be recognised when the new federal legislation comes into force,” he adds.

But companies such as Genel Energy and Crescent Petroleum have decided to forge ahead in developing reserves in Kurdistan. The general consensus among the companies operating in the north is that these investments are legally justified.

“We as a company, and of course the other 20 companies that are active in the Kurdistan region, are fully confident of the legal, technical and moral arguments behind our investment in the region,” says Badr Jafar, president of Crescent Petroleum.

And it is no surprise why they continue to stand behind their investments. In April alone, Genel Energy led by chief executive Tony Hayward, announced two significant discoveries in the region; the first in Bina Bawi 3, the second in Chia Surkh 10.

The initial capacity of the extended well test from Bina Bawi 3 is around 5,000 barrels of oil equivalent per day (boe/d) with the potential to expand beyond this level to approximately 10,000 boe/d, as future wells become available.

The Company said the Chia Surkh 10 well was drilled to a depth of 1,696 metres in the OligoMiocene section, and, in tests extending over several days, flowed at up to 11,950 barrels of oil a day and 15 million cubic feet of gas. The oil was 41 degrees API and well-head flow pressure 2,000 pounds a square inch.

In order for Iraq to really capitalize on its imminent oil boom, the country will need to increase its crude oil exports. Iraq was the world’s sixth largest net exporter of petroleum liquids in 2012, with the majority foits oil exports going to the United States and to refineries in Asia. Iraq exported 2.4m bpd of crude oil in 2012, according to tanker data from Lloyd’s List Intelligence, says the EIA report.

About 2.1 million bpd of these exports came from Iraq’s Persian Gulf ports, with the rest exported via the Iraq-Turkey pipeline in the north.

This number is set to increase with Genel Energy’s plans to build the 420,000 bpd Kurdistan Iraq Crude Export pipeline that will connect its fields in the Kurdish regions in northern Iraq to the border with Turkey. The KRG has ambitious plans for its crude oil exports.

Article continues on next page …

Nechervan Idris Barzani, Prime Minister of Kurdistan, suggested that crude oil exports from the KRG could average 250,000 bpd in 2013 and then rise to 1m bpd.

Outside of Kurdistan the news is good too. In April, Gazprom Neft, the lead partner in a consortium awarded the Badra field development project back in 2009, completed an important well test. The company reported that the well BD 4 on the 3 billion barrel field flowed succesfully at 2000 barrels per day.

The field infrastructure required to begin commercial production is under construction, as well as a central gathering facility with a total capacity of 170,000 bpd. The first line of the central gathering facility will be commissionsed this year. The site of a gas collection and processing facility with a capacity of about 1.5 billion m3 a year has also been prepared for construction.

Despite all the challenges, Iraq continues to grow in importance as an upstream market. Such dynamism means we can safely assume the annual Basra Oil & Gas show (see below) to be the biggest and most important yet.

Basra’s Best
Iraq continues to make the headlines in the energy world, and it’s no surprise why. Take a look at all the latest developments and the U.S. Energy Information Association’s take on how the country’s energy market is shaping up.

The 4th Basra International Oil & Gas Conference and Exhibition, organized by Explotim International Fair Organizations and Pyramids International, is set to be held between 5-8 December 2013.

Organizers have stated that at least 95% of the participants will return to one of the country’s most highly anticipated events. Over 18,000 visitors from over 35 countries descended upon Basra last year to see how the industry has developed over the last 12 months.

Iraq, UAE, Turkey, Germany and Jordan were the leading participating countries last year, followed closely by the UK and the USA.

With an exhibition and parallel conference programme, the event, officially supported by the country’s Ministry of Oil, was host to some of the leading companies in the industry, including: Bertling, Cameron, China Petroleum Technology, CNPC, Emerson Process Management, FMC Techonologies, Honeywell, Mitsubishi, Rumalia, Samsung, Scania, Siemens, Tenaris and Volvo.

The Ministry of Oil companies were also well represented last year, with companies such as South Oil Company, South Gas Company, Iraq Drilling Company, State Company for Oil Projects, Missan Oil Company and Baghdad Training Institute played prominent roles in the event, networking with the private company representatives about present and future opportunities for Iraq’s oil & gas industry.

As well as international and local industry professionals, officials from state companies and ministries (Ministry of Oil and State Company for Oil Projects) joined the summit.

Keynote speakers included senior level managers from Gulf Energy, General Electric, Shell, South Gas Company, and Mott Macdonald who put forward their views on their current operations in Iraq, technology , health & safety and many other topics related to the conference theme “Iraq: The Hub of Future Energy.” Discussions centred around recent developments and difficulties being encountered by companies operating in Iraq, with shared experiences and potential solutions put forward.

Expected to attract more than 18,000 visitors, the four-day conference and exhibition will create a platform from government institutions, national oil and gas companies, private sector, and industry professionals that is essential for potential solutions for the fourth consecutive year.

Submissions can be made on the Basra Oil & Gas exhibition official website: www.basraoilgas.com.

For further information, please contact: info@basraoilgas.com