Iraq has the world’s third largest proven oil reserves and some of the lowest extraction costs anywhere on the planet. The fundamental difference between Iraq and its neighbours however, is that after years behind closed doors, and a prohibitive security situation, just a fraction of its known fields are in development.
According to the March 2007, review by the International Monetary Fund (IMF), in 2006, crude export revenues represented around 60% of GDP and 89% of government revenues. In 2006, the US Energy Information Administration (EIA) reported Iraq was the world’s 15th biggest oil producer and could meet 94% of its energy needs with domestic oil.
Iraq’s crude exports averaged 1.85 million barrels a day in 2008, 13.5% more than in 2007, the head of the country’s State Oil Marketing Organisation, (SOMO), said in January.
Iraq’s revenues from crude oil in 2008 reached around US$60 billion, or 33.6% more than in 2007, Falah Alamri, Iraq’s representative to OPEC, told reporters in March this year.
Oil
Experts agree that Iraq may be one of the few places left where vast reserves, known and unknown, have barely been exploited. After more than a decade of sanctions and two Gulf Wars, Iraq’s oil infrastructure desperately needs modernisation and investment. The good news is that capital is starting to flow in.
Thus far the industry has not been able to meet hydrocarbon production and export targets since 2004.
According to the January 2007, Special Inspector General for Iraq Reconstruction (SIGIR) report, Iraq’s petroleum sector faces technical challenges in procuring, transporting and storing crude and refined products, as well as managing pricing controls and imports, fighting smuggling and corruption, improving budget execution, and managing sustainability of operations.
Oil production has not recovered to pre-war levels, and parliament and cabinet officials are working to map out investment and ownership rights that are integral to helping move the industry forward.
Reserves
Rather dated proven oil reserves sit at 115 billion barrels for Iraq, although these figures have not been revised since 2001, and are based on old seismic data from nearly 30 years ago. Recently, multinational companies, at the request of the Government of Iraq (GoI), have reopened the books on this seismic data, and begun comprehensive surveys of Iraq’s hydrocarbons reserves in locations throughout the country. Whilst certain areas remain off-limits, much of the country is safe enough to survey now.
Geologists have estimated that relatively unexplored territory in the western and southern deserts may contain an estimated additional 75 to 100 billion barrels (bbls) of recoverable oil. While internal Iraqi estimates have ranged into the hundreds of billions of barrels of additional oil, the seismic data under review by a host of international firms seem to be pointing to more conservative, but significant, increases. Iraq has the lowest reserve to production ratio of the major oil-producing countries.
The majority of the known oil and gas reserves in Iraq form a belt that runs along the eastern edge of the country. According to the GoI, Iraq has around nine fields that are considered “super giants” (over 5 billion bbls reserves) as well as 22 known “giant” fields (over 1 billion bbls).
The cluster of super-giant fields of south-eastern Iraq forms the largest known concentration of such fields in the world and accounts for 70 to 80% of the country’s proven oil reserves. An estimated 20% of oil reserves are in the north of Iraq, near Kirkuk, Mosul and Khanaqin. Control over rights to reserves is a source of controversy between the ethnic Kurds and other groups in the area.
Current Oil Production
In 2006, upstream crude production averaged 2.0 million barrels per day (bbl/d), down from around 2.6 million bbl/d of production and a claimed capacity of 2.8 to 3.0 million bbl/d in pre-invasion January 2003.
Currently, the MoO has central control over oil and gas production and development in all but the Kurdish territory through its two operating entities, the North (NOC) and South Oil Companies (SOC).
According to the North Oil Company’s website, their concession and jurisdiction extends from the Turkish borders in the north to 32.5 degrees latitude (about 100 miles south of Baghdad), and from Iranian borders in the east to Syrian and Jordanian borders in the west. The remainder falls under the jurisdiction of the SOC, and though smaller in geographical size, includes the majority of proven reserves.
Upstream Plans
Iraq’s MoO has announced a goal of 6 million bbl/d of sustainable production by the end of the decade, stating that between $25 and $75 billion in investment is needed to get Iraq producing at such levels. The southern fields intended for development in the immediate term for export are West Qurna, Halfaya, Majnoon and Nahr (Bin) Umar.
These fields could produce an additional 2 million bbl/d in the medium-time frame with moderate investment. In the north, further development at a number of fields, including Bai Hassan, Jambur, Khabbaz, Ajil, Ain Zalah, Butma and others may depend on the final status of Kirkuk (Tamim) and settlement of Kurdish claims on the Nineveh governorate (Mosul).
Natural Gas
Iraq’s proven natural gas reserves are 112 trillion cubic feet (Tcf). Probable reserves have been estimated at closer to 275-300 Tcf and work is currently underway by several IOCs and independents to accurately update hydrocarbon reserve numbers.
Iraq’s proven gas reserves are the tenth largest in the world, and two-thirds of resources are associated with oil fields including, Kirkuk, as well as the southern Nahr (Bin) Umar, Majnoon, Halfaya, Nassiriya, the Rumaila fields, West Qurna, and Az-Zubair. Just under 20% of known gas reserves are non-associated. The majority of non-associated reserves are concentrated in several fields in the North including: Ajil, Bai Hassan, Jambur, Chemchemal, Kor mor, Khashm Al-Ahmar, and Al- Mansuriyah.
According to the EIA’s International Energy Annual report, natural gas production in Iraq has steadily declined over the past decade-and-a-half, reportedly due to an associated fall in oil production and deterioration of gas processing facilities. In 2005, dry natural gas production was approximately 87 billion cubic feet (Bcf); down from 215 Bcf in 1989. In late 2006, the MoO reported that natural gas production in was averaging 900 million cubic feet (MMcf/d) in the south (associated) and 490 MMcf/d in the north (non-associated) –including 375 MMcf/d of non- at the northern fields of Ajil and Jambur.
The MoO also reports that approximately 60% of associated natural gas production is flared due to a lack of sufficient infrastructure to utilize it for consumption and export. Significant volumes of gas are also reinjected to enhance oil recovery efforts. According to the January 2007 SIGIR report, approximately $4-billion worth of natural gas is flared or reinjected into wells.
Upstream gas
The non-associated gas fields reportedly slated for priority development are mostly in the northern governorates near Kirkuk, including: Al-Mansuriyah and the nearby Khashem-al Ahmer and Jaria Pika, Kor Mor, Akkas, Chemchemal and Siba.
According to the MoO, these fields have approximately 10 Tcf of reserves combined and could produce between 900 and 1000 MMcf/d for possible export and around 400 MMcf/d for domestic use.
The US EIA reports that the government in Iraq plans to capture more associated gas at Rumaila and Az-Zubair within five to ten years.
Shell has already began work on a domestic master gas plan for Iraq on a cost-free basis, and signed a major gas capture deal in 2008.
Gas Development Projects
In May 2007, the MoO claimed a large natural gas discovery near Nineveh, to the West of Al-Qa’em with further extensions to the Iraqi-Saudi border. A ministry official reported that “the field would produce 100 000-bbl/d” of gas and condensate.
In 2001, the GoI reported a find of 2.1 Tcf of non-associated gas near Akkas field, in the central province or Western Desert, but it is not yet under development.
There is interest by IOCs to develop this field. Several of the majors have also proposed development for export to Syria. It was reported in 2007 that the Syrian-based Euro-Arab Mashreq Gas Project is considering a link from the Akkas field to the Arab Gas Pipeline (AGP) currently under construction.
The AGP is will feed the European gas supply network by way of Turkey. In 2004, Iraq agreed to join the $1.2-billion, 351-Bcf/year AGP project linking Egypt, Jordan, Syria and Lebanon, but progress has since been delayed.
2010 Vision
Mayor of Baghdad unveils strategic plan
2009 delivered a marked improvement in the security situation in the capital and Iraq as a whole. The Mayor unveils his ambitious plans to start pouring oil revenues into infrastructure, education and economic zones surrounding Baghdad. A list of international companies have already signed up, keen to take advantage of the massive skilled workforce.
2012 Vision
Eastern belt production begins in earnest
Known oil and gas reserves along the eastern belt begin production. Two “super-giants” (over 5 billion bbls reserves) and one giant field go into production, boosting production by some 3 million barrels per day. At 2012 oil prices the country’s export earning shoot through the roof. Huge investment in social housing, primary education and technical colleges begins to pay dividends and boosts graduate employment to new highs.
2016 Vision
Basra LNG gas project completed
Iraq’s much anticipated LNG exports begin to Europe, the US and Asia. By spreading its exports across the globe the country has achieved a strategic balance, with long-term contracts supplemented by spot market surplus trades, ensuring a continuous and guaranteed income stream. Proceeds are ploughed into a major logistics hub and two economic free zones enticing global companies to begin investment and training programmes across the country.
2017 Vision
Babylon University opens upstream faculty
Tutor and student exchange programs with major European and US hydrocarbon research centres propels Al Hilla city’s Babylon University to the cutting edge of geotechnical and mineral studies worldwide. With a 60/40 male – female split the Oil Research Centre’s first intake of 2000 students is oversubscribed by three to one.
2020 Vision
Iraq launches Asian Games host bid
In what is being seen as a precursor to a 2026 FIFA World Cup bid, Iraq is bidding to host the upcoming Asian Games. After years of sustained peace the country is beyond rehabilitation and reaching for new heights. Iraq’s Sovereign Wealth Funds have had a successful bull run investing in emerging markets. With oil receipts topping $300 billion, and LNG incomes surpassing $60 billion, the country is hailed by the UN Sec Gen as a shining example of what an energy-rich nation can achieve with ten years of peace on its side.
Newsflash: April 2009
Three major IOCs in bidding war
The 6.5-billion-barrel Nahr Bin Umar field is currently being offered to several IOCs through what looks like a bilateral bidding process for a few chosen companies, with France’s Total and the United States’ Chevron bidding in a consortium against Norway’s StatoilHydro and a fourth unnamed company. “These companies are invited to compete for engineering, procurement and construction contracts,” an unnamed Oil Ministry official said.
Newsflash: March 2009
Exxon in dialogue with Baghdad
Exxon Mobil is in constant dialogue with Baghdad to create a climate that would allow it to become a major player in Iraq’s energy sector, Rex Tillerson, CEO said in March. The world’s largest publicly traded company is firmly in the race for contracts to work on Iraq’s biggest oilfields. “I hope Iraq creates the conditions that will allow a company like Exxon Mobil to be a participant in a significant way,” Tillerson said ahead of the Doha gas conference.
Newsflash: February 2009
Sarkozy in iraq to promote french trade
French President Nicolas Sarkozy visited Baghdad in February, in a bid to drum up business for French companies. He pledged French support for Iraq’s reconstruction. It is the first visit by a French head of state to Iraq since Saddam Hussein was overthrown in 2003. “We say to French companies that the time has come to return to Iraq,” he said at a joint news conference with Prime Minister Nouri Maliki. “Our collaboration has no limits,” said Sarkozy.
Newsflash: january 2009
Crude sales for 2008 hit $60 billion
Iraq’s crude oil exports averaged 1.85 million barrels a day in 2008, some 13.5% more than in 2007, the head of the country’s State Oil Marketing Organization, or SOMO, said in January. Iraq’s revenues from crude oil sales in 2008 reached around US$60 billion, or 33.6% more than in 2007, Falah Alamri said in an interview for Dow Jones Newswires in Baghdad.
Newsflash: October 2008
Shell deal to market Basra gas
Iraq’s MoO and Shell signed a deal to establish a JV between South Gas Company and Shell, for the processing and marketing of gas produced in the Governorate of Basra. The JV will purchase roughly 700 million ft3 of natural gas from upstream operations that is currently being flared. “This was the result of many years of work,” said Shell’s Mounir Bouaziz, VP, gas and power MENA.
Hydrocarbon Law Proposal
Described as “hugely significant”, Iraq’s proposed hydrocarbon law has huge implications for the region, as Iraq looks to maximise revenues from its enormous oil reserves. The law proposes that revenues from the sale of oil to the international community will be shared between the various Iraqi provinces, with percentages based on population. The implications of the hydrocarbon law for international oil companies looking to work in Iraq are massive, with the arrangement allowing for regional government officials and local companies to engage in contracts with any foreign corporations.
All international oil companies have since been looking at Iraq as a viable investment destination, though the Iraqi Government has stressed the need to be selective in choosing the best strategic partners, with companies from the US, Europe, Russia, China and India all having the opportunity to invest in Iraq. Ratification is hoped for this later year.
