Who better to introduce Iraq’s new oil industry than the man who was there at the beginning? Oil & Gas Middle East speaks to Harry T Holzman Jr.
Iraq is one of the most hydrocarbon-rich countries in the world, and in the future it could become its leading producer of crude oil.
That’s the underlying message from Harry “Bud” T Holzman Jr, whom US Central Command charged appointed Chief Analyst for Iraqi Oil & Gas Infrastructure in 2004. Holzman was charged with appraising and planning the development of Iraq’s energy infrastructure.
Holzman, a distinguished US Air Force pilot, national guardsman and Texas geologist with previous experience in Russia and Malasia, travelled the length and breadth of the country to put together an inventory of the oil and gas fields and energy and electricity infrastructure, and come up with comprehensive plans to rebuild the sector after decades of war, underinvestment and neglect.
“I worked on every single pipe in that country,” says Holzman, who quickly saw that giving Iraqis electrical power was the key to progress.
“I advised the US and Iraqis at the time, ‘if you give Iraqis 100% electricity coverage, the revolt is over,’” says Holzman. “I saw the vast power feedstock they had, the gas, the crude, the residual oil.
The I took a look at the power plants at Baji, Doura and the main one at Basra, all of them were in such disrepair. It was absolutely terrible: all the wire was taken. Everything was scavenged.”
Holzman drafted the first proposal for the government on how to capture the flared gas from Iraq’s south fields, hire local staff using local networks, and put the huge turbines that were donated from neighboring Kuwait to use. His plan was to start with the smaller towns of Ramalla, Nassiriyah, providing each with round the clock electrical power.
While the $17 billion Shell/Mitsubishi gas capture deal is on the cusp of final approval, most of Holzman’s plan remains undone. Current electricity demand in Iraq is around 14,000 MW. According to government figures, current grid capacity is 9,000 MW.
Outages make life almost unbearable in the summer, when daily temperatures can hit between 43 and 50 degrees celsius. Up to 20,000MW will be needed to give room for growth as Iraqis acquire air conditioners and start to build an industrial sector.
Despite $5 billion spent by the US on electrical infrastructure, the average Iraqi gets around 5 hours of power a day.
Holzman says developing an understanding of the Iraqi people is essential to getting things done, something he wishes his own government had been better at doing after the invasion. As an example, he cites attack on pipelines around the North.
“That wasn’t bad guys,” Holzman says. “It was local groups who used to handle security that were booted out so the new oil police could watch them. So they blew up the lines to show how bad the oil police were.” Holzman recommended the government reappoint them, and have them paid for every barrel of oil that goes through their area safely.
The next Saudi Arabia
While he dismays at Iraq’s lack of progress in bringing power to people eight years after ‘Mission Accomplished’ was declared, Holzman is bullish on Iraq’s long term prospects, if it can harness its staggering potential.
“They have only around 2,800 wells drilled across the country,” he says. “The state of Texas alone has 2 million.”
“I was so impressed with what I saw over there in terms of the oil – and how easy it was to get to. In the North, there are so many oil seeps,” says Holzman. “A first-year geologist or geophysicist can find the major structural traps all over the country, with the exception of the Kurdish region, which is a little different due to plate movement and complex faulting.”
After surveying the existing geological data, much of which was from the 1950’s, 60’s and 70’s, Holzman gave a reserves estimate of 230 billion barrels nationally, 87 billion barrels above 143 billion currently declared (including Kurdistan).
“But that was just for the 84 fields that I found,” Holzman says. “I made no reserves estimate for future discoveries. Another 100-150 billion barrels are probably left in the ground to be found. They are going to find tremendous reserves, and quite a bit of gas, because you can see the structural and sedimentation trends elsewhere, such as Syria.”
Independents
They key to finding this oil, Holzman says, will be the entry of independents, which need profit oil to apply their exploration genius. He brands the Oil Ministry’s attempts to use a technical service contract to cover the exploratory work to be done at the fields in the fourth bidding round (see page 8) as “crazy”.
Holzman was insistent that the Iraqi constitution state that the nation’s oil belongs to the Iraqi people. “But it was understood in a way other than how I meant it. I didn’t mean it to lead to a nationalised oil company as such, but to give power to the provinces to talk to the central government.”
“I found 84 discovered fields in 2004. I advised the Iraq government to do service contracts on those fields to develop,” he says. “That is being done, albeit at a very low price. Then my advice was that any exploration blocs would have to be modeled after production sharing agreements.” Holzman recommended a prescribed share for oil companies of 15%.
Distributing Iraqi’s oil revenue is another quandary that the government has not yet resolved, and Holzman’s prescription (in contrast to the centralising urge in Baghdad) was for an equitable split between central and regional governments, to promote a stake in the country as a whole, while promoting local accountability that endemic corruption obscures.
Getting it done
Holzman is a straight talker, and is as frank about the corruption he saw in Iraq as the country’s huge potential.
“It was worse than South America, worse when I was in Russia where it was terrible. But then, when they get their electricity they’ll start up their industry, and people will be hired, so there will be less of it.”
“When the money gets to the provinces will see some greasing of the skids,” he says, “and relatives will still want their cut, but you are not going to stop that. I told the US government at the time, who wanted to be 100% against it, that you can’t. You need to go with what they have been doing” and then improve matters when structures are in place, most notably a comprehensive oil law (see page 14).
While legal requirements prevents the oil sector from adopting Holzman’s approach as policy, his message of pragmatism is essential to the ongoing development of Iraq’s oil industry, and therefore of Iraq.
Iraq’s politics frustrates Holzman – he jokes it might be even worse there than in the US – and he cites it as the main obstacle to the nation’s development.
“If they could just get it together, Iraq is going to be the richest country in the world.”
