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By 2014 Iraq was gearing up for one of the biggest oil output jumps in its history with international companies nearing completion of major projects which so far have not been affected by unrest. Iraq will see its oil production capacity rise by more than 50 percent in 2015 to 4.7 million barrels per day [bpd] compared to more than 3 million at the outset of 2014, according to Deputy Prime Minister for Energy Hussain al-Shahristani. The long-term plan is to raise output to 9 million bpd by 2020 and sustain that rate over 20 years, he said. For comparision, Saudi Arabia's produciton in 2012 was 11.7 million bpd. Kurdistan has also signed deals with major and mid-sized energy companies in the hope of producing as much as 1 million barrels per day. It built a pipeline to Turkey, but Baghdad insisted it had the sole right to export oil from all parts of Iraq, including Kurdistan.

Iraq has the fifth largest proven crude oil reserves in the world, and it passed Iran as the second largest producer of crude oil in OPEC at the end of 2012. Despite having large proven oil reserves, increases in oil production have fallen behind ambitious targets because of infrastructure constraints and political disputes. Iraq was the sixth largest net exporter of petroleum liquids in the world in 2012, with the majority of its oil exports going to the United States and to refineries in Asia. The majority of Iraqi natural gas production is flared and Iraq was the fourth largest natural gas flaring country in the world in 2010. Iraq is taking steps to reduce flaring and to use its natural gas resources in power generation and for re-injection to increase oil recovery.

Oil production and exports dipped in March and April 2010. In the south, adverse winter and spring weather prevented tanker loadings at the maritime terminals for several days, curtailing both exports and production. Iraqs 2010 oil production was averaging 2.4 million barrels per day (mbpd). Oil exports averaged 1.90 mbpd through the end of April 2010.

Iraq may be one of the few places left where vast oil reserves have been under-exploited. Iraq was the world's 12th largest oil producer in 2009, and was estunated to have the world's fourth largest proven petroleum reserves after Saudi Arabia, Canada, and Iran. Just a fraction of Iraq's known fields are in development, and Iraq may be one of the few places left where vast reserves, proven and unknown, have barely been exploited.

According to the Oil and Gas Journal, Iraq's proven oil reserves were 115 billion barrels, although these statistics had not been revised since 2001 and were largely based on 2-D seismic data from nearly three decades ago. Geologists and consultants have estimated that relatively unexplored territory in the western and southern deserts may contain an estimated additional 45 to 100 billion barrels (bbls) of recoverable oil. Iraqi Oil Minister Hussain al-Shahristani said that Iraq is re-evaluating its estimate of proven oil reserves, and expects to revise them upwards.

In early October 2010, the Ministry of Oil raised its estimate of proven oil reserves by 24% from 115 billion barrels to 143.1 billion barrels, which-if accurate-places it behind only Saudi Arabia and, possibly, Canada. Offi cials from Iraq's Ministry of Oil have repeatedly stated their intention to tap these vast reserves to increase production from current levels to more than 12 MBPD within seven years. However, Iraq's oil production had remained relatively flat over the previous two years, hovering below 2.5 MBPD,30 and neglected infrastructure and an uncertain political and security environment may adversely aff ect Iraq's ability to achieve its desired increase in production.

A major challenge to Iraq's development of the oil sector is that resources are not evenly divided across sectarian-demographic lines. Most known hydrocarbon resources are concentrated in the Shiite areas of the south and the ethnically Kurdish north, with few resources in control of the Sunni minority.

The majority of the known oil and gas reserves in Iraq form a belt that runs along the eastern edge of the country. Iraq has 9 fields that are considered "super giants" (over 5 billion bbls) as well as 22 known "giant" fields (over 1 billion bbls). According to independent consultants, the cluster of super-giant fields of southeastern Iraq forms the largest known concentration of such fields in the world and accounts for 70 to 80 percent of the country's proven oil reserves. An estimated 20 percent 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.

In 2009, Iraq's crude oil production averaged 2.4 million barrels per day (bbl/d), about the same as 2008 levels, and below its pre-war production capacity level of 2.8 million bbl/d in 2003. About two-thirds of production comes from the southern fields, with the remainder from the north-central fields near Kirkuk. At present, the majority of Iraqi oil production comes from just three giant fields: North and South Rumaila in southern Iraq, and Kirkuk.

Currently, the Ministry of Oil has central control over oil and gas production and development in all but the Kurdish territory through its three operating entities, the North Oil Company (NOC), the South Oil Company (SOC), and the Missan Oil Company (MOC), which was split off from the South Oil Company in 2008. According to the NOC'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 company's geographical operation area spans the following governorates: Tamim (Kirkuk), Nineveh, Irbil, Baghdad, Diyala and part of Babil to Hilla and Wasit to Kut. The remainder falls under the jurisdiction of the SOC and MOC, and though smaller in geographical size, includes the majority of proven reserves. MOC's oil fields hold an estimated 30 billion barrels of reserves. They include Amara, Halfaya, Huwaiza, Noor, Rifaee, Dijaila, Kumait and East Rafidain.

The Kurdistan Regional Government (KRG), the official ruling body of a federated region in northern Iraq that is predominantly Kurdish, passed its own hydrocarbons law in 2007. Despite the lack of a national Iraqi law governing investment in hydrocarbons, KRG has signed oil production sharing, development and exploration contracts with several foreign firms, and began exporting its own oil briefly. Norway's DNO and Sinopec/Addax are currently producing, and volumes could be ramped up to 100,000 bbl/d and reach 200,000 bbl/d within a year, according to the KRG natural resources ministry. The KRG ceased oil exports after four months in 2009, but its intention to resume exports has been a source of contention with the national government. The Iraqi Oil Ministry has been adamant that oil produced in the KRG will have to be shipped via SOMO, Iraq's oil exporting arm.

Iraq has begun an ambitious development program to develop its oil fields and to increase its oil production. Passage of the proposed Hydrocarbons Law, which would provide a legal framework for investment in the hydrocarbon sector, remains a main policy objective. Despite the absence of the Hydrocarbons Law, the Iraqi Ministry of Oil signed 12 long-term contracts between November 2008 and May 2010 with international oil companies to develop 14 oil fields. Under the first phase, companies bid to further develop 6 giant oil fields that were already producing with proven oil reserves of over 43 billion barrels. Phase two contracts were signed to develop oil fields that were already explored but not fully developed or producing commercially. Together, these contracts cover oil fields with proven reserves of over 60 billion barrels, or more than half of Iraq's current proven oil reserves.

As a result of these contract awards, Iraq expects to boost production by 200,000 bbl/d by the end of 2010, and to increase production capacity by an additional 400,000 bbl/d by the end of 2011. When these fields are fully developed, they will increase total Iraqi production capacity to almost 12 million bbl/d, or 9.6 million bbl/d above current production levels. The contracts call for Iraq to reach this production target by 2017.

Iraq faces many challenges in meeting this timetable. One of the most significant is the lack of an outlet for significant increases in crude oil production. Both Iraqi refining and export infrastructure are currently bottlenecks, and need to be upgraded to process much more crude oil. Iraqi oil exports are currently running at near full capacity in the south, while export capacity in the north has been restricted by sabotage, and would need to be expanded in any case to export significantly higher volumes.

Production increases of the scale planned will also require substantial increases in natural gas and/or water injection to maintain oil reservoir pressure and boost oil production. Iraq has associated gas that could be used, but it is currently being flared. Another option is to use water for re-injection, and locally available water is currently being used in the south of Iraq. However, fresh water is an important commodity in the Middle East, and large amounts of seawater will likely have to be pumped in via pipelines that have yet to be built. ExxonMobil has coordinated initial studies at water injection plans for many of the fields under development. According to their estimate, 10 -15 million bbl/d of seawater could be necessary for Iraq's expansion plans, at a cost of over $10 billion.

Furthermore, Iraq's oil and gas industry is the largest industrial customer of electricity, with over 10 percent of total demand. Large-scale increases in oil production would also require large increases in power generation. However, Iraq has struggled to keep up with the demand for power, with shortages common across Iraq. Significant upgrades to the electricity sector would be needed to supply additional power.

Iraq also plans to sign delineation agreements on shared oil fields with Kuwait and Iran. Iraq would like to set up joint committees with its neighbors on how to share the oil.

The GOI held two oil licensing ("bid") rounds in which 44 foreign firms were allowed to bid for contracts to develop a substantial portion of Iraq's oil resources (fields holding an estimated 62 billion barrels, or 54 percent of its proven reserves). The awarded contracts could increase Iraq's oil export capacity by 500 percent over seven years, although internal infrastructure limitations and other factors will likely limit realization of this export potential. Iraq's oil licensing rounds in 2009 may have been the world's largest ever and were widely regarded as open, equitable, transparent, competitive, and free from corruption. The oil contracts awarded are expected to bring billions of dollars in foreign direct investment in the coming years and spur the growth of the foreign and domestic private sector in Iraq.

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Page last modified: 28-01-2014 19:09:03 ZULU