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Iraq is exporting a "cocktail of crudes" produced from its
southern oilfields with an API gravity of 30 rather than the 34 degree
API Basrah Light because of a shortage of storage facilities at its Persian
Gulf oil terminals, former Iraqi oil minister Issam Chalabi told an energy
conference Sep 27. "SOMO is exporting a cocktail of crudes, not Basrah
Light, with an API of 30-30.5. It used to be 34 API," he told the
conference, entitled Renewal and Reconstruction in Iraq. "They are
exporting a mix of heavy, medium and light," said Chalabi. He said
this was because Iraq in the past used to store Basrah Light at its Fao
storage facilities and export it from the Basra oil terminal, formerly
known as Mina al-Bakr. The destruction of the storage facilities and other
infrastructure in Iraq has meant that the Iraqis are pushing a blend of
crude produced in the southern Rumaila oilfield into the pipeline and
straight onto tankers. "This has caused a lot of problems,"
said Chalabi, now an independent consultant based in Jordan. "You
need storage."
Chalabi was pessimistic about the prospects of Iraq restoring and sustaining
a pre-war production level of 2.8-mil b/d. Iraq can raise its exports
to 2-mil b/d in the medium term from an average 1.6- to 1.7-mil b/d but
would be unable to sustain that level without "a crash program"
to rehabilitate the Iraqi oil and gas industry. He said that since the
US-led war ended against Iraq, there had not been a single contract awarded
to increase Iraq's production capacity to the targeted 3.5- to 4-mil b/d,
the 2006 target set by the US-led Coalition Provisional Authority and
the interim government. A further increase in production capacity to 6-
to 8-mil b/d is envisaged by 2010 though that target is looking increasingly
optimistic, other speakers told the conference. "In the Kirkuk and
Rumaila oilfields, the damage is too big," said Chalabi, adding that
until a technical assessment is done by international oil companies now
bidding for the contracts, it would be best to adopt a conservative estimate
of Iraq's future production capability.
Some analysts have suggested that the rates of decline in Iraq's northern
Kirkuk oilfields, which account for 40% of total Iraqi crude oil production,
would force a rethink of the numbers. "I believe that they have to
be conservative in their production policy. Maximizing production is not
to the benefit of the country and we would lose more oil to the ground,"
said Chalabi. "Facilities are badly needed like water injection.
In some wells water content is up to 70%...some of the pipelines are badly
corroded," said Chalabi. "Two years ago, I said we will not
see a considerable increase in Iraqi oil before 2010. I think now we are
already talking about 2012. There is no starting point and the starting
point is yet to come," said Chalabi, adding that the Iraqi oil industry
was a "sick man" that needed to be nurtured back to health slowly.
"I am not a pessimist but a realist," he said.
Once Iraqi elections are out of the way in January and an elected government
is in place, a new fiscal and regulatory regime will have to be put in
place before any contracts are given to multinational oil companies and
any new oil is produced. But politics should not be allowed to play a
part in which companies get contracts to develop Iraq's oil reserves,
estimated at 115-bil bbl and the world's second biggest after Saudi Arabia.
Other speakers said that with the world's spare oil production capacity
shrinking, it was vital to ensure security and stability was restored
in Iraq, where 90% of the oil regions are still unexplored, to bring on
additional capacity. Ramzi Salman, a former head of Iraq's State Oil Marketing
Organization and current advisor to the Qatari oil minister, said the
average life cycle cost of production in Iraq was $2-$2.25/bbl, among
the lowest in the world. The delay in restoring security to Iraq and the
unpredictability of exports as well as other factors, had added a premium
of $4-10/bbl to crude prices.
Production declines from mature fields in OPEC producing states and
the North Sea should also be taken into consideration, said Salman. "The
rate of production declines in mature fields is about 1-mil b/d per year."
There is insufficient investment in new production while discovery rates
have fallen. Since 2000, discovery rates have dropped by 40% and the last
big discovery was the Kashagan oilfield in Kazakhstan. International oil
companies are not in the business of investing in spare capacity while
national oil companies are reluctant to invest in new capacity without
guarantees of future demand, he said. He suggested a system whereby consumers
would invest in new capacity or enter into a take-or-pay type contract
with producers. Amin Jafar of the Dome Group, among the few private oil
companies operating in Iraq, said Iraq had a 60% success rate in exploration
between 1900-1961. Very little seismic work has been done in the last
13 years and there has been no 3D seismic done in the country, he said.
Created: May 19, 2004
Updated: Sep 27, 2004
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