Iraq, Nigeria oil output increasing

Sam Fletcher
OGJ Senior Writer

After years of losses because of war and revolution, oil production in Iraq and Nigeria is starting to increase. “Although we see the potential for the sharpest near-term gains in Nigeria, Iraq is making significant progress on deals with international oil companies that could double production there over the next 5 years,” said Adam Sieminski, chief energy economist, Deutsche Bank AG, Washington, DC.

“Geologists have long believed that Iraq's reserves could rival those of Saudi Arabia (where production could easily go to 11 million b/d from today's 8.5 million b/d),” Sieminski said. “We believe Iraq could be producing 2.5 million b/d in 2010, but it could be more than twice that by 2016. Fields in Iraq like West Qurna and Majnoon are world-class, and they are undeveloped. As [analysts at Wood Mackenzie Ltd., Edinburgh,] observed, Iraq remains among the most challenging places in the world to do business—logistically, operationally, legally, and politically. But the potential returns are huge, if the companies can manage the risks.”

Iraq has not yet regained its production level previous to the US-led invasion in 2003. In June, however, BP PLC teamed with China National Petroleum Corp. in a successful bid for Rumaila oil field with 17.8 billion bbl in oil reserves and the potential to hike Iraqi production past 4 million b/d within a few years, WoodMac analysts said.

Earlier this month, Royal Dutch Shell PLC joined with Malaysia's Petronas to secure rights to Manjoon field in the Basra region, one of the largest oil fields in the world, beating out a consortium of France's Total SA and CNPC. However, a consortium of CNPC, Total, and Petronas won a deal to develop Iraq's giant Halfaya oil field in the country's second bidding round since 2003.

In April, the Centre for Global Energy Studies in London said Iraq would need to invest $28-43 billion in order to raise its oil production capacity to 6 million b/d.

Nigeria rebounds
The International Energy Agency earlier reported Nigerian production fell to 1.68 million b/d in July, its lowest level in 2 decades and well below its hypothetical capacity of 3 million b/d.

By the end of summer, however, the Movement for the Emancipation of the Niger Delta agreed to a cease-fire under the Nigerian government's amnesty offer to militants. Production responded quickly, with November output estimated at 2 million b/d. “With natural gas liquids output at close to 400,000 b/d and also growing, Nigeria seems set for a period of relatively strong growth,” Sieminski said.

“Total Nigerian oil production could come in at 2.5 million b/d in 2010 in our view,” he said. “Although we harbor some concerns about the ability of the government and MEND to stick to maintain the cease-fire, the agreement is already beating skeptics’ estimates for duration.”

WoodMac, a former Deutsche Bank subsidiary, assumes there will be some easing of funding constraints but operational delays on certain projects will continue. “Furthermore, it seems likely that Shell's shut-in fields in the Forcados region will only reach around two thirds of its previous output. Nevertheless, WoodMac believes that total oil, condensate, and LPG production could reach circa 3 million b/d in 2016,” said Sieminski.

Biofuel expansion
Meanwhile, the US government’s strategic decision to increase the role of biofuels—“specifically ethanol”—in the country’s energy mix has had “a powerful effect on demand side fundamentals” in corn and soybean markets, said Deutsche Bank analysts. According to the US Department of Agriculture, the US ethanol industry will be responsible for just over 50% of global corn consumption growth in 2009. “Today more than 30% of the US corn harvest is used for ethanol production. Given US Federal government targets, this could rise to as high as 40% by 2015, or 5.5 billion bushels,” analysts said.

To achieve the targets for US ethanol production, they said, “We expect the US Environmental Protection Agency will increase the current 10% blend of ethanol in gasoline use by 5 percentage points from the middle of next year. This would not only increase ethanol consumption by approximately 7 billion gal, but it would also avert the US ethanol industry from hitting the ‘blend wall’…when ethanol production and use is equal to 10% of the country’s gasoline supply. We believe the increasing use of corn for ethanol production will sustain corn inventories at critically low levels and consequently sustain the price spike risk in this market.”

(Online Dec. 14, 2009; author’s e-mail: samf@ogjonline.com)

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