New hydrocarbons regime seen key to Iraq's major production growth

Iraq must build a new hydrocarbons regime to attract the necessary financing if it expects to solve its infrastructure problems and become the world’s No. 2 exporter, an official of the country’s government and the International Energy Agency’s chief economist both said.

“We have an ambitious plan to double production by the end of this decade,” Jabir Habeb, Iraq’s ambassador to the US, said at an Oct. 22 seminar at the Center for Strategic and International Studies on IEA’s Iraq Energy Outlook, which was released earlier in October. “It may be more ambitious than the IEA’s projections, but it’s apparent there’s no alternative.”

That report’s central scenario projected Iraq’s oil production more than doubling to 6.1 million b/d by 2020 and reaching 8.3 million b/d in 2035. This growth in production of more than 5 million b/d by 2035 would make Iraq the largest contributor to more global supplies during that period, it indicated.

But the country will need to develop a hydrocarbons regime with the necessary transparency to attract foreign investments to repair badly neglected oil and gas production, pipelines, and terminals, IEA Chief Economist Fatih Birol observed.

Iraq also must begin to develop its natural gas resources as well as gas associated with its oil production, 60% of which now is flared, Birol continued. Iraqi gas conceivably could help the country generate more electricity to meet its citizens’ growing needs, he said. “Despite such oil and gas abundance, the average Iraqi can have only eight hours of electricity daily,” he told his CSIS audience.

Difficult task

Habeb acknowledged that a new oil regime is essential for Iraq’s energy production and economic growth. “We are not there yet, but we believe our political parties recognize that it’s necessary,” he said. Negotiations are under way to reduce investment barriers that are legacies of Saddam Hussein’s government, but progress is difficult, the ambassador said. “It hasn’t improved in the Arab Spring’s wake,” he said. “We’re trying to stabilize our country and resist outside interference.”

Birol said Iraq’s considerable oil and gas resources and relatively inexpensive production continue to work strongly in its favor. While the country’s northern portion, which is under Kurdish control, has become one of the world’s fastest growing oil production areas, IEA’s report projected that about 80% of Iraq’s future oil growth will come from southern fields.

“We think about 80% of the exports will be to Asia, principally China which could receive up to 2 million b/d,” Birol said. Noting that IEA projects that more than 30% of Iran’s future oil production growth could come from fields in which Chinese companies are either operators or major partners, he noted: “There is a new trade axis being built between Beijing and Baghdad.”

Associated gas will not be enough to meet Iraq’s needs so development of its other gas resources will be necessary, he said. Gas potentially could be exported competitively to Europe by a pipeline through Turkey as well as to neighbors like Kuwait and Saudi Arabia, Birol suggested. Iraqi gas also could be liquefied and sent by tanker to China and other East Asian customers, he said.

International support will be essential, and in consuming countries’ interests, Birol and Habeb both said. “The oil is there, the conditions are right, but a structure needs to be developed to bring in outside investment while protecting the Iraqi people’s interests and rights,” IEA’s chief economist said. “If Iraq doesn’t meet these goals, we do not see anywhere else that could deliver this level of production growth as economically. That obviously would push future oil costs higher.”

Contact Nick Snow at nicks@pennwell.com.

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