Iraq oil minister projects production growth despite sabotage

Nov. 18, 2003
Even as Iraq's oil minister touted his country's sales targets to Middle Eastern neighbors Monday, saboteurs still appeared to hold sway over US-led efforts to restore the country's export potential to anything like its pre-war capacity of an estimated 2.2 million b/d.

Eric Watkins
Middle East Correspondent

NICOSIA, Nov. 18 -- Even as Iraq's oil minister touted his country's sales targets to Middle Eastern neighbors Monday, saboteurs still appeared to hold sway over US-led efforts to restore the country's export potential to anything like its pre-war capacity of an estimated 2.2 million b/d.

On a visit to Doha, Iraq's Oil Minister Ibrahim Bahr Al Oloum said his country plans to raise its crude oil exports to 2 million b/d by the first quarter of 2004 from 1.5 million b/d that officials claim as current production. On Tuesday, however, Iraq's State Oil Marketing Organization (SOMO) said it has finalized crude oil contracts totaling just 1.7 million b/d for the first half of 2004—all of it Basra Light lifted from southern Iraq.

So far, Iraq has been exporting only from its southern oil fields where production has been estimated at 1.7 million b/d. Export revenues from oil sales are vital for US plans to pay for Iraq's post-war reconstruction, but any sales much beyond that 1.7 million b/d figure will depend on increased exports from the northern oil fields at Kirkuk.

SOMO officials hedged their bets over the resumption of exports from the northern oil fields, saying that Iraq has allocated 6-month volumes to allow for flexibility in contract talks. "With a six-month contract, if we have Kirkuk and can reshuffle quantities, then we can accommodate those who want Kirkuk," said one official.

But exports from Kirkuk seemed a distant prospect as the security of the country's northern pipeline system remained in question Monday after saboteurs launched two more attacks, hitting one section 25 km north of Kirkuk with a rocket propelled grenade and blasting another section near the oil transit hub of Baiji, some 250 km north of Baghdad.

A third attack appears to have been thwarted when a ton of explosives was discovered near a pipeline in the region of Kirkuk and Jambur, Iraqi police said. Residents in the area reported seeing strange crates near the pipeline system, while police discovered a vehicle equipped with five armed Katyusha rockets.

These latest incidents increase the longstanding concerns about the security of the northern pipeline system, especially the twin export pipelines that run westward from the Kirkuk oilfields through the restive town of Baiji and then northward to the export terminal of Ceyhan on Turkey's Mediterranean coast.

The Kirkuk-Ceyhan pipeline was shut down Mar. 20 at the outbreak of the US-led invasion of Iraq and has remained closed since the war due to repeated sabotage—much of it around Baiji. The US Army earlier said it hoped the line would resume pumping by Nov. 15, but a senior Iraqi oil official said Monday security was still not sufficient to resume operations.

The US administration in Iraq is seeking to install a protective force, called Task Force Shield, along the Kirkuk-Ceyhan pipeline. The new force—consisting of local tribesmen, US military personnel, and guards from the South African security firm Erinys International—was expected to be operational last week. But even it may not be enough to ward off trouble.

"The Americans are starting to employ Iraqis but they do not know the Iraqi mentality," said Colonel Iyad Jasim, a member of the oil police under former Iraqi President Saddam Hussein. "The saboteurs know exactly how the pipeline runs, even underground," Jasim said Saturday

US service personnel agree. Indicating the location of the buried pipelines from a helicopter, one Army officer last week told reporters that saboteurs could attack the lines at a time and place of their own choosing.

In Doha, the Iraqi oil minister dismissed the effects of sabotage to oil pipelines, saying it would never stop the path to development and production of Iraqi oil. He added that despite these hindrances, oil production was improving and that acts of sabotage were undermining the interests of the Iraqi people and trying to create crisis in the oil industry.

A crisis does seem to be looming, however, as southern production capacity is estimated at 1.7 million b/d, exactly equal to the amount SOMO has contracted for the first half of 2004. At the same time, northern production of 620,000 b/d is at risk with half now reinjected into the fields due to closure of the northern export pipelines and the other half going to domestic refineries and power stations through pipelines that are now the latest target of the saboteurs.

Al Oloum also said Iraq needs to invest $40-50 billion by the end of the decade to rehabilitate its domestic oil industry and boost its export capability. "We hope that we will be able to export 5 million b/d by the end of this decade," he said after talks with Qatari Minister of Energy and Industry Abdullah bin Hamad Al Attiyah.

Al Oloum was making a tour of gulf countries, discussing with officials the import of petroleum products into Iraq to offset the loss of production capacity at Iraq's three major refineries in Basra, Baiji, and Dora. Sabotage has reduced the former combined capacity of those plants of more than 500,000 b/d, he said. Al Oloum said he agreed with Al Attiyah to set up a joint committee to discuss cooperation in the energy sector and possible mutual investments in both countries.

Paul Horsnell, head of energy research at Barclays Capital Research, a division of Barclays Bank PLC, London, recently reported Iraq's "useful" oil production is likely 1.7 million b/d and questioned if its sustainable production capacity is much higher, considering how it has deteriorated in recent years, during the United Nations' ban on trade with Iraq, including oil field equipment and services (OGJ Online, Nov. 6, 2003).

Horsnell noted that exports of Iraqi crude averaged 1.2 million b/d during October, while Iraqi refineries processed some 450,000 b/d for domestic use. Additional production "of over 300,000 b/d was brought up through northern wells and then immediately reinjected due to the lack of any viable export route, given the sabotage of pipelines," he said.

UN Sec. Gen. Kofi Annan said Monday he was encouraged by the latest US proposal to accelerate the transfer of power in Iraq to Iraqis. However, he said the time was not yet right for the UN to return its international staff to that country, given the security situation there.