Iraq's output growth seen as new pressure on OPEC

Production growth under new contracts in Iraq will raise pressure on the Organization of Petroleum Exporting countries to limit supply and to return Iraq to the group’s quota regime, says the Centre for Global Energy Studies, London.

By OGJ editors
HOUSTON, Mar. 30
-- Production growth under new contracts in Iraq will raise pressure on the Organization of Petroleum Exporting countries to limit supply and to return Iraq to the group’s quota regime, says the Centre for Global Energy Studies, London.

The pressure will arise even if output under 10 service contracts the government has signed with non-Iraqi oil companies fails to meet expected plateau levels, CGES adds.

The contracts, awarded under two licensing rounds, call for plateau production totaling 11.1 million b/d. Three of the 10 fields produce now, with output totaling 1.5 million b/d.

Including output from fields under development by state-owned companies and fields in the Kurdish area of northern Iraq, Iraqi production theoretically could climb to 12-14 million b/d from 2.5 million at present.

But logistical and technical constraints raise doubt that plateau production levels specified in the contracts can be achieved, CGES says.

Because foreign companies will start work at about the same time, all needing services and equipment, “field development projects are very likely to be delayed,” CGES notes.

The operators also will encounter limits on capacities to transport and export oil and on supplies and logistics for water and natural gas needed for injection.

Furthermore, CGES says, technical analyses might find that reservoirs covered by the contracts won’t support production at promised levels.

Emphasizing the imprecision of any estimates made now, CGES says total sustainable plateau production from the new projects “could be about two thirds of the simple summation of the initial contract commitments.”

That expectation is in line with a recent analysis by the Energy Policy Research Foundation Inc., Washington, DC, which assumed companies would be able to achieve 50-75% of production commitments totaling 9.6 million b/d by 2017 (OGJ Online, Mar. 18, 2009).

Supply effects
Even at below-commitment rates, CGES said, production from the new projects will force Iraq to submit to OPEC quotas, “probably by the middle of this decade.”

Non-Iraqi companies thus will have to seek exemptions from production limits or face reduced profitability, CGES said.

Analyzing prospective supply from Iraq within its outlook for global oil supply and demand, CGES concludes, “For the rest of this decade the world oil market will experience strong growth in supply and weak to moderate growth in demand, resulting in downward pressure on the price of oil.”

To defend the price of crude, OPEC will have to respond by lowering its members’ quotas and reimposing limits on Iraq, which has been exempt since 1990.

In the past, CGES points out, Iraq has sought quota parity with Iran. Now, the group says, Iraq might argue for more than that level because of suffering endured by Iraqis and the contrast between its production growth and stagnation of Iranian output at about 4 million b/d.

“Iraq’s oil minister has already indicated that his country believes it should not be subject to quota restrictions until production rises to about 4 million b/d,” CGES says.

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