Iraq’s oil output will double by the end of the decade, according to an in-depth study by the International Energy Agency that predicts a boom for the country’s hydrocarbon industry after decades of war and under-investment.
Fatih Birol, IEA chief economist, on Tuesday described Iraq as a dream for the energy industry, with “high oil reserves, easy geology and low production costs”.
But the report, Iraq Energy Outlook, also cautioned that Baghdad would only boost production to 6m barrels a day by 2020, half the country’s official target of 12m b/d by 2017 under current contracts with major international oil companies.
Mr Birol said the watchdog and the Iraqi government have differing views on the outlook for production. But in a sign that Baghdad is beginning to acknowledge the challenges it faces, the IEA has been invited back to the Iraqi capital to present its conclusions on Wednesday.
Between late 2008 and early 2010 Iraq awarded a dozen contracts to international oil companies – including Royal Dutch Shell, BP, ExxonMobil, Lukoil and CNPC of China – to develop the giant oil fields in the south of the country.
But although foreign companies have boosted Iraqi oil production to their highest levels in 30 years, the fields are failing to meet production targets due to insecurity, legal uncertainty and infrastructure bottlenecks. In particular, companies complain about a lack of export pipelines and storage facilities.
The IEA report forecasts that Iraqi oil production, which was roughly 3m b/d in September, will rise to 4.2m b/d by 2015 and 6.1m b/d in 2020. By 2035, it anticipates that Iraq could pump 8.3m b/d, marking an extraordinary recovery from less than 500,000 b/d it produced in the aftermath of the 1990-91 Gulf war.
Maria van der Hoeven, IEA director-general, said the country has the resources to produce the oil, but cautioned that companies would need to overcome significant obstacles, particularly legal questions raised by the government’s failure to pass a hydrocarbons law to regulate the industry.
The main obstacle to the new law has been disagreements between Baghdad and the Kurdish autonomous region in the north over oil rights and revenues. Kurdistan has enraged the federal government by signing contracts with international oil companies, such as ExxonMobil, Chevron and Total. Baghdad condemns the deals as illegal.
“It is in everyone’s immediate interest in Iraq that there is agreement on the governance of hydrocarbons and revenue-sharing,” Mr Birol said.
If the IEA forecasts are correct, Iraq’s supply surge could have far-reaching consequences for the geopolitics of oil, becoming a critical source of imports for China and other Asian nations.
The watchdog anticipates that Iraq would account for nearly half the increase in global oil production between now and 2035. Moreover, the surge in oil production could dramatically change the balance of power within Opec, the oil cartel. Iraq would overtake Iran and Venezuela to become the second most influential member after Saudi Arabia.
If the passage of critical legislation and other reforms are delayed, however, crude oil production growth would be slower, costing the Iraqi economy $3tn in lost national wealth and “bring[ing] difficult times to international oil markets”, the IEA report warned.
Mr Birol added that the resulting tight supply and price volatility would lead to crude costing $140 a barrel in 2035 – $15 a barrel more than predicted if Iraq’s oil sector reforms proceed.
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