Iraq's oil revival is stalling, and unless momentum is regained, Baghdad will report an output decline for 2013, its first after two years of robust gains.
Swift work since 2010 at Iraq's southern oilfields by the likes of BP, Exxon Mobil and Eni raised output by 600,000 barrels per day (bpd) to 2.9 million bpd in 2012, turning Iraq into the world's fastest growing exporter.
Even more impressive gains were expected this year. When Baghdad revealed a bold target of 3.7 million bpd at the December 2012 meeting of the Opec, Gulf delegations were worried. A whiff of a market-share battle was in the air.
But a host of infrastructure and security problems will make Opec's second-biggest producer struggle to keep pace with last year's rates. Unless big gains are made, Iraq's output will fall below 2.9 million bpd.
"Iraqis will be annoyed if the government is losing billions in (potential) oil revenues," said a senior Iraqi oil executive, requesting anonymity.
Oil provides the lion's share of Iraq's government revenues and foreign exchange earnings.
For Opec, however, "This is good news. It delays the challenge from higher Iraqi production for another year," said a Gulf delegate to the group, who requested anonymity. "And it's good for the oil market. Prices will stay above US$100 and that's acceptable for everyone."
The rise of US shale oil and a slackening of demand could force Opec to cut supply by up to 1 million bpd next year, analysts have said.
But slower growth from Iraq and ongoing outages from Iran and Libya will mean that big cuts from other members – mostly Saudi Arabia – are not needed.
July marks the third straight month of declines in Iraq's production and exports, with output at 2.8 million bpd.
Its production is expected to return to growth next year of 400,000 to 500,000 bpd, industry sources say, which would raise its average output to around 3.3 million bpd – still far below an official target of 4.5 million bpd.
While militant attacks are thwarting flows in the north, poor maintenance and technical problems are slowing progress in the south, the main driver of Baghdad's oil expansion.
"Development in the south is passing through a very slow phase; momentum has been lost," the senior Iraqi oil executive said. "We hope the fourth quarter will be more energetic."
* Reuters
