Baghdad's plan to more than double Iraqi oil output in the next eight years may be too ambitious.
IEA doubts Iraqi oil target
Baghdad's plan to more than double Iraqi oil output in the next eight years may be too ambitious, the International Energy Agency (IEA) said yesterday on the eve of the country's historic first post-war auction of oil contracts to foreign firms. "Despite tremendous international interest for the country's oil development projects, official plans to increase production by 3.5 million barrels per day (bpd) to reach 6 million bpd by 2017 appear over-optimistic given the many political and security risks that continue to challenge the government and industry," the energy adviser said.
Taking a "very conservative" view for its medium-term forecast period, ending in 2014, the IEA said Iraqi oil output could slip to 2.2 million bpd by 2011 from about 2.4 million bpd currently, due to an "unexpected accelerating decline" in production from the country's big southern oilfields. With drilling programmes not expected to deliver results until later in the period, the agency projected capacity rising to 2.7 million bpd by 2014.
Immediate plans to raise the production of half a dozen oilfields from 300,000 to 500,000 bpd each by the end of next year, using Iraqi contractors, could be hampered by a shortage of skilled workers and problems with securing equipment. The IEA, an adviser to 28 industrialised countries, predicted the drilling projects would be delayed by at least six months. Iraq's longer-term plans for oil expansion include awarding technical service contracts to accelerate the development of individual fields. The oil ministry has also launched two competitive bidding rounds.
"However, contracts for individual field developments and for the latest licensing rounds have been slowed by endless political tinkering and changes to commercial terms," the IEA said. "Companies still face considerable political and commercial risks without the proper constitutional legal framework in place." It said the recent start of crude exports from Iraqi Kurdistan could potentially lift the country's oil output by 100,000 bpd this year, but export plans could be derailed if issues regarding payments to the foreign companies pumping the crude were not resolved soon.
In the agency's view, Iraqi parliamentary elections scheduled for next January could provide a more stable investment climate, and if politicians agree to pass a long-stalled federal oil law, production capacity could reach 3.5 million bpd by 2014. But with the cost of ramping up capacity to 6 million bpd estimated at US$50 billion (Dh183.5bn) to $60bn, "companies are likely to tread carefully on firm investment decisions, at least until the elections have run their course".
Samuel Ciszuk, the Middle East energy analyst with the consulting firm IHS Global Insight, said oil companies winning contracts in this week's auction were likely to stall on their commitments until after the election. Conflicts within Iraq's Cabinet and reluctance by the oil ministry to punish procrastinators for fear of undoing deals could aid stalling tactics, he said in a research note. International oil companies "are likely to be able to hide a lot of their procrastination behind consortia-building negotiations at their different projects".