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Iraq’s proven oil reserves rose 30 % to 141 billion barrels in 2013

Iraq's Babylon's Hanging Gardens

Iraq’s Babylon’s Hanging Gardens

New York News: According to U.S, EIA Iraq has the fifth largest proven crude oil reserves in the world, and it passed Iran as the second largest producer of crude oil in OPEC at the end of 2012.

Iraq was the world’s eighth largest producer of total petroleum liquids in 2012, and it has the world’s fifth largest proven petroleum reserves after Saudi Arabia, Venezuela, Canada, and Iran. Just a fraction of Iraq’s known fields are in development, and Iraq may be one of the few places left where much of its known hydrocarbon resources has not been fully exploited. Iraq’s energy sector is heavily based on oil. Over 90 percent of its energy needs are met with petroleum (2010 estimate), with the rest supplied by natural gas and hydropower.

Iraq has begun to develop its oil and natural gas reserves after years of sanctions and wars, but it will need to develop its infrastructure in order to reach its production potential. According to estimates by Iraq’s Deputy Prime Minister for Energy, capital expenditures of $30 billion per year in Iraqi energy infrastructure are required to meet Iraq’s production targets. Progress has been hampered by political disputes and the lack of a law to govern development of Iraq’s oil and gas. The proposed Hydrocarbon Law, which would govern contracting and regulation, has been under review in the Council of Ministers since October 26, 2008, but has not received final passage.

Iraq revised its estimate of proven oil reserves from 115 billion barrels in 2011 to 141 billion barrels as of January 1, 2013, according to the Oil and Gas Journal. Iraq’s resources are not evenly divided across sectarian-demographic lines. Most known hydrocarbon resources are concentrated in the Shiite areas of the south and the ethnically Kurdish region in the north, with few resources in control of the Sunni minority in central Iraq.

The majority of the known oil and gas reserves in Iraq form a belt that runs along the eastern edge of the country. Iraq has five super-giant fields (over 5 billion barrels) in the south that account for 60 percent of the country’s proven oil reserves. An estimated 17 percent of oil reserves are in the north of Iraq, near Kirkuk, Mosul, and Khanaqin. Control over rights to reserves is a source of controversy between the ethnic Kurds and other groups in the area. The International Energy Agency (IEA) estimated that the Kurdistan Regional Government (KRG) area contained 4 billion barrels of proven reserves. However, this region is now being actively explored, and the KRG stated that this region could contain 45 billion barrels of unproven oil resources.

Production :Iraqi crude oil production averaged 3 million barrels per day (bbl/d) in 2012, and Iraq passed Iran as OPEC’s second largest crude oil producer at the end of the year. About three-fourths of Iraq’s crude oil production comes from the southern fields, with the remainder primarily from the northern fields near Kirkuk. The majority of Iraqi oil production comes from just three giant fields: Kirkuk, the North Rumaila field in southern Iraq, and the South Rumaila field.

The Ministry of Oil oversees oil and gas production and development in all but the Kurdish territory through its operating entities, the North Oil Company (NOC) and the Midland Oil Company (MDOC) in the north and central regions, and the South Oil Company (SOC) and the Missan Oil Company (MOC) in southern regions. Production in the northern region controlled by the Kurdistan Regional Government (KRG) fluctuates because of disputes with the central Iraqi government, but independent assessments by FACTS Global Energy and the Middle East Economic Survey suggest that crude oil production capacity in the KRG could reach about 400,000 bbl/d by the end of 2013.

Development plans
Iraq has begun an ambitious program to develop its oil fields and to increase its oil production. Passage of the proposed Hydrocarbon Law, which would provide a legal framework for investment in the hydrocarbon sector, remains a main policy objective. Despite the absence of the Hydrocarbons Law, the Iraqi Ministry of Oil signed long-term contracts between November 2008 and May 2010 with international oil companies.

Under the first phase, companies bid to further develop giant oil fields that were already producing. Phase two contracts were signed to develop oil fields that were already explored but not fully developed or producing commercially. Together, contracts for both phases cover oil fields with proven reserves of over 60 billion barrels. If these fields were developed as initially planned, they would increase total Iraqi production capacity to almost 12 million bbl/d, or about 9 million bbl/d above 2012 production levels.

The contracts call for Iraq to reach this production target by 2017. However, these contracts are being re-negotiated to more modest levels, and Iraq is revising its production targets to 9.5 million bbl/d by 2017. However, even these revised targets may be overly optimistic, given delays in developing its energy infrastructure. Iraq has since held a third bidding round for natural gas fields, and a fourth round (with few bids submitted) for fields that contain predominantly crude oil. A fifth round has been scheduled in 2013 for the development of the 4-billion-barrel Nasiriya oil field in Thi-Qar province, together with the construction and operation of a new 300,000-bbl/d refinery.

Infrastructure constraints
Iraq faces many challenges in meeting the planned timetable for oil production. One of the major obstacles is the lack of an outlet for significant increases in crude oil production. Both Iraqi refining and export infrastructure are severely constrained, with bottlenecks preventing more crude oil processing. Iraqi oil exports are currently running at near full capacity in the south, while export capacity in the north has been restricted by sabotage, deteriorating pipelines, and the inability to receive more oil from the south of Iraq via a deteriorated Strategic Pipeline. Pipeline capacity would need to be expanded in any case to export significantly higher volumes. Progress has been slow because of political disputes between factions within Iraq, especially those between the central government in Baghdad and the Kurdistan Regional Government. Iraq also has disagreements regarding shared oil fields with Kuwait and Iran.

Production increases of the scale planned will also require substantial increases in natural gas and/or water injection to maintain oil reservoir pressure and boost oil production. Iraq has associated gas that could be used, but it is currently being flared. According to a report issued by the U.S. National Oceanic and Atmospheric Administration (NOAA), Iraq was the fourth largest natural gas flaring country in 2010.

Another option is to use water for re-injection, and while locally available water is currently being used in the south of Iraq, fresh water is a scarce commodity in the Middle East. Large amounts of seawater will likely have to be pumped in via pipelines that have yet to be built for the Common Seawater Supply Facility. It was estimated that 10 to 15 million bbl/d of seawater could be necessary for Iraq’s original production expansion plans, at a cost of over $10 billion. ExxonMobil, which was originally assigned to lead the project, dropped out in 2012, putting these plans behind schedule. The engineering company CH2MHill was subsequently awarded management of the project in December 2012, but the final scope of the project won’t be known until Iraq decides what its re-negotiated production targets will be. The IEA estimates that the project will not come online before 2017 at the earliest.

Furthermore, Iraq’s oil and gas industry is the largest industrial customer of electricity in Iraq. Large-scale increases in oil production would also require large increases in electric power generation. However, Iraq has struggled to keep up with the demand for electricity, with shortages common across the country. Significant upgrades to the electricity sector would be needed to supply additional power. Although over 20 gigawatts (GW) of new generating capacity are planned by 2015, delays in meeting projected targets would mean insufficient supply to meet the projected demands of the oil sector.
By: Ayesha Habib
New York News