The recent oil deals between Iraqi and foreign companies could be good news for its people but any rapid increase in the country's crude production could undermine the market, a veteran Arab oil analyst has said.
Nicolas Sarkis, Director-General of the Paris-based Arab Petroleum Research Centre (APRC), said the deals and other similar agreements in the future could lift Iraq's oil output capacity to 12 million barrels per day, similar to that of Saudi Arabia, the world's largest crude exporter.
Writing in the APRC's monthly magazine, he said the three major oil accords signed before the end of 2009 had removed what he described as one of the biggest obstacles to the development of the Iraqi oil industry, adding that they would open the way to a substantial expansion of national oil production.
According to Sarkis, whose centre acts as an advisor to the 10-nation Oapec, the first agreement was concluded in June with BP/CNPC and involves expanding Rumaila field from one million bpd now to 2.85 million bpd.
The second was signed in October with Eni in association with Occidental and Kogas and provides for output at the giant Zubair field to be increased from 195,000 bpd to more than one million bpd.
Most recently, a third one was announced in November with ExxonMobil and Royal Dutch Shell for the development of output capacity at the West Qurna 1 field from 279,000 bpd at present to 2.1 million bpd.
Sarkis said the deals can be credited to the Iraqi negotiators who succeeded in securing international oil companies' agreement to contractual conditions they had regarded as too tough and had rejected only a few months earlier.
He noted that the conditions include a rate of remuneration of $1.90 (Dh7) to $2 per incremental barrel produced, whereas BP/CNPC and ExxonMobil had sought double that ($4/b) and Eni had asked for as much as $4.80/b.
The agreement was made possible by easing other conditions, such as the rate of tax levied on the remuneration paid to foreign partners.
"This breakthrough in negotiations that had been dragging on for years theoretically brings the prospect of an increase in Iraqi oil production from its current level of 2.5 million bpd to as much as six million bpd by 2016. In addition, there are the expansion projects tendered in the second international bid round, which closed in December 2009," he said.
"Ultimately, Iraq could target a huge increase in its crude oil production capacity to as much as 10-12 million bpd, equivalent to that of Saudi Arabia. Such a prospect must nevertheless be treated with great caution. An overly rapid increase in Iraqi production would be bound to cause major upheavals on the world energy scene, in terms of the supply-demand balance, the level of oil prices, the development of alternative energy sources and a reconfiguration of the Opec production quota system, which Iraq will have to reintegrate sooner or later, after being exempt since 2003."
Sarkis said he believed neither Saudi Arabia, Opec's kingpin, nor Iran nor any other major exporting country within the 12-nation Opec, would stand by and "watch the spigots suddenly opened at Iraqi oil fields".
"The next stage in the sequence of events will largely depend on the development of world demand, exporting countries' production and the unavoidable compromises within Opec."
Conflict-battered Iraq controls the world's third largest proven oil deposits after those of Saudi Arabia and Iran, standing at around 115 billion barrels. But officials have spoken of massive quantities that could be added to the reserves through costly development programmes after the end of the war.
Such plans have been blocked by persistent rifts within the country's political forces concerning the distribution of the oil export revenues.
"Another major obstacle concerns the differences between the principal political factions in Iraq. Representatives of the Kurdistan Regional Government and Kurdish members of the Iraqi federal Parliament have already voiced fierce opposition to any agreement signed by the central government that is not ratified by a law passed by Parliament," Sarkis said.
He referred to what he described as a recent threat by Kurdish chairman of the federal Parliament's oil and natural gas committee, Ali Balou, to overturn the agreements that the government has signed following the parliamentary elections that are theoretically scheduled for 16 January 2010.
"That threat deserves to be taken particularly seriously insofar as the tensions between the different communities have prevented the enactment of a new federal oil law that has been under discussion since 2005 and that the situation in Kirkuk and Ninive remains explosive in the runup to January's elections," he said.
"These two oil-rich regions are claimed by Sunni Arabs, on the one hand, and by the Kurds, on the other. The President of Iraqi Kurdistan, Massoud Barzani, has already set the tone by asserting that, if the Kurds do not obtain satisfaction, 'all options remain open, including civil war.'
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