An initial investment of $40 billion (Dh146.8bn) is needed to put Iraq’s oil industry back on track, according to a new book.
The country is an oil superpower with the world’s third largest proven reserves – and development programmes could add billions of barrels within a few years, catapulting it to the number one position.
But three major wars and more than 12 years of crippling UN sanctions have reduced the Arab state to a minor crude exporter despite the fact it is one of a handful of countries with super-giant oilfields. Meanwhile, other countries with much smaller hydrocarbon resources have become major oil exporters.
“Plans were prepared in the early 1980s to increase the production capacity to six million barrels per day (bpd) had three wars not taken place in 1980-1988, 1991 and 2003,” say the authors of the book, Hydrocarbon Exploration and Field Development in Iraq.
“The looting and vandalism that followed the two Gulf wars caused great damage to oil installations. UN sanctions against Iraq added further damage due to the difficulties created in getting spare parts and in performing well services. The pre-2003 production capacity has not recovered.”
Between 1980 and 2005 Iraq suffered a loss of more than $400bn in oil revenues as a result of a massive decline in crude exports.
The total loss has risen sharply over the past two years as exports remain far below target, says Fadhil Chalabi, Executive Director of the London-based Centre for Global Energy Studies (CGES), which published the 600-page book. The centre is owned by former Saudi oil minister Sheikh Ahmed Zaki Al Yamanai.
The losses reflect only the decline in oil exports calculated on a monthly price basis since the start of the Iraq-Iran war in 1980 – they do not include damage to the sector caused by conflicts, the UN embargo and looting.
Chalabi, a former senior Iraqi oil ministry official, believes the country has huge undiscovered reserves on the grounds but no major development projects have been undertaken for more than two decades.
The proven reserves were officially put at 112 billion barrels in 2007 but Chalabi believes the final figure could exceed 300 billion barrels. “Iraq could have this figure, there is no exaggeration in this,” he said.
His view is supported by a Western oil analyst who goes even further by saying Iraq’s real oil potential could surpass that of Saudi Arabia, which controls nearly a quarter of the world’s proven oil deposits.
Colin Lothian, a senior analyst at United Kingdom-based energy consultants Wood Mackenzie, says Iraq has many giant oilfields that have remained undeveloped.
“Iraq’s remaining reserves, particularly in the south, are of considerable scale, high quality and most are at a relatively immature stage in their respective development cycles,” said Lothian.
“There are many fields that each contain billions of barrels of oil.
“On the whole their depletion rate is very low and in several cases these fields have never been in production. If you add to that the possible results of exploration in the Western Desert and in established areas, the potential is enormous. As for whether Iraq’s reserves are larger than those in Saudi Arabia, I would certainly not rule out that possibility.
”The new book, written in English, was prepared by a number of oil experts from Iraq and other countries.
The principal author and chief editor is Thamir Uqaili, a senior petroleum engineer with 40 years of experience in exploration and technical management in the Iraqi National Oil Company and at the Iraqi Ministry of Oil (MOO). The study was supervised by Chalbi, a former assistant secretary-general of Opec.
A spokesman for the publishers said: “The importance of this new study on Iraq is that it provides a huge volume of hands-on oilfield and operational information, together with detailed analysis of the country’s present status and business and export policies.
“While most other studies on Iraq emphasise its exploration geology and the oil and gas potential of the country, this one covers many other upstream disciplines such as petroleum engineering, drilling, natural gas and exports, in addition to exploration.
“It contains well-by-well and field-by-field data that provides a wealth of information for those contemplating operating in Iraq.
The study is therefore extremely valuable to all service companies, equipment manufacturers, providers of field facilities, investors, suppliers, engineers and other operators.
“This includes all companies aspiring to have a future market presence in Iraq, those that are seriously considering entering Iraq and those that are planning to expand their existing activities in the country.”
The book is based on direct knowledge of the Iraqi upstream oil industry gained through the use of original data, through fieldwork and numerous visits to oilfields during the past four years.
“In our view the risks taken by the team leader have made it possible to prepare a study that has special features. The grouping of the fields and prospects and the discussions concerning them are based on the exploration and production provinces, taking into consideration the status of the Kurdistan region and the other regions likely to be formed according to the new Iraqi constitution.”
The book says that since the fall of Saddam Hussein, Iraq’s oil sector has been struggling and has just passed the two million bpd production level.
The authors discuss in detail how Iraq could increase production capacity to 3.5 million bpd without waiting for a new petroleum law to be finalised.
They give a detailed technical evaluation of how Iraq’s gas sector could be developed and how gas could be substituted for oil in power generation – making more crude available for export.
The study includes a realistic evaluation of the potential of three unexplored regions: Kurdistan, Jazeera, and the Western Desert.
It is thought that a further 50 billion barrels could be discovered easily and brought into production.
The development of Iraq’s oil industry requires money and expertise that can be provided by foreign companies. An initial $40bn is required to develop already discovered yet undeveloped oilfields and a further $10bn will be needed to fund an exploration programme.
Despite the reconstruction efforts, a great deal of work is still needed, say the authors. Foreign contractors have not been able to provide vital services due to the poor security conditions.
There has been further decline in the production rates of oilfields, though the decline has been partially offset by the addition of pilot production from a few southern fields.
The main reasons for the decline have been insufficient water for injection, the shutting of wells due to water shortages and poor reservoir management.
Field capacity in the north was not affected by the second Gulf war but the continued attacks on the Iraq-Turkey export pipeline have kept production at 30 per cent to 40 per cent of the capacity there.
The oil sector, like everything else in Iraq, has suffered from the poor security environment.
The fact that the nation is composed of different sects and races has contributed less to the problem than politics, the security vacuum post-April 2003 and the slow process of building up and equipping the national army.
The new Iraqi constitution has been passed but some of its articles appear unclear and there is a need to redefine the role of the federal and regional governments in managing petroleum resources.
This problem has delayed the passing of the Federal Oil and Gas Law. Kurdistan has passed its own law but its full implementation is being prevented owing to differences with the central government.
In the absence of an agreement, the oil produced in Kurdistan cannot be exported across the Iraqi border.
This is a limiting factor that forces the regional government to reduce production and restrict transportation by trucks, while trying to refine the rest locally. Most of the discoveries in Iraq have been in the Mesopotamia and Foothill zones.
However, two zones are potential exploration targets. The Rutba-Jezira zone has scarcely been explored although some discoveries were made prior to 1961. The Jezira area north of the Euphrates has over 50 seismic anomalies requiring exploration.
The recent discovery of the Akkas Field in part of Rutba, known as the Western Desert, gave an encouraging signal to look for prospective light oil and gas reserves in the Palaeozoic formations of that part of Iraq. A second point of interest is the discoveries in the Dohuk Area.
Oil and gas were expected in Pila Spi, Shiranish, Qamchuqa and Kurra Chine formations, but not in the amount discovered in Tawake and possibly the nearby structures.
The discoveries by the Norwegian company Det Norske Oljeselskap suggest there is more oil in Kurdistan.
The Foothill zone southeast of the Kirkuk Field down to the border with Iran witnessed several important discoveries during the late 1970s and 1980s.
But many other structures and seismic anomalies await exploration drilling that may turn the area, partly in Sulaimaniya Governorate and partly in Dyala Governorate, into an important production province.
In the south the large reserves of heavy crude oil in Lower Fars, Ghar and Maudud reservoirs need exploration or delineation drilling in order to be quantified.
Although southern Iraq is relatively well explored, formations deeper than the Yamama Reservoir are still under-explored, especially the Najma and Khuff formations where light oil, gas and gas condensate are expected.
Gas reserves will increase with more discoveries in the Western Desert, Kurdistan and the south.
LAWS AND CONTRACTS
The book discusses the draft Federal Oil and Gas Law and Kurdistan Regional Law with a presentation of the main clauses and the model contracts of the two laws.
The current status and the implementation of the Kurdish law in the light of the new Constitution and the role of the federal organisations are discussed in detail.
The proven reserves of the region are expected to double within the next two years.
Although there may be delays in passing the federal law and its proper implementation, Iraq needs several service contracts to upgrade reserves and production of the producing fields.
The ministry may well go ahead with signing such contracts without waiting for the federal law to be established, say the authors.
Both the Kurdistan Regional Government and the Federal Government are awaiting the ratification of the federal law. Iraq has more than 500 prospects to explore.
The exploration and development of gasfields in Iraq have lagged behind the development of the oilfields. The proven reserve is 110 trillion cubic feet (TCF) with an upside potential of 50-65 TCF.
New reserves are expected from the north-east, mostly in Kurdistan, the Jezira Area and Palaeozoic and Triassic formations in the
north-west and the western region near the Syrian border.
As a result of the two Gulf wars, the gas processing capacity has been significantly reduced.
There is an acute shortage of production of dry gas and liquefied petroleum gas and natural gas liquids. About 65 per cent of the gas is flared, with oil being used as fuel for power units. This will continue until upgrading is not completed.
A number of companies are active in the oil and gas industry in Iraq. The book lists the following major upstream operators:
South Oil Company (SOC) manages the southern fields of Basra Governorate.
North Oil Company (NOC) runs the northern producing fields plus East Baghdad Field.
Maisan Oil Company (MOC) manages the oilfields in Maisan Governorate.
The Iraq National Oil Company will be reconstituted as a holding company to accommodate SOC, NOC, MOC and other companies that will be formed in the next two to three years.
Drilling is carried out by Iraq Drilling Company, while exploration is managed by the Oil Exploration Company, which both fall within MOO.
In Kurdistan, the Ministry of Natural Resources will continue to oversee the work of the companies.
$400bn: Loss of oil revenue suffered by Iraq from 1980 to 2005
112bn: Barrels proven reserves in 2007