Middle East: Iraq

MIDDLE EAST

Dr. A. F. Alhajji, Contributing Editor

Iraq

Despite United Nations (UN) economic sanctions, Iraq continued its stepped-up campaign to increase oil production at any cost. This led to a further deterioration of its E&P sector.

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The availability of spare parts continued to be the lifeblood of Iraqi oil exports. UN officials continued to talk about the "lamentable state" of the oil industry and the need to provide key spare parts. Otherwise, they said, "the production of oil is likely to drop, even under a regime of severe risk management. This is a very clear warning."

The UN experts’ report on the status of the Iraqi oil industry that was released last March concluded the following:

• The lamentable state of the Iraqi oil industry has not improved
• The level of oil exports in the UN-sponsored "oil for food" program will decline from the 2.2-million-bpd level achieved in phase VI, to between 1.8 million and 1.9 million bpd during phase VII
• A further oil production decline of 5% to 15% per annum is forecast, unless the delivery of spare parts and equipment is accelerated immediately
• The oil transportation infrastructure has not been improved during the last two years
• Insufficient spare parts and equipment have arrived in time to sustain production
• The issues of pollution and safety have not been addressed
• An alternative investment strategy for optimizing production, like applying modern techniques such as horizontal drilling, is recommended.

Exploration. Rich oil reserves were discovered in Iraq’s western desert in July 1999. However, some experts cast doubt on the new discovery, particularly its size, because it matches the size of newly discovered reserves announced in Iran 2 days earlier.

Drilling/development. Recent recommendations from the UN experts to salvage the Iraqi oil industry include the use of horizontal drilling to improve the overall recovery factor of producing fields. Experts also recommended the use of 3-D seismic surveys for the southern fields but not for the northern fields.

The UN report also indicates that Iraq lost productive capability totaling 60,000 to 80,000 bopd last year, because 56 wells ceased to produce, of which 51 have been killed by water influx. The other five wells shut down because of saltwater corrosion. The report warns of similar deterioration throughout Iraqi fields.

UN experts estimate that Iraq needs an annual investment of $1.3 billion in its upstream sector, to maintain production at 2.5 million bopd. This report introduces a broader dimension to the oil for food program, to include financing of the Iraqi oil industry. The report also indicated further degradation of pipelines at various locations.

Production. Crude oil output increased by 358,000 bpd last year. Recent Iraqi oil production is at the highest level since the Gulf War. Iraqi output stands at 3.1 million bopd and is expected to increase to 3.3 million bopd by the end of the year. This is despite the UN’s March report, which cast doubt on Iraq’s ability to sustain production above 3 million bopd. The bulk of Iraqi production comes from Kirkuk field in the north (755,000 bopd) and Rumaila field in the south (1.2 million bopd).

Last year, Iraqi exports averaged about 2 million bopd. Iraq’s sustainable export capacity is estimated at 2.4 million bopd, but exports in 2000 initially averaged only 1.9 million bopd. The latest phase of the UN oil for food program started in June. Iraqi exports reached 2.8 million bopd in May, indicating that Iraq is receiving spare parts after production dipped last March.

Iraq oil reserves stand at 100 billion bbl, which does not include the latest discovery. Natural gas reserves stand at 112.6 Tcf, of which 70% are associated gas.