Sunday, April 12, 2009

Falling Oil Revenues, and Uneven Production

Iraq is facing the worst of two worlds. The price for Iraqi oil has dropped dramatically, while it has not become a steady producer. The Oil Ministry recently announced that oil revenues were down over 50% in the first three months of 2009 compared to the same time period in 2008. At the same time petroleum production and exports have continued to fluctuate up and down.

At the beginning of April 2009 the Oil Ministry announced a dramatic drop in oil profits. In the first three months of 2009 it made $6.57 billion. That was a 57.6% decrease from the same period in 2008 when the country earned $15.49 billion. Iraq did make more in March than it did the previous months. In January 2009 Iraq made $2.15 billion, followed by $1.7 billion in February, and $2.5 billion in March. The average price of Iraqi crude has also inched up from $34.57 in December 2008 to $38.06 in February. That's still far from the highest price of $113.81 reached in July 2008, and not even up to the November 2008 price of $43.54.


Iraq Oil Revenues

March 09

$2.5 bil

Feb. 09

$1.7 bil

Jan. 09

$2.15

Dec. 08

$1.9 bil

Nov. 08

$2.2 bil

Oct. 08

$3.11 bil


An additional problem is that Iraq is still not a consistent oil producer or exporter. While yearly averages of production and exports have grown since 2005, the monthly numbers are still up and down. In January 2009 for example, Iraq produced an average of 2.15 million barrels per day (mbd) and exported 1.89 mbd. The next month production went up to 2.32 mbd, but exports dropped to 1.69 mpd. In March production, 2.38 mbd, and exports, 1.93 mbd, increased. In comparison, Iraq exported 1.93 mbd for the first three months of 2008, and went as high as 1.96 mpd in May and June of that year. The other months' exports were lower. Production and exports have stayed within the same range since the fall of 2007. These fluctuations have contributed to the changing revenues.

Monthly Averages of Iraqi Oil Production/Exports in Millions of Barrels Per Day


2003

2004

2005

2006

2007

2008

2009

Jan.


2.44/1.537

2.1/1.367

1.73/1.05

1.66/1.3

2.24/1.93

2.15/1.89

Feb.


2.276/1.382

2.1/1.431

1.83/1.47

2.08/1.5

2.39/1.93

2.32/1.69

March


2.435/1.825

2.09/1.394

2.1/1.32

2.08/1.58

2.38/1.93

2.38/1.93

April


2.384/1.804

2.14/1.398

2.14/1.6

2.14/1.5

2.4/1.88


May

0.3/0.0

1.887/1.38

2.1/1.308

2.13/1.51

2.03/1.64

2.6/1.96


June

0.675/0.2

2.295/1.1488

2.17/1.377

2.3/1.67

2.0/1.47

2.52/1.96


July

0.925/0.322

2.2/1.406

2.17/1.55

2.22/1.68

2.07/1.71

2.54/1.85


Aug.

1.445/0.646

2.122/1.114

2.16/1.504

2.24/1.68

1.91/1.69

2.5/1.7


Sep.

1.722/0.983

2.514/1.703

2.11/1.6

2.234/1.65

2.3/1.9

2.37/1.65


Oct.

2.055/1.149

2.45/1.542

1.91/1.239

2.26/1.55

2.34/1.91

2.37/1.69


Nov.

2.1/1.524

1.95/1.32

1.98/1.168

2.1/1.44

2.38/1.88

2.4/1.88


Dec.

2.3/1.541

2.16/1.52

1.92/1.071

2.15/1.45

2.42/1.93

2.35/1.73


Yr. Avg.

1.44/0.795

2.25/1.47

2.079/1.36

2.11/1.5

2.11/1.66

2.42/1.84

2.28/1.83



As reported before, the Oil Ministry is desperately trying to boost production to keep money flowing. This includes issuing tenders for 100 new wells and installations. Oil Minister Hussain al-Shahristani is hoping those will increase output by 300,000-500,000 barrels per day by the end of the year. At the same time, the Ministry is moving ahead with its long-term contracts as well. That still would not bring Iraq up to pre-invasion levels. In 2001 Iraq was producing 2.6 million barrels a day. Production at the North Oil Company is about 600,000 barrels per day, 2/3 of the production before 2003, while the South Oil Company's output has declined by around 200,000 barrels per day over the last several months.


Iraq's budget and ministries are feeling the immediate effects of both declining oil prices and inconsistent production. The Electricity Ministry asked for $1 billion in the 2009 budget, but only got $400 million. As a result its had to cut $600 million in contracts with General Electric, France's Alstom, Germany's MAN AG, and South Korea's Hyndai. It had plans to boost power production by 2,000 megawatts this year, but that has been drawn back to only 600 megawatts. Iraq's cities were due to get $5 billion for development, but that has been cut 60%. Baghdad was going to get $600 million for that, but now will only get $340 million. It had planned two sewage projects in 2009 and two in 2010, but now is only going to go through with one this year, and two next. The Water Ministry is also canceling work to dredge canals. All government ministries are having a hiring freeze. The Interior Ministry stopped adding new police in December 2008. That's put a halt to integrating the Sons of Iraq. The Defense Ministry will also not be able to buy new weapons systems and other equipment.

From 2007-2008 Iraq was flowing in oil money. Those huge profits have now largely disappeared. The country's growing, but still inconsistent exports is now a larger issue, as every barrel is needed to keep up revenues. The Oil Ministry wants to boost exports to 2 million barrels a day this year, but has not been able to achieve that since 2005. With better security that might now be a possibility, but that still won't bring in enough to meet the government's needs with crude prices still low. That puts Baghdad in a precarious situation as it has rising expectations, especially after the January 2009 provincial elections, but will have to now cut some services.

SOURCES

Associated Press, "Iraq Reports Increase in Oil Exports in December, but Revenues Drop," 1/26/09

- "Iraq's oil revenues fall 25%," 12/23/08

Ali Fathi, Saadallah, "Major bottlenecks in Iraq's oil refinery sector," Gulf News, 4/5/09

Gamel, Kim, "Iraqi budget woes force security hiring freeze," Associated Press, 3/20/09

Kamal, Fatima, "Nine foreign firms win service contracts to develop 11 oil fields in Iraq," Azzaman, 4/7/09

Lando, Ben, "Iraq oil exports drop in February," Iraq Oil Report, 3/25/09

O'Hanlon, Michael Campbell, Jason, "Iraq Index," Brookings Institution, 4/2/09

Radio Free Europe/Radio Liberty, "Iraqi Water Projects Affected By Budget Cuts," 4/2/09

Reuters, "Iraq's Faltering Oil Revenues Hurt Public Services," 3/31/09

Salaheddin, Sinan, "OIl Ministry: Iraq's oil revenues drop," Associated Press, 4/5/09

Special Inspector General for Iraq Reconstruction, "Quarterly Report and Semiannual Report to the United States Congress," 1/30/09

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