More Analysts Say That Iraq’s Oil Goals Are Too Ambitious

As reported before, early on some questioned whether Iraq could achieve its goal of increasing its oil production from roughly 2.4 million barrels a day today to 12 million barrels within ten years. In the last several weeks, a few more have voiced their skepticism as well.

First, at the end of March 2010 a panel of experts and oil executives convened by the Center for Global Energy Studies in London, England said that it was impossible for Iraq to reach its production goals within the time it allotted for itself. The conference went through Iraq’s reserves, the state of its fields, and its export marks, and said that they did not add up. Looking at two oil fields in Basra, Rumaila and West Qurna that were auctioned off to foreign companies in 2009, the group thought that both would only produce half of what the Oil Ministry hopes to achieve. Rumaila for example, has a production mark of 2.85 million barrels a day within ten years, but the meeting felt that it would only achieve around 1-2 million barrels a day by that time. Likewise, West Qurna has a goal of 4.125 million barrels a day, but the panel estimated that it would only produce around 2 million barrels. They were also worried that either the lack of an oil law or a new government coming to power in 2010 could overturn the deals signed last year.

Next, an energy analyst said that the country was so lacking in infrastructure and personnel that it would take massive investments to achieve its goals. The expert noted that almost all of the fields that are to increase production are concentrated in a very small section of Basra province, which would strain resources there. The companies will need water, power, pipes, pumps, ports, roads, storage facilities, camps, water desalination, waste water treatment plants, testing, etc., plus Iraq does not have enough skilled laborers to do all the work. The construction needs alone will be the largest seen in the region for decades. The analyst believed all of that would cost over $100 billion, and even then the Oil Ministry would struggle managing all of these businesses and contracts, which could threaten the success of the petroleum deals.

Finally, Cambridge Energy Research Associates in Massachusetts issued a report critical of Iraq’s oil industry on April 1. While it noted that the country has massive potential, it faces too many challenges to reach its goals. Iraq’s oil industry has been underdeveloped and under funded for twenty years due to wars and sanctions. Iraq also faces political, security, operational, and personnel challenges. The new government for instance, is likely to review the 2009 contracts, causing a delay in their implementation. As a result, the group thought that Iraq would only reach around 6.5 million barrels a day by 2010. 

Most experts seem to think that Iraq will only achieve half of its production goals. There are simply too many questions about its infrastructure, the ability to provide all of the logistics and workers necessary for the expanded work, and its political situation to achieve 12 million barrels a day in such a short period of time. No other country has been able to expand its oil industry by that much that quickly. The ten deals that the government signed in 2009 were a necessary step to open up the country to foreign investment. A lot of that money will simply go to refurbishing oil wells however, but that will no doubt lead to an increase in production as a result. The question is how much and in how many years, because Iraq needs to earn as much income as it can right now because the economy is almost completely dependent upon oil. In the meantime it will be interesting to see how much of the labor will be done by Iraqis because so many suffer from unemployment and underemployment. Petroleum is not a labor-intensive business, so the construction and logistics work that will come early on can show whether these deals have a real trickle down effect within the country or whether the corporations will turn to foreigners. If not Iraqis can at least hope that the extra money will go to improving services, rather than into the pockets of corrupt contractors and government officials, which has been a persistent problem within the oil sector. 

SOURCES

Brinded, Lianna, “Iraq’s Oil Output Targets ‘impossible,’” Energy Risk, 3/29/10

Fernando, Vincent, “CERA: Iraq’s Oil Revolution Is Massively Over-Hyped, There’s No Way They Can Expand As Fast As They Hope,” San Francisco Chronicle, 4/1/10

Haddadin, Haitham, “Iraq oil output goals unlikely to be met,” Reuters, 4/1/10

Iraq-Business News, “BP Awards $500mn Oil Services Contracts in Iraq,” 3/30/10

UPI, “Report: Iraqi Oil Output Goals Ambitious,” 4/1/10