Wednesday, October 26, 2011

Iraq’s Oil Capacity Reaches New High, But Exports Drop For September 2011

Iraq’s oil production continues to see steady increases due to the work of foreign oil companies. The problem is that the country’s export infrastructure is at capacity, and cannot handle the recent rise. September 2011 was a perfect example, when the Oil Ministry announced a new post-invasion high in capacity, but a drop in exports.

In September, Iraq said that it had greatly increased its oil capacity, but that its foreign sales were down. The Oil Ministry told the press that its capacity had reached 2.95 million barrels a day for the month, the highest since 2003. Despite that good news, the Ministry said it had only exported 63.1 million barrels in September, which was down from 67.9 million barrels shipped in August. According to Oil Minister Abdul Karim Luaibi, the country’s export infrastructure is at capacity. That means while production is going up in the southern fields that were auctioned off to foreign companies in 2009 such as Rumaila, West Qurna 1, and Zubair, Iraq cannot sell it. Rather the excess is being stored for now. Iraq was still able to earn $6.619 billion last month at an average price of $104.897 per barrel. That was down from $7.124 billion earned in August. September was also only the third month this year where Iraq did not break the $7 billion mark in profits.
Map of the Rumaila, Zubair, and West Qurna oil fields in Basra, which are responsible for a majority of Iraq's oil production (The Dossier)
The Oil Ministry has been aware for a long time that it needs to upgrade its infrastructure and fields, and is finally starting to do that. In October it announced that Exxon Mobile, British Petroleum (BP), and Eni were going to invest $100 billion to enhance the West Qurna 1, Rumaila, and Zubair fields. An Italian firm also signed a two-year, $468.5 million contract to do renovation work on the southern fields as well. Exxon Mobile, BP, Lukoil, and Royal Dutch Shell also agreed to build a joint water injection plant to boost production at Rumaila, West Qurna 1 and 2, Zubair, and Majnoon in a project that will cost an estimated $3 billion. Creating water pressure is an important step to extract oil. Finally, this month the Oil Ministry signed a $518 million contract with Leighton Offshore to build the first of four new oil terminals in Basra with a capacity of 900,000 barrels of exports each. The deal also involves building an underwater pipeline. This terminal is due to come on line in January 2012, and when all four are completed they will greatly increase the flow of oil from the south where most of Iraq’s reserves are. All together, the Oil Ministry has some grand plans to increase the country’s capacity. The problem is that Iraq rarely finishes any major projects on time, and without them, the country will continue to produce far more than it can sell. That means lost profits until its new pipelines, terminals, etc. are completed.

There were also some problems with the reporting on the Oil Ministry’s numbers. There were two main issues, one with profits and the other with the average number of barrels exported for the month. First, the government said that it exported 53 million barrels from Basra and 10.2 million from Kirkuk. That matched the 63.1 million barrels total that was reported. The problem was that the news had Iraq earning $5.5219 billion from the south and $1.9 billion from the north, which totals $7.4 billion. That is far above the $6.619 billion number the press used. Multiplying 63.1 million barrels by the average price for that month, $104.89, equals $6.619 billion, so those figures for the two pipelines were wrong. Second, the media said that Iraq exported an average of 2.2 million barrels a day for September, at $104.89 per barrel, earning $6.619 billion. In comparison, for August it exported 2.19 million barrels, at $104.92 per barrel, and earned $7.124 billion. If the prices were roughly the same for the two months, there’s no way Iraq could earn less in September, while exporting more oil than August. If the country exported 63.1 million barrels, dividing that by the 30 days of September equals an average of 2.1 million barrels, not 2.2 claimed by the press agencies. There is other evidence to support the lower average export number as well. That includes the fact that the northern pipeline to Turkey was shut down for six days at the end of September to early October, because of leaks in Salahaddin province. Another issue, was that the Rumaila oil field experienced an explosion at a gas compressor that shut down production for a day. Finally, the Kurds cut their production by two thirds at the beginning of the month from 160,000 barrels a day to 50,000, because it was protesting a new draft oil law being discussed in parliament. Altogether, the numbers and the three incidents that decreased production all point to 2.1 million barrels being a more realistic average for September. Together, that means either the Oil Ministry gave out the wrong numbers, or the press was sloppy with theirs.

September says a lot about Iraq’s oil industry. While foreign companies are hard at work, the country’s exports have flat-lined, because its infrastructure cannot handle the rise in production. It desperately needs to move forward as quickly as possible with its plans for the port of Basra, so that it can take advantage of all this development. Luckily, international petroleum prices are still high because of the conflict in Libya, so even without any new pipelines or terminals, Iraq is still earning large profits. Unfortunately, it could be making a lot more if it had moved ahead earlier with its projects. Hopefully, Iraq will reach a balance between adding to its infrastructure and its production soon, so that it can take more advantage of this boom in prices before they decrease.

Iraq Oil Exports And Profits 2010-2011
Avg. Exports
Avg. Price Per Barrel
Jan. 10
Jan. 11


Agence France Presse, “Explosion at Iraq oil field halts crude,” 9/21/11
- “Kurdistan region halts oil exports: Iraq minister,” 9/11/11

Alsumaria, “Iraq exports 63 million barrels of crude oil in September 2011,” 10/21/11

Aswat al-Iraq, “URGENT: Erosion of main pipeline stops Iraq’s oil exports through Turkey,” 9/29/11

Hafidh, Hassan, “Iraq, Oil Majors Agree To Build Oil Field Water Injection Plant,” Dow Jones, 10/19/11
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Al-Hamdanai, Karim, “Italian firm wins $486.5 million contract to modernize Iraq’s oil export installations in south,” Azzaman, 9/17/11

Mohammed, Aref, “Iraq expects to pump oil from new Gulf terminal Jan 1,” Reuters, 9/29/11

Al Rafidayn, “Shahristani: oil exports from Kurdistan declined over the past two weeks, and contracts for non-transparent region,” 9/10/11

Reuters, “UPDATE 1-Iraq awards $518 mln oil expansion deal to Leighton,” 10/4/11

Yee, April, “Bickering in Iraq over oil revenue hurts country,” The National, 9/13/11
- “Iraqi Kurdistan draws bidders,” The National, 9/13/11

Zawya, Aswat al-Iraq, “Crude Exports Resume through Ceyhan Pipeline,” Iraq Business News, 10/3/11

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