Monday, April 30, 2012

Russia’s Lukoil Begins Drilling At Iraq’s West Qurna 2 Oil Field

On April 25, 2012, Iraq’s Oil Ministry held an official ceremony to mark the beginning of drilling at Basra’s West Qurna 2 oil field. It is the second largest undeveloped bloc in the world, and contains an estimated 12.9 billion barrels of oil. Originally Russia’s Lukoil and Norway’s Statoil won a contract for West Qurna 2 in Iraq’s second energy auction, held in December 2009. Costs, the difficulty of the country’s business environment, and opportunities in other parts of the world eventually led Statoil to pull out of the deal, and sell its shares in the joint venture to their Russian partners in 2012. Statoil has signed deals with the America’s Baker Hughes and South Korea’s Samsung Engineering to complete the drilling and other services at the bloc. Lukoil plans on investing $25 billion into the field during its 20-year contract. When it reaches 150,000 barrels a day in production, it will begin being compensated by Iraq’s Oil Ministry. That’s supposed to be achieved by the end of 2013. By the second half of 2014, Lukoil plans on reaching 500,000 barrels a day. By 2015, it hopes to achieve 1.8 million barrels in production. This is all part of Iraq’s plans to become one of the largest petroleum producers in the world. Already, its deals with foreign energy companies are paying dividends as exports from southern Iraq, where most of the country’s energy resources reside, are taking off. By mid-April, they were up an estimated 400,000 barrels a day, going from 1.91 million barrels in March to 1.95 million. March’s overall export numbers were already a 15% jump from the previous month. With a planned five new oil terminals to be opened in Basra, two already operating, the country will finally have the infrastructure in place to take advantage of this huge boom in the industry.

The problem for Iraq is that it is already the most oil dependent country in the region, with around 90% of its revenue coming from the business. These new developments will make it even more reliant upon energy with Baghdad only giving lip service to diversifying the rest of the economy. As with many nations in this situation, Iraq is suffering from the resource curse, because its largest business provides only 2% of jobs. That usually results in a large and corrupt government bureaucracy, and a citizenry dependent upon public sector jobs. Iraq will be under even greater pressure, because it has one of the youngest and fastest growing populations in the Middle East and North Africa. There’s simply no way the government can provide enough jobs for this booming populace, which will lead to greater unemployment and public discontent. Its short-term success with oil may lead to long-term problems for its society.

Two Lukoil workers standing besides a boulder, which will eventually be included in a new processing facility at West Qurna 2 (Reuters)
Lukoil workers on a platform watching drilling begin at the field (Reuters)
A view of West Qurna 2 field (Reuters)
Opening of the drilling rig at the field (Reuters)

Hafidh, Hassan, “UPDATE: Iraq’s Southern Oil Exports At Record Rates In April,” Dow Jones, 4/23/12

Mohammed, Aref, “UPDATE 2-Iraq West Qurna 2 output seen at 500,000 bpd in 2014,” Reuters, 4/25/12

PanAremnian.Net, “LUKoil launches production drilling at Iraqi West Qurna-2 oilfield,” 4/25/12

Radio Free Europe/Radio Liberty, “LUKoil Begins Pumping From Major Oil Field Near Basra,” 4/25/12

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 10/30/10

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