AME Info, July 29 – A resurgence of Iraq’s oil industry would do more than anything else to persuade the outside world than some degree of normalcy was returning to the embattled country. Oil Minister Hussain al-Shahristani is keen to talk up the prospects for this. Reality checks are in order.
Iraq’s run down petroleum sector needs billions of dollars of investment to overhaul infrastructure and boost output after decades of neglect, sanctions, conflict and a lack of access to modern management techniques.
There has at least been some recovery from last year’s decline in oil production. Restoration of exports from the north coincides with an increase in national production to some 2.5 million b/d about 75 per cent of which is exported. Oil Minister Shahristani says the aim is to reach 2.9 million b/d and perhaps 3 million b/d.
As a result of the northern pipelines being out of commission Iraq had has to rely exclusively on its southern Basra terminal to export oil at a rate of 1.5 million b/d. Even the south though has suffered damage to its oil infrastructure with fire closing the Khor al-Amaya shipping terminal.
Repairs to two sabotaged oil pipelines that export crude from its northern fields to Turkey are now nearly complete. Iraq has attempted to beef up security by deploying large numbers of its reconstituted army along the routes.
Some $20 billion of foreign investment has been mooted as necessary to get Iraq’s oil production really rolling. The prospects are enticing with Iraq possessing 115 billion of untapped oil reserves. However, apart from a seemingly intractable security situation which is perceptibly worsening there are major contractual and political issues to overcome.
Shahristani says he is confident that a new hydrocarbon law clearing the way for foreign investment into the petroleum industry will be passed in 2006. The involvement of international oil companies is considered essential if Iraq is to attain medium to long-term production targets of more than 4 million b/d within the next four years and between 6 million and 8 million b/d within ten years.
One of the key questions in Iraq’s fragile political landscape is who controls the oil? Norway’s DNO, Canada’s Heritage Oil and the UK’s Sterling Energy have already begun wildcat exploration in the largely passive Kurdish north of the country after reaching deals with the local administration.
Most observers though believe that the major oil companies are unlikely to budge until the violence elsewhere dissipates and legal protection for any investments are in place. At present, there is ambiguity over whether the central government or regions have title to mineral resources. Foreign companies are looking for a clear investment blueprint governing pipelines, refineries as well as oil and gas fields.
Shell Oil President John Hofmeister has declared his company’s interest but maintains that the right conditions need to be in place to take things to the next level. ‘It’s too soon to make a judgement on how close we are. I suspect we could be a few years away.’