Challenges and work to lift Iraq Oil Production

1. Merrill Lynch has raised their forecast for Iraq oil production for 2015 from 3.8 million barrels per day to 4.4 million barrels per day. The 4.4 mbpd would be an increase of 1.7 mbpd from the current 2.7 mbpd.

The Iraqi government expects output to rise to 12 million bpd over the next six or seven years according to an announcement by Iraq’s new Oil Minister Abdul Kareem Luaibi in December. However, analysts doubt that the security and infrastructure challenges can be fixed to meet that schedule.

Iraqi economy could double every six years if production reached 6.7 million bpd in 2025, absorbing “some” of the increased output, the group said, adding Iraq might inevitably rejoining OPEC’s quota system once flows reached 4 million bpd.

2. Iraq’s oil expansion plans face major challenges

Hundreds of miles of mostly rusty pipelines cut across the bleak desert landscape near this southern port city under a smog-filled sky, as foreign crews in flak jackets, guarded by armed security, work nearby to extract the crude oil on which Iraq has pinned its future.

They are among the hundreds tasked with boosting Iraq’s oil after the country awarded foreign firms access to its fields. But as they begin their work, the scope of their challenge is becoming painfully clear. Pipelines are old and their capacity is too low. Storage terminals are needed. Ports must be upgraded after decades of neglect.

master plan adopted by the ministry in mid-2010 says Iraq is planning to add an additional 4 million barrel per day export capacity by 2013 from the south — the main export hub — up from current levels of 1.6 million barrels per day.

It also plans to increase the export capacity from the northern pipeline to Turkey’s Ceyhan Mediterranean port to 1.6 million barrels per day from about 500,000 barrels a day now. A third planned project is a 2.5 million barrel-per-day pipeline network to transfer crude from the southern oil fields north to west to the Syrian port of Banias on the Mediterranean.

Baghdad late last year signed two deals with U.S. engineering firm Foster Wheeler and Singapore-based Leighton Offshore Private Ltd. to build new pipelines and four floating oil export terminals in the Gulf, near Basra, which handles about 75 percent of Iraq’s total oil exports.

Each terminal will handle 900,000 barrels a day. The first of the four is slated for completion by September or October.

Elaibi said recently that Iraqi will soon hire an international consultant to advise on planned pipelines and storage projects before issuing tenders.

Other hurdles have also emerged on top of the security concerns that have persisted despite an overall drop in the level of violence since the violent, postwar days of 2004 through 2006.

As companies began to move workers and equipment in, complaints also surfaced about the bureaucratic red tape. Visas were delayed and getting the equipment to the fields was difficult because of poor roads.

To overcome the delays at Iraqi ports, Iraq agreed with Royal Dutch Shell PLC to build its own dock in Basra’s Shatt al-Arab waterway, according to Anmar al-Safi, the spokesman of state-run Iraqi Ports Co.

Another obstacle was the shortage of water that must be injected to boost pressure in the reservoirs. Many of Iraq’s fields have experienced declining output largely because well pressure has not been sustained.

To deal with this problem, Exxon and other companies in the area are working on a water injection project that will feed sea water into all the fields in the Basra region. The companies share the costs, based on their respective use of water, and will be reimbursed by Iraq when production ramps up, Swadi said.

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