10 July 2002
Iraq is aiming to increase its sustainable oil production capacity to 3.5 million barrels per day by the end of 2003, without help from foreign oil companies and assuming that UN sanctions remain in force for the foreseeable future, Iraqi oil ministry sources say.
Iraqi Oil Minister Amer Rashid recently put current sustainable production capacity at 3.2 million-3.3 million b/d, although other estimates are lower.
Under a “national effort” program launched in 1999, Iraq brought on stream the giant Majnoon oil field in May. This is currently producing 50,000 b/d and should hit 100,000 b/d by year-end, Rashid said. Iraq also finished the first phase of the West Qurna oil field development.
The new targets will not be limited to the extra 200,000-300,000 b/d. Baghdad will continue to develop its upstream on its own, the sources say, under the assumption that UN sanctions banning direct investments in the Iraqi oil sector are open-ended. Later targets would push toward 4.2 million-4.5 million b/d, again without foreign help.
Faleh al-Khayat, director general at the Iraqi Oil Ministry, confirmed that Iraq will divert any spare funds it can get under the oil-for-food program to development projects. Under the UN program, Iraq should get $600 million in each six-month phase for its energy sector.
“Every time we find we have extra funds, we will put it into the development of our fields,” al-Khayat told International Oil Daily on the sidelines of a Geneva conference Tuesday. The upstream is likely to get the lion’s share, but al-Khayat declined to specify which oil fields would be next in line for development. “Our intention is to work on all the fields, so whenever we have the financial and technical possibilities, we will drill new wells and tie in others,” he said.
In the past, Iraq had said it wanted to reach the 3.5 million b/d target by the end of 2001, based on expectations that oil equipment and chemicals it ordered under the oil-for-food program would be delivered. It missed this target because the amount of contracts put on hold by the UN sanctions committee in the second half of last year was double or triple the level of 1999 or 2000, an Iraqi oil source says.
Iraq’s extra production capacity is unlikely to boost its crude exports as long as the current dispute with the UN over the program’s pricing mechanism continues. For now, industry sources say the retroactive pricing system is likely to stay in the absence of an alternative acceptable to the US and the UK. These countries insist that only retroactive pricing can cut the under-the-table surcharges Iraq levies on crude sales.
Iraqi sources complain that the country’s absence from the market for several years after the 1990-91 Gulf War was filled by other Mideast Opec producers, mainly Saudi Arabia and the UAE. Had Iraq not been hindered by its war with Iran in the 1980s and sanctions since 1991, it would have been producing 6 million b/d by now, the sources say. Its reserves would have been boosted to at least 150 billion barrels, instead of the current 115 billion bbl.
Iraq still objects to foreign investment in its energy sector through the oil-for-food program, despite the introduction of new procedures by the UN intended to accelerate the approval of civilian goods. “Iraq will never allow foreign investment in its oil industry under any framework of a sanctions regime, irrespective of any modifications and cosmetic changes that may be introduced,” al-Khayat told the Geneva conference.
France, which won exclusive negotiating rights for the Majnoon and Bin Umar oil fields but did not sign a production-sharing agreement, has proposed to the UN in the past that international oil companies should be allowed to invest directly in developing Iraq’s oil fields, making payments into the UN-controlled escrow account. Iraq strongly opposed the idea at the time. “It’s impractical and the price is too high for Iraq,” al-Khayat says.
Investments in the oil industry are long term, he says, and signing a production-sharing agreement for 15-20 years under a sanctions regime suggests an extension of the sanctions by that period. Also, Baghdad considers it unacceptable to discuss commitments and obligations with foreign companies under sanctions. “How can we do that under a regime we fight?” al-Khayat asked.
Ruba Husari, Geneva
(Published in International Oil Daily, 10 July 2002)