October 4th, 2010

Reserves Politics

 

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Iraq’s newly announced proven oil reserves figure of 143.1 billion barrels is most likely closer to the reality than the old one of 115 billion bbls minus what has been produced since the last revision, which is put at 5 billion bbls. But the question is how did Iraq arrive at this magic number without new exploration or new discoveries and while 3-D seismic surveys for the southern oil fields is still ongoing and can’t yet give a comprehensive picture of the state of Iraq’s reserves.

The announcement made by outgoing Oil Minister Hussein al-Shahristani Oct. 4th raises question marks as to its validity and its timing. There is definitely new data available to the reservoirs department at Iraq’s oil ministry based on studies conducted by international oil companies even before they signed service contracts to develop oil fields in southern Iraq. The companies used estimates based on those studies to bid for higher plateau targets in Iraq’s licensing rounds of last year, and the same estimates were used again to draw up preliminary development plans for the signed up oil fields. One can also argue that there are more modern techniques available to the reservoirs department to analyze that data making the revision of old reserves figures somewhat justified.

However, seismic surveys at all contracts areas signed up last year by IOCs are yet to be completed making the announcement pre-mature if not rash.

In his presentation of the new reserves revision, Al-Shahristani said the new figures will be communicated to Opec. Reserves have in the past been one factor taken into consideration by the producing cartel when deciding the different producers’ relative production quotas but not the determinant one. Other factors include the country’s production capacity, population and per capita GDP. So revising Iraq’s proven reserves upwards at this stage has no immediate impact on Iraq’s current production nor will it have any for a few years to come. The only impact will actually be felt by Iran, the neighbor Iraq has displaced as the second largest reserve holder in the Mideast Gulf after Saudi Arabia.

So, since the announcement changes nothing in terms of Iraq’s current oil output or any presumed quota within Opec as long as Baghdad is way below the last quota assigned to it in 1990, and since reserves are likely to be revised further once more data emerges from the awarded field development contracts, one cannot help but wonder why the minister was eager to make the announcement now and whether it was meant to serve a certain political agenda. Hussein al-Shahristani wants to leave a legacy behind of not just the man who opened Iraq’s doors to international oil companies and signed them up to service contracts on terms even they would not have imagined were possible, but also the man on whose watch Iraq raised its oil reserves by a third without even making a single new discovery.

The View from Baghdad