October 16th, 2011

2012 Production Challenge



Iraqi oil production has been slowly, but steadily, ramping up in the last three years, from an average of 2.336 million b/d in 2009 to 2.358 million b/d in 2010, to an average of 2.66 for the first eight months of this year, according to oil ministry official figures. With this, exports have also risen by almost 300,000 b/d, from a 2009 average of 1.9 million b/d in 2009 to 1.89 million b/d in 2010, to 2.19 million b/d by the end of August 2011. However 2012 is going to be the ultimate challenge in the short term as the oil ministry is seeking to achieve 3.4 million b/d next year with the aim to export an average of 2.6 million b/d, oil ministry officials in Baghdad tell me. The target is dictated by the need to cater for the huge expenditures in the 2012 federal budget. The price forecast currently being considered for next year’s budget is $90/bbl.

The onus next year will be big on IOCs, especially those who were awarded service contracts in the first bid round, to deliver on their plans, based on “real” work as opposed to “patch up” work, in oil ministry officials’ terms, carried out this year. So how did IOCs fare in 2011?

Official figures show BP-operated Rumaila field’s average production for the first eight months of the year at 1.1 million b/d as opposed to the planned 1.3 million b/d. Though Rumaila recently achieved even 1.4 million b/d but those rates were not sustainable and there were other times when production rates were disappointing. By contrast, West Qurna-1, operated by ExxonMobil, was expected to deliver 300,000 b/d on average but so far did 310,000 b/d. Zubair field, where ENI is in charge, was also 10,000 b/d above the targeted average of 220,000 b/d for 2011, delivering an average of 230,000 b/d in the first eight months of 2011, according to oil ministry official figures.

While expressing disappointment with the results on Rumaila – even though they admit the field management has been facing acute problems to stop the natural decline, in addition to the difference in scale with other fields – oil ministry officials however, are not impressed by the figures of Zubair and West Qurna-1 which they consider were not reached by “proper rehabilitation according to development plans” of the fields, but rather by quick fixes to ramp up to the 10% incremental output stipulated in their contracts. That 10% was crucial to IOCs’ book keeping in order to start receiving payment from Iraq in line with their contracts.

Oil Minister Abdul Karim Luaybi was also disgruntled during a recent tour of the south by the black smoke covering the horizon across the three fields, a sign of poor gas-oil separation, officials tell me.

According to 2012 ministry plans, southern fields should deliver 2.4 million b/d next year of which Rumaila is expected to account for at least 1.4 million b/d. Zubair should be producing at least 300,000 b/d and West Qurna-1 about 400,000 b/d. Majnoon, which has been oscillating between 45,000 b/d and 65,000 b/d this year, should add another 75,000 b/d. The balance should come from smaller fields being developed by South Oil Co under the national effort program.

The northern fields are expected to deliver 600,000 b/d next year; Missan fields, Ahdab and East Baghdad another 250,000 b/d; and the balance will come from the Kurdistan fields at a rate of 150,000 b/d for the year.

Another big challenge for the oil ministry for next year is the production – and by extension the import- of refined products. The last three years have seen some improvement in the local supply of refined products by the 700,000 b/d capacity refining network, according to the official oil ministry figures (See table below), but the country is still way below pre-2003 rates, especially where gasoline is concerned. Baghdad is still importing almost 30% of its gasoline needs and about 15% of the much needed gasoil for power generation.

2009 2010 2011*
LPG (tons/day) 3,300 3,700 3,860
Gazoline (m3/d) 10,300 12,200 12,400
Kerosene (m3/d) 7,600 8,200 7,400
Gasoil (m3/d) 13,400 16,500 19,700

 *January to August average

The View from Baghdad