It’s a bold claim to make: that you are now the world’s second largest holder of conventional oil reserves.
But it’s one that Iraq made late last year when it announced that it had increased the size of its proven oil reserves to 143.1 billion barrels of oil – a figure that pushes the war-torn nation past Iran to become the world’s second largest holder of conventional oil reserves.
If Baghdad’s projections are to be believed, Iraq could match Saudi Arabia’s daily crude output of 10 million to 12 million barrels within the next seven years, up from just 2.5 million today. What’s more, following the successful tender for new oil exploration work in December, the country’s oil minister, Hussain al-Shahristani, made it clear that Iraq will ramp up production regardless of any restraints agreed upon by OPEC.
Yet unlike the other oil producing giants, Iraq faces an uphill battle to overcome many challenges if it is to stand alongside Saudi and Iran. The country is still plagued by its war-torn backdrop and all the issues that come with that: a wealth of security problems, an under-developed infrastructure of limited capacity, a poor regulatory framework, limited availability of trained personnel and ongoing political instability.
This, however, hasn’t been enough to deter international oil companies (IOCs) such as BP, Shell and the National China Petroleum Company, major players who have been keen to assert their presence in any of the 16 mammoth fields that Iraq opened up to international oil companies in 2009.
According to Gavin Jones, founding partner of Upper Quartile, a business specialising in post conflict economic reconstruction, Iraq has little option but to open the country up to foreign investment. “By enlisting the help of IOCs, they can provide the necessary expertise, technology and training that Iraq’s oil sector so desperately needs.”
But, Jones admits, it isn’t going to be easy. “What you’ve got in Iraq is basically 30 years worth of sanctions followed by six years of war. And in any environment like that it’s going to be difficult, especially when you’ve got a huge array of very big, very sophisticated, very slick international companies piling over the parapet, trying to work with a government that has been isolated for 30 years.”
Iraq’s ports, for example, have started to buckle under the demand of the arriving oil majors, their service companies and the vast amounts of equipment they’re bringing with them. “The cranes aren’t big enough, the gate out of the port isn’t big enough to take the volume of lorries, there’s nowhere to leave the stuff when you get it outside the port, and the free zone on the other side has been talked about for years, but there’s just no infrastructure.”
On the export side, there’s also the issue of pipelines. Iraq’s ageing pipeline network will need major upgrades, particularly the southern export pipelines, which send 80% of Iraq’s total oil exports to the global market. Experts have said that these pipelines can handle no more than 1.6 million bpd without risk of rupturing. “The pipelines need to be refurbished to a level where they can transport the anticipated short-term increase, and that’s about 10 to 15%. And there certainly needs to be a metering system put in place,” says Jones.
Security is another pressing issue for companies keen to address a presence in certain areas of Iraq. One solution to this is the ‘village of business’ that an Iraqi firm is planning to build next to Baghdad airport. The mini city will provide a secure environment in which business people can live and work in a safe environment. The US$ 250 million complex is due for completion in three to five years and will be home to apartments, hotels, offices, restaurants, cafes, shops and parks.
They aren’t, says Jones, insurmountable challenges. “IOCs will overcome them, because they’ve done it before in Nigeria, in Pakistan, they’ve done it everywhere else, and they’ll complain about it and they’ll try and leverage stuff out and the contracts will be changed and adapted and manipulated. But the pipelines are almost there. The port is going to be a shambles for a number of years to come, but people will manage to get stuff through. Not at the right times, but it will sort of work…”
It’s an issue that will no doubt be on the agenda at the Next Generation Oil & Gas MENA Summit 2011, which takes place at Raffles, Dubai from 12-14 May. This closed-door summit, hosted by GDS International, features some of the leading voices in MENA’s oil and gas sector, including Faisal Al Thani, Acting Manager Director Qatar of Maersk Oil; Rasha El Waraky, CIO of BP, John Roper, Head of Middle East and GM of E.ON; Otto Garringer, GM of OMV Iraq and Wadda M. Ali Shareef, Director General of Iraq’s Ministry of Oil.
Along with information security, other key topics for discussion include Iraq’s transformation, compliance in the oil and gas sector, cutting edge communications and optimum exploration techniques.
Next Generation Oil & Gas MENA Summit 2011 is an exclusive C-level event reserved for 100 participants that includes expert workshops, facilitated roundtables, peer-to-peer networks and coordinated meetings.
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