Keeping Baghdad’s oil ambitions in check

12 October 2010

Whether or not Iraq can deliver its output target of more than 12 million barrels by 2017, it will at some point be brought back into the Opec quota system – a process that will not be easy

Key Iraq oil fact

Despite holding the world’s third largest reserves, Iraq ranks about 10th in global oil production

Source: MEED

Baghdad had the distinction of hosting the first Opec ministerial conference back in September 1960. But 30 years of war, sanctions and neglect have caused the country’s oil sector to flounder and Iraq is now left seeking a route back to the top.

Despite holding the world’s third largest reserves, Iraq currently ranks about 10th in global oil production capacity.

In light of the security problems, Opec voted in 1998 to exempt Iraq from its quota system, which limits global oil supply by restricting exports in proportion to reserves. Compared with its reserves, now estimated to be 143 billion barrels, Iraq’s output of less than 2.5 million barrels a day (b/d) is not currently a concern.

Iraq average daily crude oil production
YearThousand barrels a day
Source: Opec

But in the next few years, Opec will have to address the issue of Iraq’s expanding output. Baghdad has signed 11 deals with international oil companies and plans to boost production to more than 12 million b/d by 2017.

Bringing Baghdad back into the Opec quota system will not be an easy process. Opec already has approximately 6 million barrels a day of surplus production capacity, and Iraq is not the only country with plans to increase production. Its other members will also not concede their market share easily.

Investment returns from Iraq oil production

The Oil Ministry accepts that as its production is ramped up to more than 4 million b/d, it will have to fall back under the quota system. Yet at the same time, Baghdad and the international oil companies and contractors, which are pouring money into the country to raise output, will want to see a return from their investments.

The oil companies are under pressure to get to work quickly, with a remit to achieve a 10 per cent production increment within a year of signing their contracts; 18 months in the case of greenfield developments.

But since June 2009 when the first deal was signed, production has barely increased from Saddam Hussain-era levels, and many former Iraqi oil officials and analysts doubt the country will be able to reach the target within the seven-year time-frame.

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