It has been a frustrating six months for the oil and gas sector. Sabotage and the security situation have combined to restrict exports and rehabilitation work, with oil output failing to exceed Baghdad’s 3 million-barrel-a-day (b/d) official target.

The latest blow came in mid-November, when explosions on the exposed 600-kilometre Kirkuk-Ceyhan pipeline reduced flows by 200,000 b/d. The repair work will take up to a month, with the likely result that average oil exports for the month will struggle to top 2.2 million b/d.

For Oil Minister Thamer Ghadbhan and his team at the giant ministry complex in Baghdad, it has been an exasperating time, with each move forward followed by a backward step. Given the country’s potential – proven oil reserves of 110 billion barrels make it the world’s third largest oil reservoir – it is unsurprising that an air of dismay pervades the building.

Lack of security and scant funding have conspired in equal measure to derail most reconstruction plans. Work teams from prime oil contractors Kellogg Brown & Root and Parsons International, both of the US, have needed considerable private security to be able to leave their site camps.

Sabotage and attacks on infrastructure have also seriously disrupted exports. Pipelines, especially, are a regular target. In September, Ghadbhan said Iraq had lost up to $7,000 million in oil exports over the past 18 months through such acts.

Liquidity

Baghdad needs all the money it can get. Funding constraints have meant the ministry has been unable to implement its own project development programme. ‘It’s not a problem of budgets,’ says Nabil al-Mozar, director-general of planning at the Oil Ministry. ‘It’s a matter of liquidity, being able to get the cash to pay for the work.’

However, some good news is expected by the end of the year. The State Company for Oil Projects (SCOP) is evaluating commercial offers for its five major projects currently under tender, and is shortly expected to make an award on the Khurmala dome and Hamrin field developments. ‘A decision is imminent,’ says SCOP director-general Ahmed al-Shamma. ‘We are also holding a final round of discussions in Jordan with bidders for the other projects very soon.’

The consolidation of all 13 state-owned oil production, marketing and engineering firms into the Iraq National Oil Company (INOC) is another positive sign that things are gradually moving in the right direction. The establishment of a giant integrated oil company similar in shape to Saudi Aramco was a key recommendation of the former Coalition Provisional Authority, although progress on its formation has been stalled. ‘We are still waiting for approval from the Supreme Oil Council,’ says Al-Shamma. ‘But it should not be long before it is formed.’

The present interim administration does not have the legitimacy or authority to award production-sharing contracts or major project awards, and significant developments are not expected until after the election of a transitional government in January. ‘After the elections there will be a clear strategy for the development of the oil and gas sector,’ says Al-Mozar. ‘We have a long list of projects. We are planning to build some new refineries in the central region to increase our production of gasoline, build a new gas network for our power generation needs and develop our oil fields. One of our major priorities is to make best use of our associated gas, as most of it is currently flared and wasted.’

Even after the vote, much will depend on the security situation. Spread over wide areas and with huge strategic importance, oil fields are a prime militant target. However, gaining access to a share of the country’s oil reserves and proven world-class gas stocks in excess of 115 trillion cubic feet is enough bait for most international oil companies to take the risk.