ALI AL-SAADI/AFP/Getty ImagesIraqi Oil Minister Hussein al-Shahristani
January 7, 2009 0017 GMT
Summary
Summary
Iraq’s oil minister has announced a new tender for the development of 11 major energy fields. The tender is part of a plan to restore — and expand upon — Iraq’s status as a major energy exporter. Whether the plan succeeds, however, depends upon Baghdad’s ability to maintain domestic stability.
Analysis
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Iraqi Oil Minister Hussein al-Shahristani on Dec. 31 announced a new international tender for the development of 11 major energy (mostly oil) fields as part of an effort to increase oil production. This second bid round comes six months after the first round of bidding was opened; six oil and two natural gas fields were offered for development in the first round. Al-Shahristani said developing the two sets of fields should allow Baghdad to increase production from its current 2.5 million barrels per day (bpd) to some 6 million bpd in the next four to five years. The Iraqi government plans to sign the contracts of the first round in mid-2009, while the second round is to be concluded by the end of the same year.
The 11 fields are Majnoon, West Qurna Phase 2, Halfaya, Gharraf, Badrah, East Baghdad, Kifl/West Kifl/Merjan, Qamarim/Gullabat/Naudman, Najmah/Al-Qayara, Khashm al-Ahmar, and Siba (the last two are natural gas fields). Each field is in a politically sensitive area. Majnoon, West Qurna Phase 2, Halfaya, Gharraf, Kifl/West Kifl/Merjan, Khashm al-Ahmar, and Siba are located in southern provinces where rival Shiite factions are pitted against one another. The East Baghdad field in the capital is in a stronghold of the al-Sadrite movement. The Najmah/Al-Qayara field is in Ninawa province contested between the Kurds and the Sunnis. Khashm al-Ahmar and the Qamarim/Gullabat/Naudman field is in the communally mixed Diyala province.
In addition to the domestic issues, three of the fields are jointly owned with neighboring Iran and Kuwait. Majnoon and Badrah are located on the Iran-Iraq border, while Siba is on the Iraq-Kuwait border. Developing them will require agreements between Iraq and its two neighbors, something that will be complicated by a row over oil fields that led to the 1990 Iraqi invasion of Kuwait and by Iranian interests in Iraq.
Political and security conditions allowing, the development of these fields could allow Iraq to re-emerge as a major oil-exporting state. Despite the global economic downturn, Iraq is the one place that could attract investment from global energy majors given the low cost of development and the potential for success.
As much as 80 percent of Iraq’s energy resources have long remained untapped. Whatever development took place occurred before the former Iraqi dictator Saddam Hussein became president in 1979. From there onward, Iraq’s links to the wider world became constrained. The process began with the 1980-88 war with Iran and exacerbated in the wake of the Iraqi invasion of Kuwait in 1990. Perhaps the worst period began with the 1991 Persian Gulf War and continued through twelve years of sanctions. The country then experienced nearly five years of insurgency in post-Baathist Iraq.
Together, this sequence of events took the country out of the select club of major oil exporters. This meant there is huge potential for increasing oil production, especially in the light of the technological developments that have taken place in the last three decades and the fact that Iraq has not barely been exposed to them.
The introduction of technology into the country will work well with the nature of Iraq’s oil fields - highly shallow and horizontal pool - and thus immensely facilitate development work. Unlike other oil fields around the world, which are deep below the surface and are in the vertical shafts, Iraq’s oil fields are in many ways large lakes that don’t require a whole lot of drilling. This aspect is extremely important from the point of view of the cost of enhancing production, which is why Iraq is the one place where the world’s energy majors are drawn to.
Having oil fields that require little work to begin production constitutes half the undertaking; being able to ship it is an equally important part of developing the energy sector. The world has many places — like Russia — where there is plenty of oil but where the fields are nowhere near any means of transport, which renders the project cost prohibitive. In Iraq, however, most of the fields are located near existing export points and other transit infrastructure. This means it does not require much effort to transport Iraqi crude.
Najmah/Al-Qayara and East Baghdad are not far from a pipeline running from Baghdad through Baiji to the tri-border area with Syria and Turkey. The Khashim al-Ahmar and Qamarim/Gullabat/Naudman are a little west of the same line. Meanwhile, the pipeline from Basra to Hadith runs through the Kifl/West Kifl/Merjan field near Najaf and runs close to Gharraf. And the Halfaya, Majnoon, West Qurna Phase 2, and Siba are located very close to the pipeline network hubbed at Basra. This leaves Badrah as the only field that is far from any existing pipeline. But since it is close to East Baghdad, it can be linked to the pipeline running north from the capital.
Despite these logistical positives, two key factors have prevented energy majors from leaping at the opportunity since the U.S. move to effect regime-change. The first has been the lack of an internationally recognized government, and the second has been a multifaceted security problem.
The Petraeus strategy allowed the United States to collapse the Sunni insurgency from within in 2007, while U.S.-Iranian dealings took care of the Shiite militia problem. The prospect of violence remains, however, given ongoing Sunni-Shiite and Arab-Kurdish tensions. On the political front, the Shiite-dominated central government has considerably extended its writ in the country. Even so, numerous faultlines at both the intra- and inter-communal levels continue to threaten the gains made over the last two years.
The issue of autonomy, which pits the central government against the Kurdistan Regional Government — especially over energy — continues to prevent the enactment of a national hydrocarbon law. Furthermore, 2009 is an election year, with provincial elections scheduled for Jan. 31 and parliamentary polls slated for later in the year. These votes are the next step in the process toward stabilizing the Iraqi state. If Iraq’s various stakeholders can move past these tensions, they will enhance the chances for success of the Oil Ministry’s plans to expand production.
Given the number of moving parts in the new Iraqi republic, any number of things could go wrong. But so long as Baghdad can maintain status quo in terms of Iraq’s relative security and stability, it stands a good chance to greatly exceed its past status as a major oil-exporting nation.
Iraqi Oil Minister Hussein al-Shahristani on Dec. 31 announced a new international tender for the development of 11 major energy (mostly oil) fields as part of an effort to increase oil production. This second bid round comes six months after the first round of bidding was opened; six oil and two natural gas fields were offered for development in the first round. Al-Shahristani said developing the two sets of fields should allow Baghdad to increase production from its current 2.5 million barrels per day (bpd) to some 6 million bpd in the next four to five years. The Iraqi government plans to sign the contracts of the first round in mid-2009, while the second round is to be concluded by the end of the same year.
The 11 fields are Majnoon, West Qurna Phase 2, Halfaya, Gharraf, Badrah, East Baghdad, Kifl/West Kifl/Merjan, Qamarim/Gullabat/Naudman, Najmah/Al-Qayara, Khashm al-Ahmar, and Siba (the last two are natural gas fields). Each field is in a politically sensitive area. Majnoon, West Qurna Phase 2, Halfaya, Gharraf, Kifl/West Kifl/Merjan, Khashm al-Ahmar, and Siba are located in southern provinces where rival Shiite factions are pitted against one another. The East Baghdad field in the capital is in a stronghold of the al-Sadrite movement. The Najmah/Al-Qayara field is in Ninawa province contested between the Kurds and the Sunnis. Khashm al-Ahmar and the Qamarim/Gullabat/Naudman field is in the communally mixed Diyala province.
In addition to the domestic issues, three of the fields are jointly owned with neighboring Iran and Kuwait. Majnoon and Badrah are located on the Iran-Iraq border, while Siba is on the Iraq-Kuwait border. Developing them will require agreements between Iraq and its two neighbors, something that will be complicated by a row over oil fields that led to the 1990 Iraqi invasion of Kuwait and by Iranian interests in Iraq.
Political and security conditions allowing, the development of these fields could allow Iraq to re-emerge as a major oil-exporting state. Despite the global economic downturn, Iraq is the one place that could attract investment from global energy majors given the low cost of development and the potential for success.
As much as 80 percent of Iraq’s energy resources have long remained untapped. Whatever development took place occurred before the former Iraqi dictator Saddam Hussein became president in 1979. From there onward, Iraq’s links to the wider world became constrained. The process began with the 1980-88 war with Iran and exacerbated in the wake of the Iraqi invasion of Kuwait in 1990. Perhaps the worst period began with the 1991 Persian Gulf War and continued through twelve years of sanctions. The country then experienced nearly five years of insurgency in post-Baathist Iraq.
Together, this sequence of events took the country out of the select club of major oil exporters. This meant there is huge potential for increasing oil production, especially in the light of the technological developments that have taken place in the last three decades and the fact that Iraq has not barely been exposed to them.
The introduction of technology into the country will work well with the nature of Iraq’s oil fields - highly shallow and horizontal pool - and thus immensely facilitate development work. Unlike other oil fields around the world, which are deep below the surface and are in the vertical shafts, Iraq’s oil fields are in many ways large lakes that don’t require a whole lot of drilling. This aspect is extremely important from the point of view of the cost of enhancing production, which is why Iraq is the one place where the world’s energy majors are drawn to.
Having oil fields that require little work to begin production constitutes half the undertaking; being able to ship it is an equally important part of developing the energy sector. The world has many places — like Russia — where there is plenty of oil but where the fields are nowhere near any means of transport, which renders the project cost prohibitive. In Iraq, however, most of the fields are located near existing export points and other transit infrastructure. This means it does not require much effort to transport Iraqi crude.
Najmah/Al-Qayara and East Baghdad are not far from a pipeline running from Baghdad through Baiji to the tri-border area with Syria and Turkey. The Khashim al-Ahmar and Qamarim/Gullabat/Naudman are a little west of the same line. Meanwhile, the pipeline from Basra to Hadith runs through the Kifl/West Kifl/Merjan field near Najaf and runs close to Gharraf. And the Halfaya, Majnoon, West Qurna Phase 2, and Siba are located very close to the pipeline network hubbed at Basra. This leaves Badrah as the only field that is far from any existing pipeline. But since it is close to East Baghdad, it can be linked to the pipeline running north from the capital.
Despite these logistical positives, two key factors have prevented energy majors from leaping at the opportunity since the U.S. move to effect regime-change. The first has been the lack of an internationally recognized government, and the second has been a multifaceted security problem.
The Petraeus strategy allowed the United States to collapse the Sunni insurgency from within in 2007, while U.S.-Iranian dealings took care of the Shiite militia problem. The prospect of violence remains, however, given ongoing Sunni-Shiite and Arab-Kurdish tensions. On the political front, the Shiite-dominated central government has considerably extended its writ in the country. Even so, numerous faultlines at both the intra- and inter-communal levels continue to threaten the gains made over the last two years.
The issue of autonomy, which pits the central government against the Kurdistan Regional Government — especially over energy — continues to prevent the enactment of a national hydrocarbon law. Furthermore, 2009 is an election year, with provincial elections scheduled for Jan. 31 and parliamentary polls slated for later in the year. These votes are the next step in the process toward stabilizing the Iraqi state. If Iraq’s various stakeholders can move past these tensions, they will enhance the chances for success of the Oil Ministry’s plans to expand production.
Given the number of moving parts in the new Iraqi republic, any number of things could go wrong. But so long as Baghdad can maintain status quo in terms of Iraq’s relative security and stability, it stands a good chance to greatly exceed its past status as a major oil-exporting nation.
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