Iraq Deputy PM Maps ‘Realistic’ Production Path

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Iraq’s Deputy Prime Minister Ali Allawi envisages oil production capacity rising to not more than 6 million barrels per day over the next five years due to the country’s severe export constraints, contradicting much more ambitious targets outlined by the oil minister.

Opec’s second-largest producer has struggled to restore its output toward the levels it achieved before the pandemic and its historic production cuts two years ago, when it was pumping just over 4.5 million b/d, largely because of the export bottlenecks in Basrah in the country's south.

Despite those difficulties, and the growing doubts about future foreign investment in the country, particularly given the political deadlock and stalled decision-making that has caused, Oil Minister Ihsan Ismael on Sunday repeated his hope that Iraq’s oil output could reach 8 million b/d by 2027.

He was speaking to reporters after a ceremony to mark Opec’s delayed 60th anniversary, at the same building in Baghdad where the organization was established by its original five members in 1960.

Chronic Oil Export Problems

But in characteristically candid comments a day earlier, Allawi, who also serves as Iraq’s finance minister, described the subsea pipelines that feed the mooring berths in the waters off Basrah as extremely old, a “very, very sensitive element of our export capacity” and costly to maintain.

Roughly 85% of Iraq’s crude exports are shipped from Basrah.

“I don’t think we’ll be expanding our capacity beyond … another 1 million b/d within five years,” he told the Iraq Energy Forum, clarifying to reporters afterward that he thought 6 million b/d was “realistically” what Iraq could achieve within that time frame.

Fixing the country’s chronic oil export problems is hampered by the competing demands on the state budget, Allawi noted, with Iraq having to balance building the necessary infrastructure, which requires “a great deal of work,” against the need to invest in the energy transition economy.

Recovering Gas Momentum

Iraq lags very far behind its Mideast Gulf peers in preparing for a low-carbon future. Most of its efforts focus on capturing the huge volumes of associated gas flared at its giant southern oil fields, an awkward reality for operators like BP that are under growing pressure to produce low-emissions oil.

Of the approximately 3.6 billion cubic feet per day of associated gas that Iraq produces, only around 48% is utilized, with the rest flared — as much as one-quarter of which comes from BP’s supergiant Rumaila field.

But the gas capture efforts should bear fruit next year, when the Shell-led Basrah Gas Co. (BGC) joint venture expects to bring the first of two new trains on stream. Together they will be able to process 400 million cubic feet per day of captured gas, adding 40% to BGC’s current capacity.

Shell regional Vice President Ali al-Janabi says BGC went through “quite a tough period” in 2020, when oil prices collapsed, work ground to a halt and an incursion took place at the camp in Basrah.

The company was almost on the verge of exiting the project, which al-Janabi describes as the largest gas flare reduction scheme in the world.

Work has since resumed, and BGC managed to capture 100 MMcf/d of additional gas over the last year. With the addition of the two new trains, which are due on stream between the second half of 2023 and the first half of 2024, the company expects to potentially capture another 120 MMcf/d from Rumaila alone.

But highlighting the ongoing problems BGC faces, again relating to the fragile state of Iraq’s energy infrastructure, al-Janabi mentioned an incident in recent days when a surge in power demand in Missan province caused “quite a significant power outage” in southern Iraq.

This temporarily forced BGC’s electric compression stations off line.

“There is a problem that we all face, which is that the infrastructure can’t handle the power, the oil, the pipelines, the exports. Every time you get bad winds … in the port of Fao for exports, that means the oil has to shut in, that means the gas has to shut in, and then we’re in this cycle,” al-Janabi said.

Political Limbo Imperils Investment

Another major gas project imperilled by the delayed government formation process is the $10 billion deal that TotalEnergies signed in September, which also involves raising oil output at the Ratawi field and building a water injection scheme deemed essential to Iraq’s future production plans.

The oil minister admitted, in response to a question from Energy Intelligence, they were still “filling in some gaps.” He mentioned in particular “comments from some layers inside Iraq” that were holding up the final approval of the project, and final negotiations on the Iraq National Oil Co.’s proposed share in it.

However, he insisted that the “activation” of the deal would take place by Jul. 31.

But an informed Iraq industry source said the final oil-field component of the four-part deal still had not been signed.

Many will be watching to see if and when that happens, as a clear sign that Iraq is capable of moving forward with big upstream projects and securing the kind of foreign investment that the country badly needs to do so.

The fact that Shell and BP were the only IOCs represented at the Iraq Energy Forum shows just how important that sign is.

Upstream Projects, Flaring, Conventional Oil and Gas, Opec/Opec-Plus
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