October 5, 2010
Iraq says jump in oil reserves is only the start
BAGHDAD - Iraq says that its oil reserves are 25 percent larger than previously estimated – an announcement that could simultaneously pacify nervous oil investors amidst a political crisis and give Baghdad leverage with OPEC colleagues in the next round of quota negotiations.
On Monday, Oil Minister Hussain al-Shahristani called a press conference at the ministry’s headquarters and said proven oil reserves are now 143 billion barrels, up from the long-held estimate of 115 billion barrels. On paper, Iraq has surpassed Iran to become the second-largest oil country in the world, behind Saudi Arabia.
“We got these numbers from news studies in Iraq and from the international oil companies (IOCs),” Shahristani said. “And we could say that the most that we got is from what the IOCs provided us, which they were already asked to do such work.”
Three quarters of the new reserves come from a single field, West Qurna, which is being developed in discrete sections by two consortia, one led by ExxonMobil, the other by Lukoil. Previous estimates by the U.S. Energy Information Agency (EIA) listed the field’s reserves at 21.5 billion barrels; now, the Oil Ministry has bumped that number to 43.3 billion – making it the world’s second-largest oil field.
“The gains that have been achieved from the initial work on West Qurna have been enormous,” said Brad Phillips, an economist at IHS Global Insight, who noted that Iraq’s updated reserves estimate reflects new data from only a few of Iraq’s largest oil fields. “Since other fields are still being explored, we should expect this number to drift higher.”
Reserves estimates are inherently tricky, largely because of their political implications – especially among OPEC member countries, whose production quotas are set largely in proportion to their reserves. Most nationalized oil countries keep actual field data secret from competing petro-states, and reserves estimates are extrapolated from data published by sources such as industry trade journals, company reports, OPEC, and the International Energy Agency.
Shahristani said most of the new data have come from studies conducted by the foreign oil companies now developing a handful of the country’s biggest fields, as well as internal studies from the ministry’s Reservoirs and Fields Directorate.
“With the bidding rounds and some of the IOCs having offered to develop fields’ reservoir studies, this is one of the results,” said Abdulaal al-Dabbaj, director general of the Reservoirs and Fields Directorate.
Sixteen companies were awarded 11 oil projects from two oil auctions held last year. In aggregate, those contracts aim to boost Iraq’s production from 2.5 million barrels per day (bpd) up to 12.5 million bpd within seven years, which would make it the world’s leading producer.
Iraq didn’t revise its natural gas reserves, which is about 112 trillion cubic feet, much of which is associated gas found during oil production. “If the oil reserves increase, then gas will as well,” said Dabbaj.
Foreign companies will bid on contracts to develop three dry-gas fields at an auction on Oct. 20.
Rising production promises to fuel investment outside of the oil sector, too. In Iraq’s reconstruction plans, foreign investors are needed for their expertise, training and – most of all – capital; however, many have stayed away because of the security and political risk. Iraq appears to be easing the concern by officially announcing a larger reward.
“These new estimates (of reserves) will feed into calculations by international lenders, particularly government export credit institutions,” said Phillips, the IHS economist. “They will look at their Iraq portfolios, and increase the size of their Iraqi investments. For the Iraqis, it will help remove some financial obstacles, and bodes well for getting these reconstruction blueprints into reality.”
Political hurdles
While the auctions have succeeded at attracting foreign companies on terms favorable to Iraq, the optimistic prospects for Iraq’s underground resources remain overshadowed by above-ground concerns.
The government, led by Prime Minister Nouri al-Maliki and his prominent ally, Shahristani, is fighting to remain in power following a second-place showing in the March 7, 2010 elections. His opponents, led by Ayad Allawi, the former prime minister, say that Maliki has amassed too much power. Meanwhile, basic services stagnate and security continues to deteriorate.
Against this backdrop, the progress in the oil sector over the past two years is as useful politically – a tangible accomplishment by an embattled administration – as it is economically.
One of the biggest detractors is the semi-autonomous Kurdistan Regional Government (KRG), which has signed more than two dozen oil deals with smaller foreign oil firms but hasn’t been able to turn the fields profitable.
Exports require central government approval, but Baghdad considers the deals illegal, since they were signed without the participation or approval of the central government. The KRG has refused to continue exports through the national pipeline system without a broad agreement with Baghdad.
Much of the KRG’s oil sector was unknown until after Saddam Hussein’s overthrow. But only three of the pre-2003 fields were included in the reserves revision statement – Qara Chok, Taq Taq and Damerdak. The KRG’s reserves could raise Iraq’s revised estimate by as much as 40 billion barrels, according to the KRG.
“The strange thing is that the KRG provides the international oil companies with information and they don’t do the same for us,” Shahristani said.
Growing clout in OPEC
Among the challenges standing between Iraq and its production ambitions is the world oil market: how much added supply can the market support before the price of oil is crippled?
Much will depend on OPEC, whose members self-regulate their oil production levels in order to ensure a strong price. Iraq hasn’t been bound to such a quota since its output was depressed over a decade ago by sanctions.
When asked how Iraq’s production plans would square with OPEC’s policies, Shahristani gave a cautious though telling response.
“Iraq is not now included in the quota in OPEC,” he said. “As you know, OPEC members’ shares depends on the production, capacity, economic needs and amount of reserves.”
With an upward revision in its reserves estimate, Iraq strengthens its ability to enter future quota negotiations with a strong claim.
“There won’t be much of an argument for other OPEC members to question these numbers,” said Philips, the IHS economist. “They know these reserves are only going to be raised in the future.”
More than 20 years have passed since Iraq’s last reserves estimate. Since then, continuous wars, upheaval and sanctions have prevented further assessment of Iraq’s 66 fields using modern technology. Nor has the country been fully explored, including the western desert which is believed to hold large natural gas reserves.
“Of course, this figure doesn’t include any other areas which are not explored yet,” Shahristani said at the press conference.
“I’m very sure it will be much higher than this,” Dabbaj said.
Iraq’s new reserves
Proven reserves as of Jan. 1, 2010 (announced Oct. 4, 2010): 143.124 billion barrels
Previous proven reserves estimate: 115 billion barrels
Original oil in place (including probable, possible and that which cannot be recovered): 505.408 billion barrels
Oil produced to date: 33.463 billion barrels
Proven reserves breakdown:
• Super giant fields (containing more than 5 billion barrels): 133.882 billion barrels
• Giant fields (containing more than 1 billion barrels): 29.885 billion barrels
• Very large fields (containing more than 500 million barrels): 7.221 billion barrels
• Large fields (containing more than 100 million barrels): 4.292 billion barrels
• Mid-size fields (containing more than 50 million barrels): 835 million barrels
• Small fields (containing less than 50 million barrels): 471 million barrels
Iraq says jump in oil reserves is only the start
BAGHDAD - Iraq says that its oil reserves are 25 percent larger than previously estimated – an announcement that could simultaneously pacify nervous oil investors amidst a political crisis and give Baghdad leverage with OPEC colleagues in the next round of quota negotiations.
On Monday, Oil Minister Hussain al-Shahristani called a press conference at the ministry’s headquarters and said proven oil reserves are now 143 billion barrels, up from the long-held estimate of 115 billion barrels. On paper, Iraq has surpassed Iran to become the second-largest oil country in the world, behind Saudi Arabia.
“We got these numbers from news studies in Iraq and from the international oil companies (IOCs),” Shahristani said. “And we could say that the most that we got is from what the IOCs provided us, which they were already asked to do such work.”
Three quarters of the new reserves come from a single field, West Qurna, which is being developed in discrete sections by two consortia, one led by ExxonMobil, the other by Lukoil. Previous estimates by the U.S. Energy Information Agency (EIA) listed the field’s reserves at 21.5 billion barrels; now, the Oil Ministry has bumped that number to 43.3 billion – making it the world’s second-largest oil field.
“The gains that have been achieved from the initial work on West Qurna have been enormous,” said Brad Phillips, an economist at IHS Global Insight, who noted that Iraq’s updated reserves estimate reflects new data from only a few of Iraq’s largest oil fields. “Since other fields are still being explored, we should expect this number to drift higher.”
Reserves estimates are inherently tricky, largely because of their political implications – especially among OPEC member countries, whose production quotas are set largely in proportion to their reserves. Most nationalized oil countries keep actual field data secret from competing petro-states, and reserves estimates are extrapolated from data published by sources such as industry trade journals, company reports, OPEC, and the International Energy Agency.
Shahristani said most of the new data have come from studies conducted by the foreign oil companies now developing a handful of the country’s biggest fields, as well as internal studies from the ministry’s Reservoirs and Fields Directorate.
“With the bidding rounds and some of the IOCs having offered to develop fields’ reservoir studies, this is one of the results,” said Abdulaal al-Dabbaj, director general of the Reservoirs and Fields Directorate.
Sixteen companies were awarded 11 oil projects from two oil auctions held last year. In aggregate, those contracts aim to boost Iraq’s production from 2.5 million barrels per day (bpd) up to 12.5 million bpd within seven years, which would make it the world’s leading producer.
Iraq didn’t revise its natural gas reserves, which is about 112 trillion cubic feet, much of which is associated gas found during oil production. “If the oil reserves increase, then gas will as well,” said Dabbaj.
Foreign companies will bid on contracts to develop three dry-gas fields at an auction on Oct. 20.
Rising production promises to fuel investment outside of the oil sector, too. In Iraq’s reconstruction plans, foreign investors are needed for their expertise, training and – most of all – capital; however, many have stayed away because of the security and political risk. Iraq appears to be easing the concern by officially announcing a larger reward.
“These new estimates (of reserves) will feed into calculations by international lenders, particularly government export credit institutions,” said Phillips, the IHS economist. “They will look at their Iraq portfolios, and increase the size of their Iraqi investments. For the Iraqis, it will help remove some financial obstacles, and bodes well for getting these reconstruction blueprints into reality.”
Political hurdles
While the auctions have succeeded at attracting foreign companies on terms favorable to Iraq, the optimistic prospects for Iraq’s underground resources remain overshadowed by above-ground concerns.
The government, led by Prime Minister Nouri al-Maliki and his prominent ally, Shahristani, is fighting to remain in power following a second-place showing in the March 7, 2010 elections. His opponents, led by Ayad Allawi, the former prime minister, say that Maliki has amassed too much power. Meanwhile, basic services stagnate and security continues to deteriorate.
Against this backdrop, the progress in the oil sector over the past two years is as useful politically – a tangible accomplishment by an embattled administration – as it is economically.
One of the biggest detractors is the semi-autonomous Kurdistan Regional Government (KRG), which has signed more than two dozen oil deals with smaller foreign oil firms but hasn’t been able to turn the fields profitable.
Exports require central government approval, but Baghdad considers the deals illegal, since they were signed without the participation or approval of the central government. The KRG has refused to continue exports through the national pipeline system without a broad agreement with Baghdad.
Much of the KRG’s oil sector was unknown until after Saddam Hussein’s overthrow. But only three of the pre-2003 fields were included in the reserves revision statement – Qara Chok, Taq Taq and Damerdak. The KRG’s reserves could raise Iraq’s revised estimate by as much as 40 billion barrels, according to the KRG.
“The strange thing is that the KRG provides the international oil companies with information and they don’t do the same for us,” Shahristani said.
Growing clout in OPEC
Among the challenges standing between Iraq and its production ambitions is the world oil market: how much added supply can the market support before the price of oil is crippled?
Much will depend on OPEC, whose members self-regulate their oil production levels in order to ensure a strong price. Iraq hasn’t been bound to such a quota since its output was depressed over a decade ago by sanctions.
When asked how Iraq’s production plans would square with OPEC’s policies, Shahristani gave a cautious though telling response.
“Iraq is not now included in the quota in OPEC,” he said. “As you know, OPEC members’ shares depends on the production, capacity, economic needs and amount of reserves.”
With an upward revision in its reserves estimate, Iraq strengthens its ability to enter future quota negotiations with a strong claim.
“There won’t be much of an argument for other OPEC members to question these numbers,” said Philips, the IHS economist. “They know these reserves are only going to be raised in the future.”
More than 20 years have passed since Iraq’s last reserves estimate. Since then, continuous wars, upheaval and sanctions have prevented further assessment of Iraq’s 66 fields using modern technology. Nor has the country been fully explored, including the western desert which is believed to hold large natural gas reserves.
“Of course, this figure doesn’t include any other areas which are not explored yet,” Shahristani said at the press conference.
“I’m very sure it will be much higher than this,” Dabbaj said.
Iraq’s new reserves
Proven reserves as of Jan. 1, 2010 (announced Oct. 4, 2010): 143.124 billion barrels
Previous proven reserves estimate: 115 billion barrels
Original oil in place (including probable, possible and that which cannot be recovered): 505.408 billion barrels
Oil produced to date: 33.463 billion barrels
Proven reserves breakdown:
• Super giant fields (containing more than 5 billion barrels): 133.882 billion barrels
• Giant fields (containing more than 1 billion barrels): 29.885 billion barrels
• Very large fields (containing more than 500 million barrels): 7.221 billion barrels
• Large fields (containing more than 100 million barrels): 4.292 billion barrels
• Mid-size fields (containing more than 50 million barrels): 835 million barrels
• Small fields (containing less than 50 million barrels): 471 million barrels
