Sunday, January 30, 2011

Iraq Quietly Rows Back on Lofty Oil PlanS
BAGHDAD (UPI) -- Iraqi officials are quietly backpedaling on Baghdad's plan to boost oil production to as much as 12 million barrels per day in six years to a more modest 8 million bpd. This is largely because the country's oil industry infrastructure is so dilapidated after decades of war, insurgency, international sanctions and neglect that it cannot support such an ambitious project. The country's 4,500-mile pipeline network, a vital element in exporting oil, is barely able to handle current production levels. The Oil Ministry says that reached 2.7 million barrels per day in December. That's a modest increase but underlines the upward curve in production after foreign companies took over major fields in 2010. Indeed, that figure is the highest monthly output total since the U.S.-led invasion of Iraq in March 2003. However, it's below the 3 million bpd the country produced in the late 1980s after an eight-year war with Iran. Still, with the advanced drilling and production techniques foreign companies are using in Iraq, it isn't surprising that output should already be climbing. Most of the increase came from the giant Rumaila and Zubair fields in southern Iraq that are now operated by BP and Italy's ENI respectively under 20-year production contracts awarded in December 2009. Some industry analysts estimate Iraq will be able to boost production to nearly 3 million bpd by the end of 2011 and hit 4.5 million by 2015, largely due to greater output from the major fields that have been underproducing for years. But few see the government of Prime Minister Nouri al-Maliki, whose actions in the next few years will be crucial to pushing Iraqi production to the limit, achieving the target of 12 million bpd by 2017 to challenge Saudi Arabia as the world's leading producer. Indeed, Thamir al-Ghadban, one of al-Maliki's senior advisers, was quoted as saying that 8 million bpd was a far more realistic production figure by 2017. Other Iraqi officials have echoed Ghadban's estimate while Western analysts say it is a far more realistic figure than the target of 12 million bpd that has been the Oil Ministry's mantra for a year or more. There may be political factors involved here, such as allaying concerns in the Organization of Petroleum Exporting Countries. Increasing production to 12 million bpd would dramatically reshape the global oil market and thrust Iraq on a collision course with OPEC, the 12-member cartel it helped to found in Baghdad in September 1960. An Iraqi production hike of such proportions would represent a threat to the cartel's efforts to control oil prices. There may also be connections with Maliki's success in forming a coalition government after nine months of tortuous horse-trading following an inconclusive parliamentary election in March 2010. Now that he has to focus on the nitty-gritty of governing a country beset with sectarian rivalries, political and economic uncertainties and foreign policy problems, he may have concluded that grandiose objectives are no longer necessary. Iraq's recoverable oil reserves are pegged at 143.1 billion barrels, the world's fourth largest proven reserves of conventional crude after Saudi Arabia, Venezuela and Iran. In November, the International Energy Agency poured cold water on Iraq's plans to boost production to 12 million bpd by 2017, saying it could take 20 years just to reach half that. The only countries that have been able to pull off the kind of feat Iraq seeks to achieve are Russia and Saudi Arabia, which during the 1960s pushed through the 10 million bpd barrier. Upgrading Iraq's infrastructure will be an immense task and could cost as much as $150 billion, the IEA noted. "Basic infrastructure, including roads, bridges, airports and water supply are all in need of repair and expansion," it observed. "A major expansion of shipping ports will also be needed." The situation is so parlous that one Western diplomat observed recently, "In some cases, the only thing holding the pipelines together is the sludge in them." Baghdad has started implementing a $50 billion modernization plan. This aims to extend its pipeline network and triple export capacity to around 160,000 barrels a day, as well as building four more refineries. Iraq currently has eight refineries with a combined capacity of 659,000 bpd. The new facilities will boost that by around 750,000 bpd.

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