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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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    Report: The dream of increasing oil production in Iraq to the peak may never come true.. Why?

    Rocky
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    Report: The dream of increasing oil production in Iraq to the peak may never come true.. Why? Empty Report: The dream of increasing oil production in Iraq to the peak may never come true.. Why?

    Post by Rocky Sun 14 May 2023, 3:56 pm

    Report: The dream of increasing oil production in Iraq to the peak may never come true.. Why?

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    Economy News - Baghdad
    Dreams of reaching the peak of oil production in Iraq are still far from reach, despite the passage of two decades since its launch by international companies operating in Baghdad decades ago.
    Iraq has suffered from political, security and economic turmoil over the past two decades, since the fall of Saddam Hussein's regime and the US invasion of the country in March 2003.
    Mesopotamia also entered into a sharp confrontation with armed groups, which led to a significant disruption of oil production in Iraq, according to what was monitored by the Energy Research Unit.
    Despite the decline in war and armed conflicts in Iraq and its regional neighbors in recent years, the country still lives under the weight of corruption and political instability.
    Oil is the lifeblood of the Iraqi economy
    The aforementioned conditions contributed to the emergence of the phenomenon of international oil companies’ migration away from the Iraqi market in an escalating manner since 2018, which makes it likely that it will be difficult to reach the peak of oil production in Iraq, which it has been anticipating for at least two decades.
    Oil production in Iraq is the country's economic lifeline, and its revenues contribute to financing the spending sections in the general budget by 87%, according to official data monitored by the Energy Research Unit.
    Iraq's budget for 2023 aims to achieve oil revenues of up to $80 billion, and it also wants to collect other non-oil revenues worth $12 billion.
    During the past year, the Russian-Ukrainian war contributed to an increase in Iraqi oil revenues to $115 billion, compared to $75.7 billion in 2021.
    The Iraqi government approved the new budget in March 2023, with an average price per barrel of $70. It also expected that the volume of crude oil exports would reach 3.5 million barrels per day during the year, of which 400,000 barrels per day would come from the Kurdistan region.
    The average oil production in Iraq has ranged for many years between 4 and 5 million barrels per day, amid successive promises by international companies to improve production and increase its rates near peak production.
    According to OPEC data, oil production in Iraq reached 4.43 million barrels per day in 2022, up from 4.05 million barrels per day in the previous year.
    International oil companies operating in the country have promised - for two decades - that oil production in Iraq will reach 7 million barrels per day or more, but this has not happened so far, and may not happen at all, according to estimates by Bloomberg New Energy Finance specialized "bnef".
    Bloomberg analysts came to this conclusion, based on ample evidence of the international oil companies' failure to Iraq and their gradual withdrawal from the market for years - one after the other -.
    Several international companies have withdrawn from the country since 2018, for reasons related to the growing water shortage, ongoing political unrest, delayed payment of financial dues, and others.
    The beginning of the recovery since 2008
    The Iraqi oil industry has begun to recover since the large auction rounds between 2008 and 2009, as part of the reconstruction efforts and push forward the country's collapsing economy.
    The target total production volume from all oil fields successfully sold at public auctions - at that time - was approximately 11.6 million barrels per day, but these estimates did not limit themselves to a specific time frame, which opened the door to speculation and fears of the weak seriousness of foreign companies.
    Major European and American companies such as British Oil BP, American Exxon Mobil, and Anglo-Dutch Shell were to be at the forefront of these ambitious production estimates.
    Shell acquired 45% of the Majnoon field east of Basra Governorate, Exxon Mobil acquired 60% of the West Qurna-1 field, while the British oil company BP acquired 38% of the Rumaila field.
    The total target for these three fields combined was close to 7 million barrels per day, but it never reached that, and the average has been between 4 and 5 million barrels per day since 2016, according to the Energy Research Unit.
    Shell exits.. and Exxon Mobil reduces its stake
    Successive governments pinned their hopes on repeated promises by foreign companies to improve productivity rates in order to reap record returns from the sector. However, successive withdrawals from the market in recent years have shocked the industry.
    Shell has given up its entire stake in the Majnoon field since 2022, after its production capacity decreased to 240,000 barrels per day.
    The American company ExxonMobil also reduced its stake in the West Qurna-1 field significantly from 60% to 22.7% in early 2023.
    As for the British oil company BP, it is still linked to its share in the Rumaila field, whose contract expires in 2034, but its partial or total exit from it is not excluded before the specified period in light of its climate commitment to reduce fossil fuel production by 25% by 2030.
    Will China compensate for the exit of international companies?
    The British oil company BP is currently one of the largest operators in the Iraqi oil sector, through its joint venture with the Basra Energy Company Limited and the Chinese company Sinoco, which owns the majority stake in the Rumaila oil field.
    The next two decades represent the last opportunity for Iraq to achieve the dream of peak productivity, and to add large quantities of oil supplies to the global energy mix, which faces severe pressure to abandon fossil fuels by 2050.
    Many Iraqi oil fields have been operating for 50 years or more, but they are produced with a relatively low oil recovery factor (the total percentage of oil expected to be extracted) of 30%, which requires extensive technical expertise to increase their production, unlike oil fields with higher productivity.
    It is expected that Asian and local companies will replace the exiting international oil companies, but the ability of these companies to increase production and reach the desired peak for decades will remain subject to anticipation and testing.
    The Chinese company, Sinooc, has increased its penetration in the Iraqi oil sector over the past years, until it became involved in projects representing 20% ​​of the country's production, according to what was monitored by the Energy Research Unit.
    Russian oil competes with the Middle East
    Fears are growing about the fragile political situation in Iraq and the repercussions of geopolitical tensions in the region, which may push Beijing to diversify its oil supplies away from the Strait of Malacca, which controls the passage of 70% of China's oil imports.
    In addition to this, the volume of alternative opportunities available to China to buy cheap Russian oil since the Ukrainian war, which has greatly affected the exports of Iraq and the Middle East oil-exporting countries in 2022.
    China tends to increase its imports of Russian oil produced in western Siberia, which gives it a greater ability to reduce its dependence on oil coming from the Middle East.
    These odds are increased by the success of some Russian oil grades in attracting Chinese refineries due to the similarity of its characteristics to Middle Eastern grades, such as Espoo crude.
    On the other hand, Saudi Arabia has committed to increasing its supplies to China by 700,000 barrels per day, according to deals concluded in March 2023, which may reduce Beijing's incentives to increase its stakes in Iraq with the diversity of regional and international alternatives before it.
    This trend is reinforced by estimates indicating that Chinese oil demand will not rise by more than two million barrels per day until 2030, according to Bloomberg New Energy Finance.
    Water shortage challenge
    Ambitions to increase oil production in Iraq face other challenges represented by the lack of water supplies used in injecting the fields, to push the crude to the top, and to maintain the pressure of the oil reservoirs, which whenever it is high compared to the external pressure, this helped the oil rush from its reservoirs easily through the production pipelines to the reservoirs. of assembling it.
    It is possible to use water or gas, but the Iraqi oil fields are not suitable for the use of gas for technical and economic reasons, according to what was monitored by the Energy Research Unit.
    Iraq has been suffering from a shortage of fresh water for years, with increasing rates of salinity and drought at an accelerating pace as a result of the rise in global temperatures.
    Iraq also complains about the lack of supplies coming from the Euphrates River, due to Turkey's expansion of plans for internal dams, which led to the outbreak of conflict between them several times over the past years.
    Project of transferring sea water to oil fields
    Iraq thought of transferring sea water to the oil fields in double quantities, to help it overcome the water obstacle and increase production above 5 million barrels per day, but the project has been suspended since its announcement in 2011.
    Ambiguity increased about the fate of the project, which costs approximately $27 billion, with the exit of the American company ExxonMobil from the sector in 2018.
    The French company Total Energy tried to revive the project, which was suspended in an initial agreement with the Iraqi government in September 2022, but it is still pending until now, amid disputes over the Iraqi government's share in the project, between 30% and 40%.
    Oil production in Iraq faces another dilemma represented by the political instability in the Kurdistan region, which has been controlled by a government that has been contesting the independence of the region since 2017.
    The dilemma of the Kurdistan region
    The Kurdistan region contributes 10% of oil production in Iraq, but it is one of the regions most at risk of supply disruption, due to the flaring disputes between the regional government and the federal government in Baghdad since the separate referendum that called for the independence of the semi-autonomous Kurdish region in late 2017.
    Tensions between the two governments led to a halt to the export of 400,000 barrels per day from northern Iraq to Turkey in late March 2023, after an international court ruling restricted the export of oil from the Kurdistan region with the approval of the federal government in Baghdad.
    This ruling raised the concerns of the international oil companies operating in the Kurdistan region, prompting them to consider withdrawing their investments from the region, in light of the ongoing uncertainty about the legal status of the region and its local and international repercussions.
    It is noteworthy that the Iraqi government has informed the Turkish authorities to resume export operations from the northern port through the port of Ceyhan, starting on May 13.
    This came after the conclusion of contracts with international companies for the sale and marketing of crude oil from the Turkish port of Ceyhan, after its approval by the Iraqi Oil Marketing Company "SOMO".
    Is the dream of peak productivity achieved?
    For these aforementioned factors, Iraq will face great challenges to achieve the dream of peak production, whether at the level of 7 and 8 million barrels per day, as the government desires, or at 11 million barrels per day, according to the promises of foreign companies in 2009.
    The government aims to increase oil production in Iraq to 8 million barrels per day by 2027, in preparation for achieving a greater production breakthrough by 2030, but the challenges surrounding the sector still threaten national ambitions.
    Iraq appears to be in urgent need of a project to transfer sea water to the oil fields, not only to increase its production, but also to maintain its current weak level of production, with the increase and recurrence of droughts, the aging of oil reserves, and the flight of international companies.
    The expected challenges are compounded by the high level of debt, weak foreign investments, and the inability to diversify the economy away from rentier sources, in addition to the expected economic pressures from the increase in population during the next decade.
    All of these factors will severely affect the ability of successive Iraqi governments to fulfill their domestic and international obligations, especially with oil companies that are relied upon to increase the country's revenues from the oil sector, which may make it difficult to dream of reaching peak productivity in the next decade.
    Source: Energy Research Unit - Ragab Ezz El-Din
     


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