Outlook for Iraqi Crude Oil Production and Exports

January 5, 2018 | Author: Anonymous | Category: Business, Economics
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Outlook for Iraqi Crude Oil Production and Exports Muayyad Al-Chalabi Axelrod Energy Projects LLC Columbia University School of International and Public Affairs December 3, 2012 Axelrod Energy Projects LLC

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Overview • • • • •

Brief history of the Iraqi oil sector Iraqi reserves Development contracts Infrastructure development Challenges – Internal – External

• Conclusion Axelrod Energy Projects LLC

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Brief history of Iraqi oil sector • 1912: Establishment of the Turkish Petroleum Company to negotiate an oil concession from the Ottoman Empire • 1920: TPC receives concession from the British Mandate in Iraq. • 1927: Oil struck near Baba Gurgur. Broad international participation in the TPC. – 75 year term for exploration rights – Iraqi government would receive royalties on production, but royalties contingent on oil company profits, and not payable for the first 20 years

• 1930: 70-year concession negotiated by the Iraq Petroleum Company (IPC) • 1932: British mandate ends, but Hashemite monarchy maintains a pro-western stance. Axelrod Energy Projects LLC

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Brief history (continued) • 1951: Mossaddegh nationalizes oil operations in Iran. British led embargo on Iranian oil. Mossadegh overthrown in 1953. • 1958: Hashemite Kingdom overthrown by Abd al-Karim Qasim • 1959: Qasim withdraws Iraq from Baghdad Pact • 1960: Iraq helps found OPEC. Qasim threatens legislation to revoke a large portion of the concession granted to the IPC. • 1963: Qasim ousted in Ramadan Revolution. • 1968: Ba’ath Party rises to power. • 1972: IPC nationalized Axelrod Energy Projects LLC

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Brief history (continued) • 1979: Saddam Hussein assumes presidency • 1980–1988: Iran-Iraq War • 1990–1991: Gulf War I. – 1990–2003: Sanctions on Iraq. No-fly zones enforced. – 1995–2003: UN Oil-for-Food Program

• 2003–2011: Gulf War II – 2007: The military surge Axelrod Energy Projects LLC

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0

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The "Surge" (2007) IOC reentry (2008)

Gulf War II (2003)

Oil-for-Food Program (1996)

Invasion of Kuwait (1990) Gulf War I (1991)

Iran-Iraq War ends (1988)

Saddam Hussein (1979) Iran-Iraq War (1980)

IPC nationalized (1972)

Ba'ath Party (1968)

Ramadan Revolution (1963)

OPEC formed (1960)

Qasim Coup (1958)

Iraq oil production (1958-2012, kb/d)

4000

3500

3000

2500

2000

1500

1000

500

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Iraq proven oil reserves Iraq Historical Proven Reserves (billion barrels) 160

Oil Reserves in the ME by Country (million barrels) Country

2012

140

Saudi Arabia

264,520

120

Iran

151,170

100

Iraq

143,100

80

Kuwait

101,500

60

UAE

97,800

40

Qatar

25,380

Oman

5,500

Syria

2,500

Yemen

3,000

20

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

0

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Iraqi oil fields Fields

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Region

Reserves (bbl)

West Qurna

South

43.0

Rumaila

South

17.0

Majnoon

South

12.6

Kirkuk

North

8.6

East Baghdad

Middle

8.1

Halfaya

South

4.1

Zubair

South

4.0

Missan

Middle

2.5

Bai Hassan

North

2.3

Najmah

North

0.9

Gharaf

Middle

0.9

Qayarah

North

0.8

Other

38.2

Total

143.0

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Oil Development Contracts • Iraq model contract Type

Ownership of Extraction Rights

Ownership of Production

Concession

IOC

IOC

Joint Venture

Shared

Shared

Production Sharing

State

Shared

Services Contract

State

State

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– 20 year service agreement – Government has 25% stake in operating company, IOCs have remaining 75% stake – Government pays the operating company a fixed fee of ~$2 per barrel for oil produced. – IOC not granted exclusive rights to either exploration or production www.axelrodenergyprojects.com

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Iraq oil development contracts First Round (2009)

Second Round (2010)

Field

Region

IOC

Rumaila

South

BP, CNPC

1,750

West Quarna

South

EM, Shell

Zubair

South

Misan

South

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PPT (kb/d)

Field

Region

IOC

Majnoon

South

600

Halfaya

South

ENI, Occidental, Kogas

400

Qaiyarah

North

Shell, Petronas CNPC, Total, Petronas, Sonangol

South

CNOOC

275

West Qurna (II) Garraf Badra

East

Najmah

North

South

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Lukoil, Statoil Petronas, Japex Gazprom, Kogas, Petronas, TPAO Sonangol

PPT (kb/d) 1,800 535 120 1,800 230 170

110 11

Infrastructure expansion • Pipeline overhaul and construction – Construction of new on-shore pipelines (6,000 km) – Construction of new off-shore pipelines (300 km)

• Oil storage expansion – Final storage capacity of 60 million barrels – Add 20 million barrels to existing facilities – Build new tank farms with 30 million barrels

• Common seawater supply facility (12-15 mb/d) Axelrod Energy Projects LLC

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Pipeline infrastructure

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Loading terminal infrastructure • Loading terminal expansion – Final capacity of 4.8 mb/d – Expand existing loading terminals with an additional capacity of 1.6 mb/d – Construct 4 new single point moorings (SPMs) with a total capacity of 3.2 mb/d

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Iraq crude oil production • In July 2012, Iraq becomes second largest producer of oil in OPEC at 3 mb/d • Robust production growth since 2007 – Improved security environment since 2007 – IOC investments since 2009

• Iraqi government officially projecting 12 mb/d by 2017. – By comparison, Saudi Arabia’s total production capacity is 12 mb/d, with actual production between 8-10 mb/d. – Production targets written into contracts with IOCs total 8.8 mb/d. Axelrod Energy Projects LLC

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Iraq oil production and exports Iraq oil production and exports (kb/d)

– Small domestic refining capacity – No new domestic refining capacity expected until 2019 – Small domestic power generation demand

• Any additional crude production to be exported

3,500 3,000

2,500 2,000 Exports

1,500 1,000 500

Domestic Use

0

Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12

• Robust production growth • Domestic demand

Consumption

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Production

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Internal challenges KRG territory • Lack of a comprehensive hydrocarbon law • Dispute with the Kurdistan Regional Government – KRG has its own hydrocarbon law, and has negotiated independent contracts with IOCs on that basis

• Baghdad has banned IOCs doing business with the KRG from bidding on any future contracts

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External challenges • OPEC production quotas – Iraq exempt since 1998 – Iraq’s production quota has been absorbed by Saudi Arabia, the UAE, Venezuela, and others – Iraq set to reenter the production quota system in 2014. – Conflicting interests • Need to maintain prices (total production quota cannot rise significantly). Iraq needs $90 per barrel crude in order to meet budgetary requirements. • Need to carve out a space for Iraq in the production quota system Axelrod Energy Projects LLC

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External challenges • Historical rivalry with Iran – Growth in Iraq oil exports has gone to fill the gap left by sanctions on Iran – Iran is currently the number two country (both in terms of reserves and production quota) in OPEC – Traditionally, Iran has maintained parity with Iraq in OPEC. – Currently cooperative relationship with Iran may deteriorate rapidly if Iraqi production and exports grow rapidly – Iran has effective control over the Straight of Hormuz

• Security of pipeline routes to the Mediterranean – Kirkuk-Ceyhan pipeline is frequent target for Kurdish separatists. – Pipeline to Syria will not materialize in the short run – Pipeline through Jordan makes no strategic difference.

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External challenges • Softening demand – Slow growth in European markets – Slowing growth in Asian markets

• Rising supply in North America • Shale oil backing out imported conventional oil • North America moving towards energy independence

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