Outlook for Iraqi Crude Oil Production and Exports
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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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