Deadlines have come and gone. The Iraqi oil draft remains deadlocked, stalled by the bitter row between Baghdad and the largely autonomous Kurdistan region in the north. Stakes are indeed high, with politics continuing to cloud the situation. Who ultimately controls the oil fields and how revenues are shared are issues getting more and more contentious with each passing day.
The Kurdistan regional government has signed oil deals with foreign companies, insisting it has the constitutional right to do so. The Oil Ministry in Baghdad is infuriated at this move, not ready to honor these agreements. So the stalemate continues.
Baghdad has already announced it would halt oil exports to South Korea’s largest refiner, SK Energy, and Austria’s OMV AG in response to what it says are illegal exploration deals with the Kurdish regional government.
And, lest we forget: Iraqi energy infrastructure still needs billions of dollars of foreign investment.
According to one estimate, even to provide a jumpstart to the oil industry, Baghdad needs as much as $75 billion. The entire infrastructure is in a dilapidated state and the entire sector is in need of urgent development work.
Hence there are people within the energy fraternity who strongly feel that the Iraq oil draft needs to get ratified as urgently as possible.
However, there is no dearth of skeptics. This lack of confidence and mutual trust is making the passage of the oil draft through Parliament contentious. There are indeed a number of “ifs”, “ands” and “buts” to the entire scheme.
Iraq’s proven oil reserves are smaller than those of Saudi Arabia and Iran and Iraq both have barely explored 30 percent of their potentials. Experts believe that Iraq’s actual oil reserves could well turn out to be at least double the current proven oil reserves of 115 billion barrels. In fact, in view of the geography, some feel Iraq may host the largest untapped reserves in the world. It could be the next frontier. Achieving 10 million barrels a day production may not be too out of line, some pundits, including Fadhil Chalabi, the former Iraqi oil minister, believe this strongly.
Much of Iraq’s current reserves are reported to be in the south, but there are also fields in the Kurdish north. There are few proven reserves in central and western Iraq, too.
In view of the likelihood that Iraq’s reserves may turn out to be exponentially higher than the current estimations and simulations, based on old-style seismic surveys, it is no surprise that Iraq today is a major battleground. International oil firms have been positioning for years to gain access to what could easily be termed as one of the most under-developed and easily accessible oilfields in the world. Now they see it happening just round the corner.
Iraq is blessed in certain other ways, too. Apart from the proven and probable oil and gas reserves, the cost of oil production in Iraq, at $1 to $2 per barrel, is also very low - among the lowest in the industry.
Second, the oil fields are dispersed evenly across the country. Third, Iraq’s location itself is a boon. Unlike, say, the Caspian, Siberia or the Arctic, it is easy to develop oil export routes out of Iraq heading in several directions simultaneously: the Gulf, Saudi Arabia, Kuwait, Jordan, Syria and Turkey. All this means that rapid expansion of Iraq’s oil production and the arrival of substantial amounts of Iraqi oil - exceeding 10 million b/d - in the international market is an attainable objective.
And as things stand today, the US-backed government in Baghdad seems to be in a move, despite the absence of the draft. It has opted for ways to open the door to foreign oil firms by offering them a role in servicing existing oil infrastructure and negotiate contracts for Iraq’s “super giants.” This is making the critics of the draft still more edgy, somewhat skeptic.
In the idiom of Big Oil, “super giants” are fields with at least five billion barrels of oil in reserve. Iraq’s super giants are Kirkuk (in Kurdistan), Majnoon (bordering Iran), Rumaila North and South (in the south), West Qurna (west of Basra) and Zubair (in the southeast) fields, and, possibly, the Nahr Umr and East Baghdad fields. In addition, Iraq is estimated to have 22 “giant” fields, each having more than 1 billion barrels of oil.
Hence the interests of global oil majors in these fields can not be overly emphasized. Over 70 international companies have expressed the desire and submitted documents so as to qualify for and compete for the service contract.
Iraqi Oil Minister Hussain Al-Shahristani, often dubbed as the darling of the Western media these days - and indeed with reasons - told Argus Media that these service contracts will “help Iraq fast-track the purchase of necessary equipment and train Iraqi people to install them.” These companies would be favored in a bidding round for longer-term contracts on the Iraqi oil fields set for later this year. Another bidding round is expected to take place next year.
The Times of London reported that ExxonMobil, Chevron, ConocoPhillips and Shell have been targeted by the Iraqi Oil Ministry for awarding the service contracts (known as “technical support agreements” or TSAs). The report said that in exchange for the oil, these four oil companies would direct training of Iraqi workers and equipment to Iraq’s largest oil and gas fields. The Middle East Economic Survey has quoted Shahristani as saying that the service contracts will be signed “within a few weeks.” The general expectation is that the TSAs will be signed during the third round of discussions due in March.
Ben Lando, United Press International’s energy editor summarized the rush to Iraq in the following terms: “Big Oil’s big dreams are close to coming true ... According to insiders, Shell, which produced a technical study of Kirkuk in 2005, wants a deal for the field. BP wants one for Rumaila, which it studied last year. Shell and BHP Billiton are angling for the Missan field in the south. ExxonMobil is interested in the southern Zubair field while the Sabha and Luhais fields are being targeted by Dome and Anadarko Petroleum. ConocoPhillips is talking with the [Iraqi] ministry about the West Qurna oil field ... Chevron and Total have teamed up in a bid for the Majnoon field.”
Indeed the oil rich plateau Iraq is up for grabs. If it was not driven home in March 2003, then Alan Greenspan also underlined that too recently. The leaders of Iraq thus have an ominous responsibility of protecting Iraq, Iraqis and their assets and ensure growth too.
Only time could tell to what extent they succeed. This entire oil rich region is keeping a close eye on the next moves of Shahristani and his team.