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Iraq sticks with lofty oil plan -- for now

May 20, 2011 at 12:51 PM   |   Comments

BAGHDAD, May 20 (UPI) -- Iraq's energy chiefs are sticking to their ambitious plans to increase oil production five-fold to 12 million barrels per day by 2017 despite warnings by oil companies and industry pundits that a woeful lack of infrastructure makes it all a pipedream.

However, according to the Financial Times and oil industry sources, senior Iraqi officials are now talking about lower target figures.

There have been no official pronouncements on this, and may not be for some time.

But the officials of international oil companies who were brought in to make it all happen say they're convinced the grandiose goals set by former Oil Minister Hussain al-Shahristani are unreachable.

They say the Iraqis are beginning to realize this and will soon scale back their targets to more realistic levels, such as 6 million to 6.5 million bpd by 2017.

For the Iraqis, the production blueprint, which if achieved would turn the global oil industry on its head, is the core of their national reconstruction drive after decades of tyranny, wars, insurgencies, international sanctions and abject neglect.

"I think the Ministry of Oil would not disagree with a ramp-up in production toward 5 million-6 million bpd by 2015 or so," Gati al-Jebouri, head of Russia's Lukoil in the Middle East, told the Financial Times.

As industry analysts see it, the key obstacle is that Iraq does not have -- for now at least -- the export infrastructure to accommodate those production targets if they could be achieved.

Iraq also does not have the water supply to pump vast amounts of water into underground oil reservoirs to pressure the crude to the surface, and is not likely to for many years.

Still, Iraq's oil production has increased in recent months, largely due to international oil companies such as BP, Exxon Mobil of the United States, Royal Dutch Shell and Italy's Eni, boosting output at some of the country's super fields using advanced technology.

Output hit 2.68 million bpd in April, an increase of 350,000 bpd, or 15 percent, in six months, according to the International Energy Agency in Paris.

That's the highest production level in a decade, and oil executives believe Iraq can sustain that.

The IEA believes Iraq can add another 1 million bpd to push production to about 3.7 million bpd and sustain that level.

That would surpass its traditional rival and neighbor, Iran, and make Iraq the second-biggest producer within the Organization of Petroleum Exporting Countries after Saudi Arabia.

The U.S. Department of Energy noted recently Iraq faces "many challenges" in achieving the production targets it has set, largely because of the "lack of an outlet for significant increases in crude oil production."

It said exports were running at near full capacity in southern Iraq, where two-thirds of the country's reserves are located, while exports in the northern Kirkuk oil fields have been restricted by attacks on oil facilities, mainly twin pipelines running to Turkey's Mediterranean terminal at Ceyhan.

Shahristani, the architect of the grandiose plans for Iraq's oil future, declared Saturday oil production will reach 3 million barrels by the end of 2011, 3.3 million bpd by 2012 and 6.5 million bpd by 2014.

Shahristani, currently deputy prime minister for energy, insisted Iraq will push production up five-fold in the next few years despite International Monetary Fund predictions it could not be done.

An IMF report in March cited the need for vast investment in port facilities, pipelines, desalination plants -- to produce the water for injecting into oil fields -- and storage facilities.

More than half Iraq's exports run through its long-neglected, war-battered southern ports. It has only one deepwater port, Umm Qasr on the Persian Gulf, capable of handling supertankers.

Shahristani said May 14 Baghdad believes the goal of "12.5 million bpd … is realistic and feasible, as currently there are no signs we will not be able to achieve this goal in a timely manner."

But despite such optimistic assessments, Lukoil's al-Jebouri said he expects the government at some point to propose a lower production target to the international companies who get a flat fee for every barrel they produce under 20-year production contracts signed in 2008 and 2009.

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