Iraq boosts oil plan but faces problems

Sept. 17, 2010 at 12:08 PM
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BAGHDAD, Sept. 17 (UPI) -- Iraq plans to upgrade its oil pipeline network to boost exports through neighboring Turkey and Syria as Baghdad struggles to develop its vast but under-exploited energy resources, the key to its reconstruction.

The country faces serious obstacles -- sectarian violence, political instability and deep-rooted corruption -- that are likely to get worse in the years to come as the United States withdraws its forces and leaves Iraqis to make their own way.

But, as the Financial Times observed this week, "What is less obvious is that beneath the unsettled surface, Iraq is an economic giant, slowly but surely awakening after a 30-year slumber."

Oil is what will make things happen.

Iraq has proven reserves of 115 billion barrels, the third largest reserves of conventional oil after Saudi Arabia and Iran, and possibly as much again in untapped fields.

But it's pumping less crude than it did under the late Saddam Hussein -- around 2.4 million barrels per day.

Iraq's energetic oil minister, Hussein al-Shahristani, aims to quadruple oil production to 10 million-12 million barrels a day within seven years, an objective many industry analysts believe is way too ambitious.

But the former nuclear physicist is unfazed. He's to sign an agreement with Turkey Sunday to extend the operation of the 600-mile twin pipelines that carry 450,000 barrels of oil a day -- one-fifth of Iraq's oil exports -- from the Kirkuk fields in northern Iraq to Turkey's loading terminal at Ceyhan on the eastern Mediterranean.

The pipelines have a total capacity of 1.65 million barrels a day.

The new agreement will extend the pipeline operation, commissioned in the 1980s, for another 15-20 years. Increased attacks on the pipeline in recent months underline the constant threat to the oil industry.

Meantime, the ministry recently signed agreements with Syria to construct as many as three new 500-mile-long cross-border pipelines to restore a long-abandoned export oil and gas outlet to Europe and the United States.

Abdul Karim al-Luaybi, al-Shahristani's deputy for upstream operations, said the pipelines, with a projected capacity of 2.5 million bpd, would run from Kirkuk to the Syrian port of Banias on the Mediterranean.

If completed, they would be able to pump up to 52 percent more crude than the Kirkuk-Ceyhan pipeline.

Two-thirds of Iraq's known oil reserves are in the south. Exports from there are shipped south through the Persian Gulf eastward to the burgeoning Asian market.

U.S. Defense Secretary Robert Gates observed Aug. 12 that within a decade Iraq could be one of the world's top oil producers and fabulously wealthy at a time when other producers will be watching their reserves shrink with no new fields to tap.

"It will change the entire equation in the Middle East," he said, providing its leaders manage to restore political stability in a country where sectarian hatreds are deep.

"That's the optimistic scenario," Gates cautioned. "There are all kinds of more pessimistic scenarios."

Half a year after stalemated parliamentary elections, Iraq's fractious politicians have failed to produce a workable coalition government capable of leading the splintered nation into a new era of peace and prosperity.

Even when the country had a reasonably functioning government, it was unable to overcome sectarian and regional rivalries in parliament to produce an oil law to regulate the industry and ensure revenue-sharing.

Without such legislation, the development of the oil industry will be severely hampered, and that could impede the involvement of foreign oil companies prepared to invest billions of dollars to get in one what may be the last big oil boom on the plant.

A stable government with functioning state institutions, capable of containing the multiple militias and armed groups, is vital if Iraq is to realize its potential -- and to fend off possible power grabs by its neighbors, Iran, Saudi Arabia, Syria and Turkey.

The award of a dozen 20-year production contracts to major foreign consortia that include Royal Dutch Shell, Exxon Mobil, Eni Spa of Italy, BP, Total of France, Lukoil of Russia and the China National offshore Oil Corp., to develop 10 of Iraq's largest "super-giant" fields should get the ball rolling.

More contracts are expected in the months ahead for lesser oil zones as well as natural gas fields. So lots more investment could be on the way.

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