Despite wars, political instability, crises and internal conflicts, Iraq is the second largest producer of crude oil in the Organization of the Petroleum Exporting Countries (OPEC), always covered by the long shadow of Saudi Arabia, the largest exporter. (not producer) of crude oil in the world. Iraq has the fifth largest proven crude oil reserves in the world, with 145 billion barrels, representing 17% of the Middle East’s proven reserves and 8% of global reserves. according to the US Energy Information Agency (EIA for its acronym in English). And that’s just the proven reserves, because it is believed that the country may still have regions with unexplored areas after years of conflict, which could hold large quantities of crude oil. Imagine that this country achieves some stability, opens its doors to foreign investment for exploration, and begins to consume more oil domestically in order to export more. The result could be a production boom unprecedented in the country’s history. This is Iraq’s plan to almost double its production in two years.
Iraq’s crude oil production has skyrocketed in a few years, but it still has a lot of potential. From the US Energy Information Agency they explain that Iraq produced less than 3 million barrels per day (b/d) until 2014. However, in 2019 it was already averaging 4.7 million b/d in 2019, its maximum. historical. In 2020, Iraq’s crude oil production fell to less than 4.1 million b/d. 3 Iraq voluntarily reduced crude oil production in the second quarter of 2020 to comply with the OPEC+ agreement for cuts. Since then, OPEC has failed to reverse the cuts in a prolonged and constant manner over time, so Iraq has not been able to produce at its maximum capacity or take advantage of its oil reserves. Now that OPEC’s cuts are slowly beginning to be undone and the drums of war do not stop sounding within the cartel (no one trusts anyone), Iraq wants to be prepared to flood the oil market.
The country’s production potential has not been fully exploited due to several challenges, such as continuous wars and internal insurrections, very limited infrastructure or lack of investment in advanced technology. The Government wants to remedy this situation and has gotten to work. In the medium term, Iraq has ambitious expansion plans. The Iraqi government has set a goal of increasing its production capacity to 7 million barrels per day by 2027.an amount that almost doubles the 4 million barrels it currently produces (a kind of oil dream). The projected increase will depend on the implementation of new exploration contracts, the recovery of old underutilized fields and the modernization of export infrastructure, particularly in southern regions such as Basra.
Undiscovered oil
In addition to proven reserves, Experts estimate Iraq could hold significant additional reserves not yet explored, especially in less accessible regions and in which the big oil companies have not yet begun to ‘dig’. This potential untapped reserve could add billions of barrels to existing reserves, positioning Iraq as a key long-term producer in the global energy market. The exploration of areas such as Block 7 and others in the center and south of the country is part of this strategy to discover new reserves and increase energy self-sufficiency.
Some important players appear here, such as companies from China or Russia, which are occupying the ground that American companies once occupied. For example, the Chinese energy giant CNOOC signed a development and production contract (EDPC) with the oil company a few months ago Iraqi state-owned Midland Oil Company to search for oil and gas at Block 7 field in Middle Eastern nation. CNOOC Africa Holding, the wholly-owned unit of the Chinese state oil and gas company, will hold 100% of the interests and act as operator of the 6,300 square kilometer Block 7, located in the Diwaniyah province of central Iraq , as reported by the Reuters agency.
Although the information about the estimated crude oil reserves of that block is still confidential (if CNOOC has any estimate) and not very exact, the Chinese firm has shown its enthusiasm and joy with the granting of this license, which suggests the possible potential of this ‘chunk’ of land. Executives at the Chinese firm have admitted that the goal is for a major oil find to be made as drilling and research progresses.
Another good example is that of the Russian company Lukoil, which at the end of 2023 took over the Eridu field, which could have crude oil reserves exceeding 10 billion barrels. The field has become one of the largest oil discoveries in Iraq in the last 20 years, Lukoil claimed at the time. Iraq’s Oil Ministry approved the sale of Japanese oil major Inpex Corporation’s 40% stake in the Block 10 region of this field containing the vast Eridu oil fields in the southern part of Iraq, clearing the way for the Russian Lukoil to take full control of the entire oil-rich area.
In the relative absence of American interest, Iraq has sought investment in China. China is already a key customer of Iraqi crude, of which it imports about 1.18 million b/d, or about 35% of the country’s production, and has considered closer ties with Baghdad to share technology and investments. According to S&P Global analysis, Chinese companies own 7.27% of all shares in oil exploitation projects and gas in Iraq, both current and future. American companies, for their part, own just 1.82% of the shares of Iraqi projects.
The reopening of unused deposits
Another leg of the strategy is the better use of deposits that are already operating, but that need better maintenance and investment, but also the total reopening of oil fields that have been forgotten in the course of the different wars that the country has suffered (wars against Iran, the US, the Islamic State…). For example, BP is partnering with the government of Iraq to rehabilitate and develop four oil and gas fields in the northern Kirkuk region. The two sides signed a preliminary agreement in August to begin work.
This agreement is the reactivation of another signed in 2013 to the development of the gigantic Kirkuk fieldwhich is estimated to contain about nine billion barrels of recoverable crude oil. However, that agreement was put on hold a year later, amid the advance of the Islamic State in the Middle East. In a press release about the deal, BP said it would involve “the rehabilitation of existing facilities, where necessary, and the construction of new facilities, including gas expansion projects, along with a drilling program in the Kirkuk fields.” , has the potential to stabilize production and reverse the decline, returning production from this important oil field to a growth path.”
In the last decade, oil operations in Kirkuk have not achieved the necessary investment or fluidity because of disputes between the central government in Baghdad, the Kurdish regional government and the Islamic State over control of the oil fields and the revenues derived from them. of them. After the war against the Islamic State, the autonomous Kurdistan region claimed ownership of the Kirkuk field, calling into question the agreement BP had with the Iraqi central government. However, little by little it seems that stability and agreements are beginning to prevail, which could encourage greater investment to unlock those 9 billion barrels of oil. There are big plans for Iraq’s oil.
Lower domestic consumption to export more
Finally, Iraq wants to use more gas to generate electricity and less oil. With this strategy you will be able to export more crude oil in the future. Iraq’s power grid has been under strain in recent years due to a variety of factors. Power plants have struggled to meet rising summer demand, even with electricity imports from neighboring countries. The objective is to make better use of the gas that is currently wasted in Iraq’s fields. On the other hand, Baghdad has renewed and expanded an agreement under which Iraq receives Iranian gas. Now, the contract has been extended for five years, starting from March 2024, meaning that domestic generation and new imports from other sources can be used to fill the gap with demand and reduce oil consumption. Burning oil to produce electricity is an ‘economic waste’ that is also very polluting. Import ‘cheap’ gas from Iran to sell more of its own, much more expensive oil.
The country now burns on average about 150,000 barrels of crude oil each day and about 360,000 barrels of fuel oil (also made from petroleum), but began reducing crude oil used in power generation in May. Furthermore, with technological support from the United States, Iraq intends to capture the gas associated with its large fields, which is currently burned in oil fields, for energy generation. Besides, TotalEnergies is working on projects to develop new gas and solar energy resources within the country.
“We estimate that these changes will result in a reduction of 120,000 barrels in direct burning of crude oil by 2030. These changes would be enough for oil demand from Saudi Arabia and Iraq to peak in the middle of this decade, comfortably ahead of global demand as a whole,” the IEA explains.
The dream of 7 million
Yet, Iraq aims to reach 7 million barrels per day of production in 2027 or at least reach that potentialthat is, having the capacity to produce 7 million barrels, although later the actual production will adapt to the needs of OPEC and the market itself. This is key because the quotas established by OPEC are established based on the production capacity of each country, so a greater production capacity allows for a larger quota in absolute terms, which also means more income. However, the future development of the Iraqi oil industry is subject to various challenges, such as the need to improve its infrastructure network, reduce associated gas flaring, and better manage geopolitical tensions and internal disputes over oil revenues.
Another important obstacle has recently appeared where no one expected it. Bob McNally, who runs the Washington-based consulting firm Rapidan Energy, has admitted that the Trump administration could impose measures restricting Iraq’s crude oil exports because of the growing power of Shiites in the country. Iraq is divided between Shiites (the majority branch of Islam in Iran) and Sunnis (the majority branch of Islam in general and which dominates countries such as Saudi Arabia). At this time, the Shiites are gaining power in the country, which brings Iraq closer to its neighbor Iran, with a very clear Shiite majority.
McNally, a former senior energy director at the U.S. National Security Council during the Bush administration, says he has been advising clients since the spring “that a Trump 2.0 administration would put Iraq’s increasingly pro-Iran government in the crosshairs of sanctions, although not necessarily export restrictions,” as reported to S&P Global. This could become an obstacle for Iraq.
However, if Iraq can overcome these obstacles, it could prolong the useful life of its reserves and guarantee stable production for decades to come, industry sources say.
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