Iraq’s output growth limited by low oil prices

Still suffering damages due to US invasion, Iraq’s new problem is fighting against ISIS. The country has been trying to rejuvenate its economy through ambitious oil export plans, with the help of energy giants, like Britain’s BP and Russia’s state-owned Lukoil. Recent terror activities of ISIS in Iraq have made it difficult to attract international oil companies to help it produce its most valuable commodity.
Michael Townshend, BP’s regional president for the Middle East, says that his company’s plan to achieve its production goals, which relies on Iraqi government’s approval. Likewise, Gati Al-Jebouri, the senior vice president of Lukoil Overseas, expects a “significant reduction” in Iraq’s production growth in 2016 and 2017 because of the low price of oil.
Further hindering the Iraqi government is its battle with the Islamic militants of ISIS, also called ISIL, who have seized parts of the country, with special attention often given to lucrative oil fields.
OPEC’s second largest producer after Saudi Arabia, Iraq produced about 2.4 million barrels of oil per day by the end of 2010 and 3.34 million barrels per day last month, according to Iraq’s state-run Oil Marketing Co. By 2018, Iraq wants to increase its output to 6 million barrels per day by 2018. The problem is whether Baghdad can afford to pay the oil companies needed to pump the oil.
Townshend, who with al-Jebouri spoke at the Middle East Petroleum & Gas Conference in Abu Dhabi on Monday, said these companies are studying their contracts with the Iraqi government to make sure they will be paid. Even that review “will lead to postponement in production growth,” Al-Jebouri said.
Due to snags in developing oil blends, production of oil in Iraq has also come down. Lukoil hopes to increase output at the West Qurna-2 oilfield in southern Iraq, which produces heavy oil.
Iraq’s chief oil export is Basrah Light; a crude blended from both heavy and light oils. Lukoil, which owns 75 percent of West Qurna-2, wants to include crude from that well in the blend, which would make it too heavy.
The addition of West Qurna-2 oil “is making the overall blend a little bit heavier,” Al-Jebouri said.
He added, “As a result, to maintain the stability of the export blend, at the moment they are curtailing production at a number of fields, not only West Qurna-2.”
Somo, Iraq’s state oil-marketing office, is addressing the problem, temporarily at least, by promoting Basra Heavy, a new blend, along with its traditional Basra Light crude.
And yet, although industry sources and loading data show that Iraqi oil exports have declined in April to 2.92 million barrels per day, the output remains steady despite the decline in oil prices and the threat from ISIS.
The industry sources data also reveals that by April 30 exports will be close to the record 2.98 million barrels of oil per day set only last month.
Accepting the fact that Iraqi export is down in the month of April, Industry sources said that export is still pretty impressive.