Iraq’s way to rebuilding its oil industry is full of hurdles

Continuing the analysis from the presentations submitted at the Iraqi Forum for Intellectuals and Academics, held in Istanbul last May, we take up the state of the upstream oil and gas in the north and west of Iraq. This is based on what Sharif Mohsen Ali, former director-general of Internal Control and Auditing at Iraq’s Ministry of Oil said at the event.

The present violence situation in Iraq rendered large swaths outside of the control of the central government. This is reflected in the fact that the government in one way or another has lost control of the oil and gas fields, especially in the north and west.

The Kirkuk fields (Kirkuk, Jambour, Bai Hasan and Khabbaz) are now largely controlled by the Kurdish Peshmerga, the military arm of the KRG, as they took advantage of the fall of Mosul and the advance of the Daesh to occupy Kirkuk and its oilfields.

The same goes for the Nieneva fields (Ain Zala, Butmah and Sufaya) where the Peshmerga extended its reach west of the Tigris and is said to produce and export the oil by trucks. Daesh has since June last year been in control of Qaiyara field in Nieneva while the fields in Salah Al Deen (Allas and Ajeel) have been exchanging hands between the government and insurgents and rendered inoperative.

Even the fields under development by international oil companies have been affected badly. These include Qaiyara and Najma, awarded in 2009 to be developed to a combined capacity of 230,000 barrels a day. And the gasfields of Mansoriya in Diyala and Akkas in Anbar, awarded in 2010 to be developed to a combined capacity of 720 million cubic feet per day.

Due to the conflicts with KRG, the government could not even attract interest in six exploration blocks in these regions. The KRG even objected to technical studies of the Kirkuk field which the government wanted to conduct in association with BP. Therefore, apart from some production from the Baba dome of Kirkuk field and the nearby fields of Khabaz and Jumboor to supply a local refinery and power stations in addition to exports via the KRG new pipeline, there are hardly any activities worth following under the control of the government.

The latest agreement between the government and KRG — where 250,000 barrels a day from the KRG fields and 300,000 barrels a day from Kirkuk fields are exported by SOMO, the state oil marketing company — has been worked out too hastily. This allows the KRG to gain 17 per cent of the budget and the Peshmerga’s salaries and expenses even though the government cannot move a single platoon from that local army.

Although the agreement has some positive points for both sides, it is now under fire, especially by the KRG who are threatening to abandon it. The KRG still utilizes some 120,000 barrels a day locally for refining, and continue to export some oil and condensates by trucks outside of the agreement with the government.

Sharif Mohsen questions the disproportionate concentration by the government in the south and the scant treatment of the north, by awarding the most difficult to process — or sell — sour crude in the Qaiyara and Najma fields. At the same time, it has ignored Balad in Salah Al Deen province where nine wells were drilled. The political favoritism is obvious like in many other projects.

The infrastructural development in the north and west of Iraq is at standstill for the same reasons. The government cannot go ahead now in implementing agreements with Syria, Jordan and Turkey to either build new oil and gas pipelines or to rehabilitate existing lines. The problems between the central government and the KRG do not render themselves to easy solutions with views of both sides quite entrenched. The KRG signed about 58 contracts without any input or approval by the Ministry of Oil. Yet the greater majority of KRG production is from fields that were already discovered and drilled by the Ministry such as TaqTaq, Khormala, Tawke and Shaikhan.

The companies operating in the region are suffering due to a lack of liquidity and some of them are slowing down or selling assets and some have lost a lot in share price. Sharif Mohsen is upbeat on the prospect in the western desert of Iraq where research — including by the US Geological Survey and IHS Energy — has given favorable estimates of potential oil and gas reserves. However, developments there will have to wait for better times to come.

In conclusion, he called for an integrated approach to the planning and execution of oil and gas development away from any regional favoritism. He also called for the Ministry to act responsibly, professionally and in the service of all Iraqis.