How Much Oil Will Iraq Produce?

If the purpose of invading Iraq was about oil, the results have been disappointing. Although Iraq has had a few good quarters in the last two or three years, they have not been able to put together a year of production equal to pre-invasion levels. And it's been three decades since Iraq reached it maximum output. Wars, corruption and incompetence share blame for Iraq's poor performance.

Of course the oil is still sitting in the ground. Everyone agrees there is still a sizable reserve. Here's the latest concerning Iraqi oil:

Head of Iraq's State Oil Marketing Organization, Falah Alamri, said that the country plans to start crude oil shipping operations in March and prepares to export larger volumes of crude in the future, Reuter reported.

Another site carries the same Reuters story. They have a picture that may or not be contemporary and yet it seems to fit what I know of Iraq's petroleum industry for the last thirty years.

It's hard not to be skeptical. Stuart Staniford has a post in The Oil Drum that's also skeptical but he explores the possibility of Iraqi oil production rising from a little more than 2 million barrels/day in 2009 to 12 million barrels/day by 2017. Here's an excerpt from Staniford's post:

At this stage, it seems too soon to say the Iraqis definitely will succeed. But the scenario that they might seems worth serious consideration.

(snip)

There doesn't seem to be too much dispute that Iraq has enough reserves to support far higher production than has actually occurred in the past.

(snip)

Iraq held two rounds of auctions for oilfield management contracts in 2009 that the large international oil companies have responded to. The first round, in June, were for fields that were already in production and set up contracts in which companies get paid a fee per barrel for all production over the existing level. The second round, last month, were for fields not yet on stream. The Iraqis seem to have driven hard bargains - the oil companies are being paid a flat fee per barrel that is generally under $2/barrel in the safer parts of the country, and thus will not benefit from high oil prices - all price risk/reward remains with the Iraqis. Nonetheless they were able to attract some bids from large competent oil companies with a track record - the likes of Shell, Exxon, Statoil, and Lukoil, and have been signing preliminary contracts with them. According to the oil ministry, the total contracts awarded amount to 12mbd of production, and this could be achieved within six years.

Staniford always has good graphs. Below is just one of the them:



It's simply not possible these days to post such a story without checking to see if the Chinese are paying attention. They are:

Iraq's oil exports amounted to 1.97 million barrels a day in December 2009, an increase of 950,000 barrels over November, the preceding month, according to latest statistics from the Iraqi Ministry of Oil. And a significant change in the volume of exports fully reflects the rapidly-rising momentum from an aspect of current oil production in the country.

In line with requirements for its government to sign a contract with foreign energy firms, Iraq would increase its crude oil to 12 million barrels a day from the current 2.5 million barrels in the next six years; at the same time, its gas production would increase to 144 million cubic meters from the present 48 million cubic meters. Representatives of some OPEC member nations, however, regard that Iraq’s practice for a large-scale increase of oil production is inconsistent with the OPEC’s current strategy for "limited production and oil price protection", and this could cause volatility on the future global oil market.

Admittedly, the article doesn't say all that much, but it's in the opinion section of the People' Daily Online. That means it's news China wants to be noticed. Despite the optimism of Iraq's oil sector, China and Stuart Staniford agree: there may be increased production from Iraq but we're also likely to see increased volatility in the world's oil markets.

In the long run, a plug-in or hybrid car not only sounds like a bargain but may also offer peace of mind.