Wednesday, June 25, 2014

The Significance of Iraq's Oil Production

With ISIS overrunning key parts of Iraq including attacks on the 310,000 barrel per day Baiji oil refinery which happens to be Iraq's largest, we've already seen the impact of the conflict on the world's oil prices as shown on this chart:

How much oil does Iraq have and how significant is it to the world's energy markets now and in the future?

According to OPEC's Annual Statistical Bulletin from 2013, of OPEC's twelve member states, Iraq has the fourth largest proven oil reserves after Venezuela, Saudi Arabia and Iran at 140.3 billion barrels.  Overall, Iraq has the world's fifth largest proven crude oil reserves in the world.  By way of comparison, in 2012, the United States had 23.267 million barrels of proven oil reserves and Canada had 4.9 billion barrels of proven oil reserves.  Here is a graph from the U.S. Energy Information Administration showing how Iraq's proven oil reserves have risen since 1980:

It is interesting to note that Iraq's reserves have only risen by 25 billion barrels since hostilities broke out in 2003.   

In 2012, Iraq exported $94.03 million worth of petroleum, up from only $39.3 million in 2009.  This represents nearly 100 percent of the value of Iraq's total exports.  In 2012, there were 228 wells completed in Iraq, up from 76 in 2011, the largest increase among all twelve OPEC members.  This brought Iraq's total number of oil producing wells to 1700 compared to 3407 in Saudi Arabia and 14,959 in Venezuela.  As an aside, in 2012, Iraq also had 3.158 billion cubic metres of proven natural gas reserves, about one-third of the total proven natural gas reserves in the United States and twice the proven natural gas reserves in Canada.

Here is a graph showing daily oil production in Iraq since 1980 (in thousands of barrels per day):

Daily oil production in 2013 was at the highest level ever, hitting 3.054 million BOPD, up from 2.983 million BOPD in 2012 and more than double the 1.308 million BOPD seen in 2003 as Operation Iraqi Freedom broke out.

Here is a graph showing domestic consumption of oil in Iraq:

Domestic consumption has risen sharply since 2003, rising from 457,000 BOPD in 2003 to 751,000 BOPD in 2012.  Despite the increase in domestic oil consumption, Iraq was the sixth largest net exporter of petroleum liquids in the world in 2012.  Here is a graph showing how net exports have risen since 2003 despite the growth in domestic oil consumption:

The presence of hydrocarbons in Iraq was first noted by geologists who mapped the structures of the Zagros Mountains and foothills along the boundary between Iran and Iraq.  Oil seeps were noted in the later part of the 19th century, however, it wasn't until the Masjid Sulaiman field was discovered in neighbouring Iran in 1908 by the Anglo-Persian Oil Company that oil company interest turned to Iraq.  The first well in the Kirkuk area was spudded on June 30, 1927 and flowed light oil from an anticlinal structure at a rate of 95,000 BOPD, Iraq's first "gusher".  By the end of 1930, there were twenty producing oil wells in the Kirkuk field.  Here is a map and cross section showing the anticlinal dome that produces oil at Kirkuk:

It wasn't until 1937 when the Ain Zaleh field was discovered that oil was produced in other parts of Iraq.  

Let's now look at a map showing how Iraq is divided along religious and ethnic lines to help put the remainder of this posting into context:

Today, the majority of Iraqi oil fields are located in the Shiite areas of southern Iraq and the Kurdish region in the north with very few oil resources found in central Iraq where the Sunni majority lives.  As you can see on this map, the majority of Iraq's oil and natural gas fields are found along a north-south trending belt along the eastern edge of the country, following the border with Iran:

In the south part of Iraq, there are  five super-giant oil fields with reserves in excess of 5 billion barrels that account for 60 percent of the nation's proven oil reserves.  Another 17 percent of reserves are found in the Kurdish-controlled north, including the aforementioned Kirkuk field.  The IEA estimates the Kurdistan Regional Government controls about 4 billion barrels of proven oil reserves and about 450,000 barrels of oil produced daily.

The Iraqi Ministry of Oil has an ambitious program to expand the nation's oil production.  Under the first phase, oil companies signed agreements to expand production at the nation's existing oil fields.  In the second phase, oil companies signed agreements to develop oil fields that were discovered but not fully developed.  Here are the results of the first two bidding rounds:

Note the presence of ExxonMobil, Shell, Occidental and BP.

If both of these phases work according to plan, the Iraqi government expects that oil production will rise by 9 million BOPD to a total of 12 million BOPD by 2017.  Iraq has already admitted that the targets are overly optimistic, largely because of infrastructure constraints, and has scaled back its production target to 9.5 million BOPD by 2017.

 Iraq also has plans to expand its fleet of refineries; a total of 4 new refineries with an estimated cost of $24.5 billion will process an additional 740,000 barrels of oil per day.

Now, let's take a brief look at who benefits from Iraq's crude exports as shown on this pie chart:

Europe and the United States accounted for nearly 40 percent of Iraqi crude exports.  In March 2014, the United States imported 291,000 BOPD from Iraq, putting the nation in seventh place after Canada at 2.709 million BOPD and Saudi Arabia at 1.425 million BOPD.

Here is a map showing Iraq's oil export pipeline infrastructure:

Iraq has only one major crude oil export pipeline (which incidentally is not shown on this map), the Kirkuk-Ceyhan pipeline that runs through Turkey to the Ceyhan port on the Mediterranean.  The twin pipeline has a capacity of 1.65 million BOPD.  Portions of the pipeline have deteriorated, necessitating the switching of oil flow from one line to the other, reducing capacity to 600,000 BOPD.  A 1.65 million BOPD pipeline running to Saudi Arabia has been closed since 1991 and the Kirkuk-Banias pipeline to the Mediterranean Sea through Syria was damaged during U.S. airstrikes in 2003 and is not in use.  In 2012, a little over 1.5 million BOPD was exported through the Basrah Oil Terminal  This terminal is a deep sea Island Offshore Crude Terminal located 31 kilometres southeast of the Iraqi port of Al Faw in the Upper Arabian Gulf. According to the U.S. Department of Defense, this facility accounts for nearly 80 percent of Iraq's gross domestic product and is a vital part of Iraq's economy.   

While the current level of oil production from Iraq does not constitute a key part of the world's overall oil production capability, if the Iraqi Ministry of Oil's plans for nearly 10 million BOPD of production by 2017 don't come to fruition, the world's economy may have to get used to high oil prices for the foreseeable future, even with the additional U.S. production from non-conventional sources that are now being exported to Canada.

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