Iraq's oil in­dus­try must stop its self de­struc­tion

The Pak Banker - - OPINION - Saadal­lah Al Fathi

THIR­TEEN years af­ter the invasion and oc­cu­pa­tion of Iraq by the US, UK and their al­lies and clients, the coun­try is no more lib­er­ated, demo­cratic, free of cor­rup­tion, peace­ful or united, And cer­tainly wor­ried about its fu­ture and the frag­men­ta­tion that may come as a re­sult of fail­ing gov­ern­ments to safe­guard the well-be­ing of Iraqis.

These are sto­ries you hear about daily on tele­vi­sion chan­nels and read in news­pa­pers. In all mod­esty, I am not elo­quent enough to add all the de­tails and paint this tragic pic­ture, but I will stick to the devel­op­ment of my area of ex­per­tise and read­ers can judge the rest for them­selves. The oil in­dus­try - the pride of the coun­try, its en­gine of growth and one of the best in the re­gion since the mid-1950s - is now leav­ing a lot to be de­sired. The wars and sanc­tions prior to 2003 did a lot to put the in­dus­try back from its peak pro­duc­tion of 3.5 mil­lion bar­rels a day (mbd) in 1979.

Yet in spite of the UN re­stric­tions on ex­ports and the de­lib­er­ate de­lay in al­low­ing ser­vices and ma­te­ri­als to the in­dus­try, Iraqi pro­duc­tion in 2001, just over a year be­fore the oc­cu­pa­tion, was 2.583-mbd. The re­moval of all sanc­tions, avail­abil­ity of funds and the pur­ported sup­port from the oc­cu­py­ing pow­ers were not suf­fi­cient to reach the 2001 pro­duc­tion un­til 2011. In 2009, the cream of the Iraqi fields were taken away from the na­tional com­pa­nies, es­pe­cially in the south, and awarded to for­eign oil com­pa­nies for devel­op­ment. In that move of three bid rounds, 94 bil­lion bar­rels of a to­tal of 150 of re­serves were turned to the com­pa­nies leav­ing the na­tion­als with mi­nor roles or mere ob­servers in some cases.

In 2015, the av­er­age Iraq pro­duc­tion is no more than 3.47-mbd, or about 1-mbd above that be­fore the bid rounds though the De­cem­ber pro­duc­tion was 4.13-mbd. But let us be fair be­cause the bid rounds con­trib­uted to an in­crease of 1.55-mbd, which com­pen­sated for the loss of pro­duc­tion from the north­ern fields due to Daesh oc­cu­pa­tion of some fields and the Pesh­merga takeover of oth­ers.

The cost to Iraqis is enor­mous. By the end of 2015 the es­ti­mated for­eign oil com­pa­nies' ex­pen­di­ture was close to $50 bil­lion (Dh184 bil­lion), ex­clud­ing the cost of ex­panded pipe­lines, stor­age and ter­mi­nal di­rectly fi­nanced by Iraq. This makes the uni­tary cap­i­tal and op­er­at­ing cost very high by his­tor­i­cal ex­pe­ri­ence, even if a global in­crease in costs is taken into con­sid­er­a­tion.

The dras­tic de­cline in crude oil prices is mak­ing it dif­fi­cult for the min­istry to meet pay­ment to oil com­pa­nies. If $50 bil­lion has been spent so far, the ques­tion is how much more Iraq needs to reach its re­duced tar­get of 9-mbd by 2020. And what hap­pened to the dream of 12-mbd by 2017 and those re­spon­si­ble for its prop­a­ga­tion? On the gas side, Iraq's pro­duc­tion in De­cem­ber 2015 was 2,627 mil­lion cu­bic feet a day (mcfd) but the flared gas is 1,901mcfd, ac­cord­ing to the Min­istry's web­site. There­fore the utilised gas is 728-mcfd. In 2004, the cor­re­spond­ing num­bers were 1268, 610 and 658-mcfd. Over 11 years the utilised gas has in­creased by only 70-mcfd while the gas pro­cess­ing ca­pac­ity in the coun­try is over 2,000-mcfd.

How­ever, es­pe­cially in the south, the plants are not prop­erly re­ha­bil­i­tated and main­tained in spite of the es­tab­lish­ment of Basra Gas Com­pany (BGC) with Shell and Mit­subishi in 2010. The in­crease in gas pro­duc­tion as a re­sult of crude oil pro­duc­tion was not met by new gas pro­cess­ing fa­cil­i­ties by the Min­istry or BGC. The re­finer­ies suf­fered the great­est loss in mid-2014 when Daesh oc­cu­pied Baiji and the re­fin­ery com­plex, the largest in Iraq with 290,000 bar­rels a day, be­came a bat­tle ground with Iraqi forces and led to indis­crim­i­nate bomb­ing. Great dam­age was done in the takeover of the re­fin­ery by Iraqi forces in Oc­to­ber. Af­ter that, the loot­ing and theft of mo­bile equip­ment, en­gi­neer­ing ma­te­ri­als, spare parts and the dis­man­tling of some equip­ment is now the talk of many, in­clud­ing re­spon­si­ble lo­cal gov­ern­ment of­fi­cials and par­lia­men­tar­i­ans. My two col­umns in this news­pa­per were among the first to raise an alarm. The re­ha­bil­i­ta­tion of this re­fin­ery is now made ex­tremely dif­fi­cult and more costly if the Min­istry is ever se­ri­ous in re­build­ing the plant. In any case the re­finer­ies since 2004 have never op­er­ated above 70 per cent of their ca­pac­ity and, on av­er­age, Iraq had to im­port light prod­ucts of be­tween 90,000 and 100,000 bar­rels a day to meet re­stricted con­sump­tion. A new re­fin­ery in Kar­bala is un­likely to be on stream be­fore 2019 if all goes well.

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