13 October 2000
Judging by the ambitious requests for oil spare parts and equipment that Iraq submitted to the UN under the latest phase of the oil-for-food program, its sustainable crude oil output could rise well beyond the 3.4 million barrels per day year-end total being talked about by some earlier this year. But a detailed examination of the lists previously approved by the UN and the equipment actually delivered suggest the whole process is something of an exercise in futility – albeit one that enables Baghdad, motivated both by political considerations and the need to boost oil revenues, to remain a vital cog in the global production machinery.
Iraqi officials put output now at 3 million-3.1 million b/d. They say this rate is sustainable until the end of the year and could rise in the first quarter of 2001 if spare parts and equipment start arriving more speedily. But since the current, eighth phase of the oil-for-food deal began on Jun. 9, Iraqi oil exports have averaged 2.1 million b/d, which suggests total production of only 2.7 million b/d or so, allowing for domestic consumption and trade with Jordan and Turkey. In the absence of up-to-date numbers, this is put at 550,000 b/d.
Since the fourth phase of the program began in June 1998, a total of $345 million in spare parts and equipment has actually been delivered, out of $1.17 billion in contracts approved, UN sources say. The low figure seems to confirm what many observers have long said – that the brief upward blips in Iraqi production to 3 million b/d must come either at the expense of damaging reservoirs and implementing inadequately controlled water-injection programs, or by bringing onstream some of the wells drilled pre-1991.
The introduction last March of a “fast track” program under which lists of spare parts were submitted for expedited UN approval has done little to improve the situation. According to Faleh al-Khayat, head of planning at the Iraqi Oil Ministry, little more than a third of the items submitted under phase seven have been approved.
The seventh-phase list, divided up project-by-project, included what a UN team who visited Iraq early this year considered the bare minimum to sustain production at 3 million b/d. It included drilling projects, well workovers and completions, and the commissioning of treatment plants.
But just to take a few examples, not all the items needed to drill 70 new wells in an area in the north that included the Kirkuk, Bai Hassan, and Saddam fields won approval, limiting the usefulness of the items that did get the UN okay. The same was true of a project that involved working over 40 wells in the same region, and schemes requiring equipment to drill, complete, and work over wells in the south, particularly the North and South Rumailah, Zubair, and Luhais fields. The UN sanctions committee also turned down requests for all equipment for degassing stations, oil storage depots, tank farms, and pumping stations for some projects. They also failed to approve equipment for schemes to supply pumps and spare parts for water injection and treatment plants, and projects to repair some pumping stations in the Rumailah fields, considered necessary to manage reservoir extraction.
While continuing to accuse the US of obstructing Iraqi oil development for political reasons, a detailed annex to the eighth-phase oil sector distribution plan reveals Baghdad is using a variety of tactics to maximize the amount of work it can do in its fields while sanctions persist to keep output as high as possible.
The $600 million allocated to the oil sector under the latest phase is split into $350 million for the upstream and $250 million for the downstream. Upstream, the new focus is on starting initial work on the development of identified, but unexploited, fields. These include the Ratawi and Majnoon fields in the south, where major oil companies are now being offered Iraq’s modified version of Iranian buyback contracts.
Under a new policy adopted late last year, Baghdad is looking to sign short-term technical service contracts as part of the oil-for-food program, either to develop limited areas of super-giant fields, or smaller fields that are proven but undeveloped. The eighth-phase list includes six such contracts for a pilot production project at Majnoon – where Iraq estimates potential production capacity at 600,000 b/d – for which France’s Elf initialed a production-sharing contract a few years back. Included is reservoir and engineering consultancy work, well workovers, and the supply of pipes and tanks. The aim is to connect up to 15 of the field’s 24 already drilled wells to produce 50,000-60,000 b/d.
For the first-stage development of Ratawi, designed to produce 40,000 b/d in its early phases, Iraq is seeking approval for surface facilities for between five and 10 wells. This includes a crude oil processing and treatment plant, tanks, flow lines, and pipework.
Iraq is also looking to boost output from the giant Kirkuk field by 20,000 b/d by tying in some wells that have already been drilled.
In its partly developed southern fields, Baghdad is seeking equipment that would enable it to boost output from the Suba-Luhais fields from the current 25,000 b/d or so to 80,000-100,000 b/d, and to double production at West Qurna to 200,000 b/d of 23 degree API oil. In August, Russia’s Slavneft said it was negotiating a contract to develop Suba-Luhais with the Iraqis.
According to Al-Khayat, most of Iraq’s extra production capacity should come from fields in the south. In theory, these could be producing an extra 300,000 to 400,000 b/d in a relatively short time. In practice, it will depend on how much the Iraqis make of the very little they know they are going to get.
By Ruba Husari, London
(Published in Energy Compass Oct.13, 2000)