Iraq has reclaimed its place as the second-largest oil producer in the Organization of Petroleum Exporting Countries, overtaking Iran for the first time in 24 years and shifting the balance of power in the group.
Iraq
has
reclaimed its place as the second-largest oil producer in the Organization of
Petroleum Exporting Countries, overtaking
Iran
for
the first time in 24 years and shifting the balance of power in the group.
After years of conflict and poor security,
Iraq
has
finally begun to rebuild its shattered oil industry. In July, it pumped just
over three million barrels a day, an impressive 400,000 barrel-a-day increase
since the end of 2011, according to OPEC data.
But the shift in rankings also is because
Iran
's
output has declined. Western sanctions, aimed at pressuring
Tehran
over
its nuclear program, have cut 700,000 barrels a day from the country's
production since 2011, according to OPEC data.
Before the first of the sanctions were imposed in January,
Iran
was
producing 3.5 million barrels a day of oil, a level
Iraq
doesn't expect to reach until next year.
The gap between the two countries is likely to widen further in the coming
months as
Iraq
sees
more rewards from contracts signed in 2009 and 2010 with large Western, Russian
and Chinese oil companies to develop a dozen neglected oil fields in southern
Iraq
. These
include some of the world's largest, like Rumaila and
West
Qurna
.
The recovery in
Iraq
's oil
output because of these deals was gradual at first, averaging 4.2% annual
growth between 2006 and 2010. It kicked into high gear last year, as oil
production expanded 12.5%.
This is good news for oil consumers. Extra supplies from
Iraq
helped global markets cope with the loss of Libyan exports during last year's
civil war. It also helps offset the loss of Iranian exports this year.
But so far,
Iraq
has
just been making up for many years of oil-industry neglect. It still has plenty
of growth potential.
"
Iraq
sits
on very bountiful oil reserves [estimated at 143 billion barrels], and for
decades there was too little investment to develop these," said Samuel
Ciszuk, an analyst at the U.K.-based consultancy KBC Energy Economics. "So
the capacity to lift production even significantly above today's levels is
there."
Oil Minister Abdul Kareem Luaiby said recently that
Baghdad
is
aiming for output of 3.4 million barrels a day by the end of this year. It has
loftier plans to produce 12 million barrels a day by 2017. However, despite the
recent progress, most observers believe that only a fraction of that five-year
target can be achieved.
"As a back-of-the-envelope estimation, one could assume that by 2017 the
total could be about 4.5 million barrels a day," said Manouchehr Takin, an
oil analyst at the London-based Center for Global Energy Studies. "If we
are optimistic, it could be five million barrels a day."
Infrastructure bottlenecks, such as lack of pipeline networks and export
terminals, have slowed oil production for years. This problem has eased with
the opening at the beginning of the year of two new seaborne oil terminals. But
other infrastructure challenges remain.
Boosting oil production further will require injecting a lot of water into
fields to restore pressure. Iraqi oil ministry senior officials has been
wrangling for years over setting up a new system, which would require huge new
investments.
Security is also a problem. Oil-field workers have been relatively safe, but a
string of bomb attacks on oil pipelines, including two last month, temporarily
halted crude-oil exports from northern
Iraq
to
the Turkish Mediterranean
port
of
Ceyhan
for
few days after each attack. The bombings were blamed on the outlawed Kurdistan
Workers' Party, which is waging a campaign against the Turkish state in a fight
for more autonomy for
Turkey
's
estimated 14 million ethnic Kurds.
Iraq
's own
disputes with its semiautonomous Kurdish region also have held back production.
In April,
Kurdistan
halted 100,000 barrels a day of oil production,
claiming
Baghdad
owed
the Kurds $1.5 billion collected from previous oil exports. It resumed exports
this month in a goodwill gesture to
Baghdad
, but
may stop them again on Aug. 31 if the payment dispute isn't resolved.
Iraq
has
much to gain if it can resolve these disputes. "Should [
Kurdistan
]-
Baghdad
oil
relations mend, Iraqi exports would indeed grow by about 175,000 to 200,000
barrels a day more" during the third and fourth quarters of this year, KBC
Energy's Mr. Ciszuk said.
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