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Iraq faces challenges on road to oil superpower status
21/09/2010

The signing of crucial pipeline deals with Turkey and Syria this week has set the stage for the renovation of Iraq' oil export infrastructure and the country's emergence as a leading world oil exporter.

Baghdad is planning to hike oil production from less than 2.5 million barrels per day (bpd) currently to more than 12.5 million bpd in seven years, but the road to export glory is riddled with more challenges than the pipeline bottlenecks.

Iraq's oil export infrastructure has been in awful shape following negligible investment in the sector during the sanctions-crippled Saddam regime, and the country’s efforts to monetize its oil assets post-Saddam rule hit serious snags on account of this.

Iraq last year awarded 11 development deals to more than a dozen international oil firms, paving the way for the country's emergence as a major oil exporter in the coming years.

Baghdad is also auctioning three non-associated gas field in October to attract more investment in its burgeoning gas sector.

On Saturday Iraq signed an agreement with Syria to build two oil pipelines linking the war-ravaged country to the Mediterranean ports.

The two pipelines - with a combined capacity of 2.75 million barrels of oil per day - will run alongside a gas pipeline that will provide gas for pumping stations, Iraqi government spokesman Ali al-Dabbagh said.

A bilateral technical team will undertake studies to determine the project cost and the timeline of completion.

Two oil pipelines have been in existence for decades, linking the two countries, but these are seen inadequate as Iraq is planning to ramp up oil production over the next decade.

On Sunday, Iraqi and Turkish energy ministers signed a 15-20 year agreement to keep open the Kirkuk-Ceyhan crude oil Pipeline, Iraq’s second-biggest export outlet.

Currently, 500,000 barrels of oil are flowing through the Kirkuk-Yumurtal pipeline and the construction of a second pipeline may be needed in the coming days in case of an increase in the Iraqi oil production, Turkish newspaper Zaman reported.

But Baghdad has to ramp up infrastructure in time lest it misses the bus.

According to Iraq Oil Report, the draft deal with Syria includes a 1.25 million bpd crude oil pipeline and a 1.5 million bpd heavy oil pipeline. The heavy-oil pipeline would provide an outlet for the Qaiyara and Najmah heavy oil fields in Ninewa province, awarded to Angolan oil firm Sonangol.

And, the Turkey deal will extend Iraq’s export agreement by 15 years, with a 5-year option, said the Oil Report. The pipeline once had a nameplate capacity of 1.6 million bpd, but currently averages between 400,000 and 500,000 bpd. Since the initial agreement was signed in 1973, events in Iraq forced it down to one line, though it operates as two lines in Turkey, it says.

However, the Oil Report also says export pipelines are not the only challenges Iraq will face in its quest to become the top global oil exporter in about 10 years. It says the country’s internal pipeline network is incomplete and already suffers bottlenecks, even without the new production.

Iraq's 7,500km internal oil pipelines have been the target of terror attacks following the US-led invasion in 2003. They had become attractive targets for insurgents following Al-Qaeda's exhortation to launch attacks on the country's oil installations.

Iraq lost $12 billion as a result of more than 500 attacks that took place between 2003 and 2008 and the reconstruction efforts have hit roadblocks.

Also, though Iraq’s refineries are expanding their capacity and quality, they will struggle to meet the requirements triggered by the increasing flow of Iraqi crude.

In July Reuters reported that Iraq would need investment to the tune of $20 billion to building four new refineries to add some 740,000 barrels per day of refining capacity. According to information published on the OPEC web site, Iraq currently has eight oil refineries with a capacity of 659,000 bpd.

The country has plans to boost its refining capacity to 1.5 million bpd in the next five years by building the four new refineries and overhauling existing ones, Iraqi Oil Minister Hussain al-Shahristani has said.

Thirdly, the country faces a lack of storage facilities. But according to the Country's Deputy Oil Minister Ahmed Shamma, a major project at the southern Fao peninsula will help solve that problem, by adding 24 storage tanks with an operational capacity of just below 50,000 cubic meters each.

“We are building tanks now on Fao, and we are also building new lines from the depots to Fao to deliver more crude,” Shamma said. “There will be other lines,” Shamma said.

Iraq faces challenges on road to oil superpower status -  Source


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