Dateline Iraq Part 1 -- Oil Production and Pipelines

A salient guest post by Dave C.:

It sometimes seems that we have forgotten all about Iraq. After all, this country has the 3rd largest reserves in the world (the standard figure is 115 bbo) after Saudi Arabia and Canada. There is an additional 110 trillion cubic feet of natural gas. That's a lot of fossil fuels. Astonishingly, Iraqi Oil Minister Ghadban stated that Iraq had "unconfirmed or potential reserves" of 214 billion barrels in August 2004 -- but see below. Many in the oil patch believe that America's hidden motive for the war was to secure that oil & gas supply and establish a permanent military foothold in the Middle East outside the Saudi Kingdom. Whether you believe that or not, it behooves all those in the peak oil community to know what's happening there.

First off, we note that the GAO Reveals Iraq Reconstruction Is Failing.
In March 2003, Iraq produced 2.6 million barrels of oil per day and exported 2.1 million barrels per day. By May 2005, Iraq was producing just 2.1 million barrels of oil per day and exporting only 1.4 to 1.6 million barrels per day.
And here in Analysis: Iraq oil (from UPI), we see that the most recent figures from the State Department's Iraqi Weekly Status Report "pointed to exports for July coming in at 1.693 million barrels per day, up from an average 1.44 million barrels per day in June". So, in a world where oil supply and demand are very tight, Iraq exports are down somewhere about 400,000 (July) since March of 2003. That's not good news. Will it get better, as Daniel Yergin of CERA assumes when he says "our estimate for growth [by 2010] in Iraq is quite modest -- only 1 million barrels a day -- reflecting the high degree of uncertainty there". Regardless of whether you think social and economic conditions will improve there, one wonders whether that's another 1 million bd based on current production for export or based on the pre-war numbers. Assuming the former and the June figures on which CERA might have based their projection, that's a whopping 340,000 barrels a day increase exported to the world market in the period 2003 to 2010 from the country with the world's 3rd largest reserves. On the other hand, if Americans will still be in Iraq for another 12 years fighting the insurgency, as Donald Rumsfeld opined lately, then perhaps even Yergin's "modest" estmate is a little optimistic, not to mention maybe completely over the top. Who knows, July production is up over June if you trust the numbers.

Speaking of the insurgency, where is that Iraqi oil and what's happening on the pipeline front? First, the EIA notes that "approximately 2 million bbl/d of Iraq's production pre-war capacity came from southern oil fields and 1 million bbl/d from northern oil fields." (We'll just skip the discrepancy with the 2.6 m/bd pre-war production number given above, see the EIA page.) Unfortunately for the disenfranchised, rebellious Sunnis, almost all of the northern daily production is from the Kurdish held areas around Kirkuk and the southern production comes from Shia' held areas around Basra, including the large Rumaila fields there.

Conveniently for us, the Institute for the Analysis of Global Security maintains a pipeline watch. They have recorded 255 attacks on Iraqi pipelines, oil installations, and oil personnel since 2003 and 69 this year alone through the end of July. But nothing stays the same in Iraq and reliable information is hard to come by. The EIA also notes that:
In early May 2005, Ibraihim Bahr al-Uloum was named to replace [Iraqi Oil Minister] Ghadban, stating that his main goals were to reduce corruption in the oil sector, to improve fuel availability, to reduce attacks on oil infrastructure (Ghadban had cited 642 such attacks in 2004 at a cost of $10 billion), and to re-establish an Iraqi National Oil Company (INOC) by the end of 2005.
So, Ghadban is gone. Perhaps his estimated reserve and pipeline attack figures were inaccurate? In Part 2, I will talk about Iraq's oil refining deal with Iran, oil smuggling in Iraq, weirdly optimistic projections about Iraqi oil production from the recent past and any new developments that may come along.

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I am SHOCKED, SHOCKED that there is goo grabbing going on "over there".

I thought we were fighting "there" so that something "there" will *not* come here.

Now you are telling us that we are fighting so that the ground goo does go here?

I am SHOCKED, SHOCKED, I tell you.
Let us round up the usual suspects.

It sometimes seems that we have forgotten all about Iraq.

Maybe that's for the best.

Iraq exported 1.4 mbpd in June 2005. Yergin expects an increase of 1 mbpd by 2010, which would be up to 2.4 mbpd. Compare this with before the war, Iraq was exporting 2.1 mbpd. So this is only a small increase over pre-war levels, in five years. That doesn't sound so impossible to me. Who knows what can happen in five years? The war's only been going on for two, and there have been all kinds of changes and reversals and surprises in that time. Five years is an eternity in a situation as volatile as Iraq.

3rd largest reserves in the world? Most of the oil in the relatively calm Kurd and Shia regions? This is all good news. Things could be far worse.

Um! Here's the problem. First you have to decide where you are going to put the new wells (this requires surveys etc) Then you have to find some drilling rigs (there aren't any in Iraq at the moment that are working). Then you have to convince some drilling crews to come out and drill the wells. If each well produces 10,000 barrels a day, you still need 100 wells. If each well takes 2 months to drill, then each drilling rig can do 6 wells a year. So you need a minimum of 17 rig-years, providing that each well is productive. If you can't hit 100% (and that is common) then you are stuck with whatever the percentage success rate is as a multiplier to the number of rigs you have to provide. And then you have to have the infrastructure in place to take advantage of all this. (This is why, on average it takes about 6 years to get a major project of this type into commission).

Oh, and since the drilling market is fairly busy right now then you might have to build your own rigs. As the Saudi's have found out that takes a year or two all by itself (though they are now borrowing some from the Gulf - as J passed on).

But if Iraq was exporting 2.1 mbpd before the war, then that means that the wells already exist, right? They are just inactive right now due to damage or infrastructure problems. To get up to 2.4 mbpd as predicted by Yergin they would need to drill only 30 10,000 bpd wells, not 100; or 5 rig-years, not 17. Sounds like they could do the job with just 1 or 2 drilling rigs. Plus of course a lot of work on the infrastructure and fixing up the old wells.

Look how fast they got the Kuwaiti wells back into production after the 1st gulf war. They were all on fire and many were predicting it would take years and years to get it all done. Carl Sagan wrote an article predicting that they would not be extinguished until they put themselves out and would cause a mini nuclear winter effect. But it took about 18 months, even though they were surrounded by land mines.

People are pretty good at fixing things. The main problem is getting the political situation to settle down well enough to let the engineers work. Whether that will happen in Iraq in five years, I don't know. You guys are the ones with the crystal balls, you tell me.

It is worth noting that this exchange took place yesterday in the Simmons Q&A:

Munich, Germany: It may seem unrealistic at the moment, but how many barrels a day could a peaceful Iraq add to the world market?

Matthew Simmons: That's a complicated question because the two fields that make up 80% of their production are in a bad state of repair. Over a 10 or 15 year period of time we would be lucky to sustain 2-3 [million] barrels a day from Iraq.

I'd already submitted the post to PG when I saw this new information. I need to follow-up on these "two fields" being damaged. I assume Simmons is referring to the North and South Rumaila fields near Basra.

Halfin, I believe it was Donald Rumsfeld doing the prognosticating on how long insurgents with IEDs and RPGs will be making it tough to re-engineer the Iraqi oil fields. And given Simmon's remark, I wonder if that's even possible.

ianqui doodle: we can not hide our heads in the, ahhhh, sand. 8)

Tsk! I think it fair to assume that the wells in Iraq that have dropped production would, in the main, likely come under the 70% of wells that are in depletion. As was posted earlier this week, an average figure for loss in those cases is around 7%. Normally this is made up in a field by drilling more wells, but they aren't doing any drilling, so part of the decine comes from depletion. That part won't be made up by re-opening wells, though in that regard,, I am not sure that there is any evidence that they have been shutting wells in, and I can't think of any good reasons why they would. The problems arise from a whole variety of sources.

Oh, and I just went back and looked at the May 20th post where we listed average well production numbers from the International Petroleum Encyclopedia of 2000. Pre-war the average well in Iraq was producing 1,252 barrels a day. Maybe someone should order those extra rigs after all.

I hope this hasn't been posted already. I haven't had time today to read through all the posts on Iraq here, so if it's a duplicate, please forgive me. I thought you might be interested in this geology article that has lots of nice color images of rock layers in Iraq, and ends with what I consider a bomb shell, that Iraq's reserves are MUCH smaller than everyone thinks. Maybe I'm misinterpreting it. What do you folks think?

from near the end:

Ultimate recovery from the giant fields of Iraq is estimated to be 85 [billion]BOE; for comparison, the estimate for North Dome Gas Field in Qatar is 160 [billion] BOE, and 97 [billion] BOE for Ghawar Oil Field in Saudi Arabia. Remaining recovery, or reserves, for the Iraqi giant fields is estimated to be 41 [billion] BOE (Horn, 2003), or approximately one-half of the ultimate recovery.