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Problems with our oil from Iraq
Posted by Heading Out on October 26, 2005 - 11:24pm
For the immediate short term this concern is being more than justified. There is a growing concern about even the limited amount of oil that we are being able to recover from over there. The USA Today had a column about the drop in production, that is now taking place. The BBC has recently noticed that oil exports have temporarily stopped due to attacks and bad weather in the area, and when one starts putting pieces of this story together, one finds yet another example of the law of unintended consequences.
-- Qarmat Ali water treatment plant. This massive pumping complex is needed to inject water into Iraq's southern oil fields to aid in oil extraction. Under a no-bid contract, KBR was to repair the complex at a cost of up to $225 million, but not the leaky pipelines carrying water to the fields. As a result, the water cannot be reliably delivered, raising concerns that some of Iraq's oil may not ever be recovered.The article points out that in contrast with the pipeline problems in the north, those in the south are in relatively untroubled parts. And it points out that part of the problem is that while KBR repaired the water plant they were not told to fix the pipes that led to the oil fields, and these were old and corroded and thus keep failing. Water flow is thus about a third of what it should be. The Water plant was turned over to the Southern Oil Company last November . The article explains the problems that the plant was supposed to fix. But because of the problems with the pipes, it appears that the plant could only provide partial service. And so now we read of problems that have recently surfaced in which (courtesy of Peak Oil ) we read the the NASDAQ report that there are wells in the that are now in serious shape, and that are reaching too high a water cut, so that new wells are now going to be needed to replace thieir production (with no rigs currently operating in Iraq). .-- Al Fathah pipelines. As part of the same no-bid contract, the United States gave KBR a job worth up to $70 million to rebuild a pipeline network under the Tigris River in northern Iraq despite concerns that the project was unsound. In the end, less than half the pipelines were completed, and the project was given to another contractor. The delay has aggravated oil transport problems, forcing Iraq to inject millions of barrels of oil back into the ground, a harmful practice for the oil fields and the environment. A government audit based on a complaint by a whistle-blower is ongoing.
-- Southern oil well repairs. A $37 million project to boost production at dozens of Iraqi oil wells was canceled after KBR refused to proceed without a U.S. guarantee to protect it from possible lawsuits.
Crude oil production in Iraq's southern oilfields is being hurt by high percentage of water contamination due to lack of proper maintenance and investment, Oil Minister Ibrahim Bahr al-Uloum said in remarks published Sunday. "The most dangerous thing facing our oil production in the Basra oilfields is the high percentage of water in produced crude oil," Bahr al-Uloum said in local newspaper al-Sabah. Iraq's southern oil fields account for most of the country's current 2.1 million barrels a day production. Iraq produces 1.8 million b/d from the south and around 300,000 b/d from the north. According to the state-owned South Oil Co. which is in charge of the oil operations, 120 wells in oil fields in the south need to be rehabilitated or drilled. The SOC has recently issued a tender seeking bidders to drill 20 new oil wells in West Qurna oil field. The tender was reissued after U.S. and other Western companies - such as Halliburton Co. (HAL) unit KBR - refused to commit to the work because of security. The minister said that oilfields in northeast of the capital Baghdad also suffer from various technical problems and need urgent repair.Which means that the restoration of the water plant did not do its job, because they could not deliver the water, because ensuring the pipelines was never an assigned task.
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- general production and exports are down
- the fields are in a state of total disrepair
- if the policy of the US was to secure Iraqi production, it has totally failed
In addition, I will say this. <rant>There is little or no hope that the country with supposedly the 2nd largest reserves in the world (standard figure = 115 bbo) will make a significant contribution to the world oil supply in the indefinite future. Anyone who thinks that geopolitical conditions there will allow orderly recovery and development of the oil fields in Iraq in the next several years is a complete fool. I would further submit that the ill-begotten and foolhardy political policies of the Neocons/Morons that run our government have made this so, they have set this in concrete -- there is nothing we can do about it. That said, I find it ironic that as the world faces a Peak Oil situation, these assholes have jeopardized our supplies from an important OPEC supplier beyond the critical shortfalls we are already facing in the near future. In addition, they have created a totally unstable situation as far as geopolitics goes in the region, thus extending our oil insecurity into areas where it did not exist or was not so critical. Congratulations to the people who made our oil supplies situation much worse than it had to be in a small timeframe. Bravo! Well Done!</rant>Now the US government knows the truth. Iraq is the only Gulf state where the oil ministry is in the hands of Americans and where they know the real state of affairs. The result: total lack of interest. Even the critics of the war don't like to mention the dismal state of the oil production. The war may take off about 1 mbpd from the world supply - as much as the the hurricanes in GOM. but no one seems to care and complain about the effects on the crude price.
Iraq is a warning sign. From all this we could guess that the real Iraqi reserves are far smaller than officially claimed. The announced new projects were not realistic. It is quite likely that all the Gulf states are in a similiar situation.
But what do these leaks in New York Times and elsewhere mean? There have been some talk about the failure of the national oil companies in boosting supply. The production of all the major private oil companies is decreasing and they would like to get access to the fields of the national companies. Iraq was not a success, but the Iranian crisis is already unfolding.
The reaction to oil supply problems and the perspective of the Peak Oil has so far been invasions (Afghanistand and Iraq), setting up bases (Central Asia and Africa) and covert operations (Venezuela). Only when heavy gasoline taxes are introduced in the US, do I believe in efforts to cut the excessive consumption.
My point was the apparent lack of interest in Iraqi oil. From the article of al-Chalabi we see that capacity increase would come from applying new technology to the mostly old, quite mature fields and repairing the ailing infrastructure. This is not possible during the war, and don't promise easy profits in any case.
The reality is that while experts complain about the possible permamenent destruction of existing capacity by mismanagement and lack of maintenance, nothing is done. It is widely acknowledged now that the war is unwinnable for the US and would continue indefinitely despite of the present political process. The get the Iraqi oil fully online something else would be needed. But obviously the Iraqi oil is not interesting enough to change the course.
Here are some links:
- http://www.iraqdevelopmentprogram.org/idp/news/new693.htm
- http://www.forbes.com/global/2003/1027/022.html
- http://www.platts.com/HOME/News/118929.xml?p=HOME/News&S=n
- http://www.mees.com/postedarticles/energy/iraq/a45n02a01.htm
- http://sg.biz.yahoo.com/ifc/iq/
The last is particularly interesting.I suspect you're right that reserves are far overstated. There are also rumours that fields have been overproduced and damaged. But I'm betting nobody yet knows the full truth. Nobody told Saddam the truth if it didn't look good, so the historical records will be suspect. As for now, it's pandemonium. No security, nobody who speaks the language, a backlog of ancient equipment. It will be years before a good assessment can be done--if it can ever get done.
It leaves us where we've been all along--a huge problem looming, and no good data to analyze so we can formulate better responses.
But there is, of course, one oil company that is really interested in Iraqi oil - the national Iranian oil company. Thyey already agreed to build a pipeline from Southern Iraqi fields to Iran. They have functioning export terminals for the Iraqi oil. They have troops to protect the structures - the Iranian backed Shiite militias - and a friendly government to make deals with - the Iranian backed Shiite dominated government in Baghdad and soon in Basra, too. They have their men in the Iraqi oil ministry now. They let Chalabi and friends to tell fairy tales about the huge oil riches in Iraq before the war. Iran fought eight years for the oil fields in Southern Iraq. Now they can access them.
The Iranians have no capacity to make nuclear weapons, but they have a capacity get the oil in Iraq. See what the Gulf states are doing: trying to rob each others oil. This is desperate and tells a lot about the real situation of the ME oil.
Because Kuweit was flooding the market, causing a huge price drop hitting badly Iraqi revenues. It is widely known that the Iraq invasion was undertaken with the silent approval of Washington. But after it Bush Sr. decided that it is a good opportunity to establish a military presence of USA in the Persian Gulf and initiated the Gulf War I. Nice play, but at the second episode (now) things became a little bit messier.
If we start a war with Iran, maybe we can destroy at least another million barrel per day or more.
What an energy policy!
According to the Hirsh report investments in coal to liquid plants cost $66 billion for 1 mln.bpd; USA has huge coal reserves, if it invested these 200 bln. in CTL we would eventually have 3 times the Iraqi production secured - here at home, without dead people, ruined international reputation etc.
So, where is the logic of this war? Complete madness.
A diminishing pool of oil makes for harder and slower extraction. Supply is difficult to maintain, let alone increase.
More importantly in Iraq, a worldwide peak (or at the very least tight supply) means scarcity of resource.
We are entering the period when resource scarcity (oil) makes the remaining oil a strategic target for wars, terrorists and enviromental loonies (of which I have been lumped in with a time or two, to my dismay). When there is a huge lake of oil to draw from, disrupting supply here, there and other places has NO MEASURABLE effect on supply so it is inneffective as a tactic. This dynamic no longer exists.
All the oil in the world is becoming a tactical target now, not just the middle east. And we all know how easy it is to prevent guerilla strikes on soft targets don't we? Look at any strategic structure/place in Iraq and see how quick it gets homed in on.
Imagine the entire oil infrastructure being under that scrutiny by people who want to disrupt supply. How long do think it will take for the supply side of the equation to get much worse by human hands not just natural disasters? Focusing solely on supply in a peak oil world is a fool's choice. It is neither strategically or tactically sound.
Just think, The king is dead!, Long live one of many, ah, um, brothers? No, Sons? Cousins? Gee isn't it hard to tell who is in charge over in Saudi Arabia these days?
And then there are those guys, talking about the Great satan, and cutting off his OIL supply from their own wells.
IRAQ oil is as good as gone by the wayside. Which other nation is next?
By the Way Indonesia is not really a member of OPEC being a net importer of Gasoline, Iran imports some of their own supplies. Shouldn't they be looking for a new name soon??
OP Importing and some Exporting C.
Iraq is a special case. There were no security problems before the war and the US created the present situation itself. Middle East is usually considered to be an area of high indigenous political risks for the oil supply. There have been wars and revolutions but the impacts for the oil have usually been short lived. Only in the present Iraq war political factors have caused a severe long time disruption - and here the triggering factor was the US, not any local forces. If the lack of maintenance causes permanent damage to the fields and so permanent loss of supply, it is happening under the US occupation.
We might have resource wars in the future (we are having them right now), but not necessarily. Wars demand huge resources and it seems that even the US don't really have enough of them to wage large scale wars effectively. The Iraq war tells us that oil wars are not a very good idea. Attempts to grab oil fields by force turn easily counterproductive.