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 Despite worsening violence due to spillover from the war in Syria,
Iraq — already OPEC's second-largest producer — is likely to post
one of the biggest annual output jumps in its history as BP, Exxon
Mobil and other companies tap its southern fields, which are
untouched by the unrest.
With many export bottlenecks now cleared at the southern Basra
terminals — from which almost all of Iraq's crude is shipped — Baghdad is expected to keep up, or even exceed, the rapid pace of
oil sales reached in February — at 2.8 million barrels per day
(bpd), a 500,000 bpd rise on the previous month.
"Iraq is doing its best to export as much as possible and
directionally things are improving," said a senior oil executive
from a major oil company at work in Iraq.
So much so that, after momentum slowed last year, many in the
industry expect a significant increase in 2014 from the country that
holds the world's fifth-biggest oil reserves.
"We think the average for the year is probably going to be about 2.9
million bpd, so maybe in the latter part of the year there will be a
little bit more than that," said a Western oil executive from
another company working in Iraq.
If Baghdad can sustain oil sales of 2.8 million bpd, its revenue
could swell to more than $100 billion at $100-a-barrel oil. Average
exports of just under 2.4 million bpd last year earned Iraq $89
billion.
So far, the leap in Iraqi shipments has yet to weigh on oil prices
and is being welcomed by other members of the Organization of the
Petroleum Exporting Countries (OPEC), as it is making up for outages
in Libya and reduced exports from Iran due to Western sanctions.
"As long as Brent is $100-$110 there is no problem for OPEC and the
higher volumes from Iraq are welcome," said a Gulf OPEC delegate.
"Their crude is required."
Another delegate agreed, while indicating that view could change
should output recover elsewhere.
"When the situation is settled in Libya with production of 1.5
million barrels per day and Iranian crude comes back, it will have
an impact on prices. But not now."
OIL REVIVAL
The world's leading oil companies have been expanding Iraq's giant
southern fields — Rumaila led by BP, West Qurna-1 run by Exxon and
Zubair operated by Eni — since 2010 when they signed a series of
service contracts with Baghdad.
That revival, now into its fifth year, prompted Iraq to set an
export target of 3.4 million bpd for 2014, including 400,000 bpd
from the Kurdistan region, implying output of 4 million bpd,
including oil used internally.
Oil experts still see that as optimistic. But growth is returning
thanks to the expanded capacity at Basra and further rises from the
southern fields of Majnoon, led by Shell, and Halfaya, where
PetroChina is the operator.
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The imminent start-up of West Qurna-2, operated by Lukoil, should
boost flows further. The field is considered the world's
second-largest untapped deposit.
Momentum in Iraq's oil growth slowed last year due to technical
and security problems as well as a row between Baghdad and the
autonomous Kurdish north. These factors could still keep the
expansion in check.
The Kurds, at odds with the Iraqi central government over oil
rights, stopped exporting via the national network more than a year
ago. A pipeline running from Iraq's northern oilfields to Turkey is
repeatedly sabotaged, disrupting exports.
Rising violence has not hit operations in the south, but Western
companies at work there say deteriorating security and the
distraction of end-April elections may be slowing crucial contract
approvals.
Last year was Iraq's bloodiest since sectarian violence began to
abate in 2008, with nearly 8,000 civilians killed. More than 700
people died in violence in Iraq in February, the United Nations said
last week.
Iraq's production last year ran at around 3 million bpd, up a touch
on 2012. The slowdown in Iraq, plus disruption in Libyan supply and
Iranian sanctions, allowed other OPEC members — chiefly Saudi
Arabia, Kuwait and the United Arab Emirates — to avoid large
cutbacks in output.
OPEC has for years been able to defer difficult issues over how it
divides production, as oil prices have stayed high. Officials'
relaxed view of Iraqi growth is likely to change if and when Libya
and Iran return.
"Iraqi production did not really grow last year but they seem to be
making some sort of headway this year," said an OPEC source. "With
Iraq increasing, there are issues in terms of who might have to cut
back."
(Editing by Jason Neely)
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