Iraq committed to oil projects but flags delays

Iraq has no plans to cancel or shelve projects with foreign oil companies on account of the Covid-19 pandemic, but the difficult market conditions and lower oil price environment are causing some delays, Iraqi oil minister Ihsan Ismael said today.

"Our contracts with our [international oil companies] IOCs in Iraq will stay as is — there is no cancelling of projects," he told the Siemens MEA Energy Week conference. "There is some slowdown due to the cash shortage, but our commitments with our IOCs will stay."

Iraq's long-stalled Common Seawater Supply Project — which is key to maintaining and ultimately expanding production at mature fields in the south of the country — has been further delayed. And more urgent work to finish laying three "Sea Line" pipelines to boost Iraq's southern crude export capacity is also on hold. Iraq had planned to complete Sea Line 3, which will increase capacity by 700,000 b/d, by the second quarter of this year.

Ismael said payments to foreign oil companies have been impacted but the delays are "acceptable for both sides". Iraq already reimburses its foreign partners for capital investment and production costs, on top of a fixed per-barrel remuneration fee. This means that it pays companies a higher percentage of oil revenues as prices decline. In the last oil price downturn in 2014-16, deferred remuneration payments to foreign firms took until the end of 2017 to clear.

Ismael said he expects the oil market to return to a "normal" pattern of demand growth in 2023. "I think 2021 will be similar to quarter three or quarter four of 2020," he said. "The reports speak about the recovery starting in 2022… [But] in my reading and understanding of the market, 2023 will see the start of normal oil demand increases — I mean the 3pc/yr."

Ismael said he sees the next couple of years as "the grace period for the recovery, and no more." This is in line with the Stated Policies scenario in the IEA's latest World Energy Outlook (WEO), where global oil demand returns to pre-Covid-19 levels around 2023, assuming that the pandemic is brought under control by next year.

Opec's latest Monthly Oil Market Report (MOMR) forecasts that demand will rebound by around 6.5mn b/d next year but that still leaves consumption almost 3mn b/d below 2019 levels.

By Nader Itayim and Rowena Edwards