Hurdles to clear to reach Iraq capacity target

Iraq's oil ministry has ambitious plans to increase production over the short and longer term, but longstanding contractual and capacity obstacles continue to stand in the way of its targets.

Iraq's oil ministry reported an oil production rise of 100,000 b/d in July from June. Notable increases came from the Luhais, Tuba and Nahr Bin Umar fields, state-owned Basrah Oil's (BOC) director general Ihsan Ismael said today in an interview with journalists on the sidelines of the CWC Basrah Oil and Gas conference in Istanbul.

The oil ministry is discussing the prospect of further increases from Nahr Bin Umar and Rawati, with a combined target of 120,000 b/d by year end from 100,000 b/d currently.

Further out, Ismael expects Basrah's production to reach 5mn b/d by 2025. Argus estimates Basrah current production to be around 3.25mn b/d.

Iraq originally targeted total production capacity of 5mn b/d by the end of last year. The target was delayed until the end of 2018, but capacity increases remain slow. In recent years, Iraq's production targets have been postponed and lowered as Baghdad finds itself unable to pay the costs and fees of foreign companies operating and developing its largest fields.

A backlog of projects under discussion with little forward movement remains part of the issue. The oil ministry has yet to finalise production plateaus with international oil firms operating in the region, although Ismael says they could be agreed in the first quarter of 2019.

BP Iraq country manager Zaid Elyaseri said final numbers are still being discussed. BP agreed in 2014 a plateau target of 2.1mn b/d, from a previous target of 2.85mn b/d. This was later reduced to 1.8mn b/d and discussions are once again centred on 2.1mn b/d, he said.

Meanwhile, BP is injecting 1.4mn b/d of water from its Qarmat Ali plant to maintain production of around 1.5mn b/d at Rumaila. This is an increase from a record 900,000 b/d of water injection this time last year, as BP completed a new water pipeline in the first quarter of 2018. The plant requires a new 2mn b/d water pipeline to increase output at Rumaila — discussions with the ministry and Basrah Oil Company continue.

The long-delayed Common Seawater Supply Project (CSSP), which involves desalinating seawater for injection, is key to maintaining production at some of the country's other mature fields in the south. Without it, Iraq will struggle to expand its southern production capacity.

ExxonMobil was previously in talks with Iraq's oil ministry to invest in the CSSP alongside the multi-billion dollar South Integrated project, but a disagreement prompted ExxonMobil to continue discussions for only the latter project.

Ismael said the oil ministry is in the final stages before awarding the CSSP separately with one unnamed bidder. This project could be linked with the South Integrated project, pending agreement with ExxonMobil, he said, without providing further details.

The first stage of development will treat 5mn b/d of seawater, with the possibility of increasing this to 7.5mn b/d. The project will cost less than the original estimate of $4bn, Ismael said.

Iraq's limited export capacity remains an issue as the country targets higher production. Southern exports reached an all-time high of 3.61mn b/d in August, according to Argus tracking. The oil ministry maintains its export nameplate capacity is around 4.6mn b/d, with operational capacity lower at 3.7mn b/d. This excludes Khor al-Amaya, which is currently undergoing maintenance and accounts for a further 300,000 b/d of capacity. Khor al-Amaya has not exported any oil since February because of pipeline repairs. Ismael said repairs may be abandoned if an agreement is reached with Australian firm Leighton Offshore to continue their offshore pipeline project, as Khor al-Amaya's infrastructure is old and considered "risky".

Iraq awarded a $733mn contract to Leighton to install three single-point moorings and 120km of pipelines offshore Iraq in 2010. Leighton is currently caught up in an investigation involving the UK's Serious Fraud Office. And BOC is still "finalising fair terms" with Leighton, Ihsan said.

He added at the Sea Line project with Leighton could add another 1mn b/d of export capacity and would take no more than one year to complete once executed. And Iraq's oil ministry is carrying out a study to examine the feasibility of Sealine 4 and 5 pipeline projects by 2022 at the earliest, which would add another 2mn b/d of export capacity. This could increase Iraq's total export capacity to around 6mn b/d by 2023, he added.

Iraq's exports have long been constrained by a lack of sufficient storage capacity. Ismael said Fao port is currently undergoing rejuvenation and is used as buffer storage. BOC currently has a contract with Japanese firm Toyo to investigate the facilities' current storage capacity, and plans to develop this to 12mn bbl.

The resurrection of Iraq's National Oil Company (INOC) could address logistical issues through decentralisation. The oil ministry has recommended using one of the four largest accounting firms globally to facilitate establishing INOC. A six-month window for the government to set up the state company is drawing to a close.