Iraq currently produces about 3 million barrels of oil per day (bopd) but the Middle Eastern nation has recently become one of the hot topics in the oil arena. The borders contain some of the largest untapped oil and gas reserves in the world, and if the political situation stabilizes, Iraq can overturn the entire arena of global energy.
Oil reserves in Iraq
Iraq has the sixth largest proven oil reserves at 141 billion barrels according to the U.S. Energy Information Administration (EIA). However, Iraq’s production has never exceeded 4 million bopd and has only recently started improving with Iraq’s aggressive plans towards cashing its oil assets.
Figure 1: Oil production in Iraq
Over the past three years, Iraq has really worked towards realizing the potential of its oil fields. “As peace and stability return to the country and the international oil companies ramp up their spending on their field concessions, there has been a marked increase in project activity since 2010,” says MEED in a recently released study on Iraq.
Iraq’s oil expansion program
The country set itself on a road to constant growth back in 2009 and set the target of 12 million bopd for 2017. The company has planned oil expansion projects worth USD 300 billion for the next decade. This has made Iraq the third largest overall project market in the region, after Saudi Arabia and the UAE. “Iraq is currently the fifth largest market for energy projects in the Gulf region after Saudi Arabia, the UAE, Qatar and Kuwait,” says MEED.
The increase in oil prices has aided the growth of oil in Iraq as well. The planned projects have become more valuable and attracted the international oil companies to the unstable market of Iraq by boosting rewards on projects. In fact, according to MEED, the total value of projects in Iraq exceeds those in any comparable markets.
Figure 2: Comparative value of energy projects in the Gulf region, 2005-12
Iraq’s budget for the energy sector
For these projects to materialize, a tremendous level of capital expenditure is required, mostly by the government. Iraq set the highest ever budget in 2013 for USD 118 billion for the energy sector. The biggest chunk of investment will be routed to oil production with an estimated investment of USD 84 billion planned for 2012 and 2013.
MEED estimates that the government will need to inject USD 600 billion in capital expenditure by 2030 to achieve the medium level of production targets set by the Iraq National Energy Strategy. However, it is also forecast that that these investments will generate revenues worth USD 6 trillion for the government.
The primary barrier to this growth materialization is the outdated infrastructure in the country, in which much government investment is needed. The government has a poor reputation and track record of not keeping its commitments and abandoning long-term projects.
“More than three years into the plan, Iraq is now in the midst of renegotiating its production targets with the IOCs and is expected to make a decision on its long term production plans by the end of 2014. (The country) is expected to choose between the more realistic figures of 9 million b/d by 2020 or 6 million b/d by 2025,” says MEED.