Iraq is
reclaiming its rank as the world’s fastest-growing oil exporter,
cushioning consumers from Libyan supply outages for now and, perhaps,
reviving OPEC market share rivalries down the road.
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.
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.”
Source: Reuters