Last updated: 3 June, 2013

Iraq to lower oil targets

Iraq is in talks with foreign energy firms to lower long-term oil production targets agreed several years ago because of sagging global crude demand forecasts, the country’s top energy official told AFP.

Hussein al-Shahristani said that Iraq was re-negotiating all of the oil field contracts awarded in 2009 to lower the peak production target and spread output over a longer period of time.

He added that he hoped oil prices stayed above $90 (69 euros) per barrel, after world oil prices fell sharply to around $92 per barrel in recent days.

Iraq currently produces about 3.5 million barrels of oil per day (bpd), and had targeted the construction of infrastructure, pipelines and storage facilities that would have allowed it to pump 12 million bpd in 2017. The revised contracts, however, would lower the country’s maximum capacity to nine million bpd.

“We have revised the production plan for all the fields,” Shahristani, the deputy prime minister responsible for energy affairs, said in an interview in his office inside Baghdad’s heavily-fortified Green Zone. “Some of them have already been agreed and finalised, and some of them are in discussion.”

He declined to discuss specific fields.

Asked if that meant every contract awarded in 2009 was being revised, he replied: “Yes. That’s right. And we may decide in certain cases that we will keep the production that was contracted for, because it will be feasible to maintain that production for a much longer time, based on our new studies.”

Though Iraq could, in that scenario, theoretically pump as much as nine million bpd, Shahristani said that between five and six million bpd “would generate enough revenues to meet our needs.”

Iraq awarded several oil fields to foreign energy firms for development in 2009, paying a per-barrel service fee, in a series of public auctions that cemented its role as a key global producer of the future.

Shahristani cited lower-than-expected forecasts for future demand as the reasoning behind Iraq’s decision.

“There doesn’t seem to be great demand in the coming few years,” the former oil minister said.

“We thought in Iraq that there is no point at this stage to invest very large sums to develop the fields for a much higher production capacity if we are not going to use that capacity and produce the oil, that we cannot market because there is not sufficient demand for it.”

The International Energy Agency last month fuelled bearish sentiment in the oil market in a report that predicted growing crude oil supply through 2013, led by North America, that would outstrip demand.

“The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15,” the IEA said.

Shahristani also said that while marginal oil fields around the world required that oil prices stayed above $75 to $80 per barrel — they currently stand at around $92 for a barrel of light sweet crude — Iraq hoped they would stay above $90 per barrel.

“Our budget is based on $90,” Shahristani said. “We wish that the oil price will remain at the level above $90. Otherwise we have to revise our budget. We don’t expect it to fall below $90.”

Iraq, which is almost entirely dependent on oil sales for its income, currently exports about 2.6 million bpd. It is hoping to increase sales sharply in the coming years in order to fund much-needed reconstruction of the country’s dilapidated infrastructure and conflict-battered economy.

The International Energy Agency said in October that Iraq stands to gain almost $5.0 trillion in revenue from exporting oil up to 2035, as long as the country invested more than $530 billion on raising its energy output.

It added that, according to its projections, Iraq, which has proven reserves of 143.1 billion barrels of oil, would account for 45 percent of growth in global oil supplies this decade.