Iraq oil production exceeds output from Saddam Hussein era

Oil pipelines that ferry significant portion of oil exports in Iraq experience attacks affecting the distribution of oil to global markets.
Oil pipelines that ferry significant portion of oil exports in Iraq experience attacks affecting the distribution of oil to global markets.

Oil production went higher than during the time of Hussein but getting it out of Iraq is a problem as selling abroad is held back by bureaucracy, corruption and violence.

February’s daily output alone has beaten by 50% Iraq’s record of 3.5 million barrels annual record in 1979 when oil production in the country was at its peak.

In an attempt to restore war-battered oil fields left neglected, billions of dollars have been invested by companies like BP BP.LN +0.40% PLC, Royal Dutch Shell RDSB.LN +0.02% PLC and ExxonMobil Corp. XOM +0.47%. Still, government actions have been slow. The slightest disruption in the ancient pipes is reason enough to shut down wells. With personnel and infrastructure constantly threatened by attacks along with bureaucracy and corruption, no project improvement seems to be in sight.

The International Energy Agency (IEA) said the issues could have slowed output as a daily 340,000-barrel dip was felt last month, 9% less from February output.

Anticipating equipment breakdowns or bad weather, foreign workers said Iraqi officials issue orders to cut the biggest field’s output. IEA oil-market analyst Diane Munro said among the issues include lack of storage and pumping station problems.

Baghdad may not be facing much risk as the boom in production including that of shale-oil in the U.S. and oil-sands in Canada has steadied global demand and prices despite Libyan and Syrian troubles.

IEA sees Iraq to be a major oil source in the next 20 years, the growth allowing a long-range price forecasts and an anticipated output of 8 million barrels daily production by 2035. Still, failure in Baghdad to produce 3 million barrels a day could spell a 10% increase in oil prices.

With 90% of Iraq’s budget dependent on oil sales, the increase in production is crucial for Baghdad and Washington. In 2013 after failure to meet export targets and a rise in security spending, Baghdad experienced a 6% gross domestic product budget deficit.

Despite the oil production peak in the 70’s, long periods of war and sanctions caused Iraq’s petroleum industry to suffer and it showed in its reservoirs when discovered by forces led by U.S. in 2003. Sectarian violence continues while a western Iraq territory has been seized by groups affiliated with al-Qaeda.

Amid destructions, increase in output was attempted by American and Iraqi engineers. Not until the 20-year deal from BP and China National Petroleum Corp. in 2009 did it happen. Output increased at major oil field Rumaila. Other fields followed suit after new contracts were awarded to Majnoon, jointly developed by Shell and Malaysia’s Petronas.

Shell’s Iraq chief Hans Nijkamp said it wasn’t easy that they had to do major clearing and riverbed dredging to accommodate heavy equipment at Majnoon.

Their hard work paid off. Majnoon started production in September. About 200,000 barrels is produced there a day. Russia’s OAO Lukoil started output in April at the West Qurna oilfield, northwest of Basra with about 120,000 barrels a day.

In 2010, Rumaila output was 1 million barrels a day before BP. It has now increased to 1.4 million barrels daily. General Manager Marc Hornbrook is awed that a field that is 60 years old could have wells that naturally flow. Something that is rare in the world.

Rumaila BP project houses 4,000 foreign workers in trailers and one-story offices and has cleared major areas for permanent offices, recreation facilities and luxury villas. But in case of a mortar attack, there are concrete emergency shelters discreetly masked by garden growth.

But the lack of oil-storage facilities in Basra’s southern port, the channel for 90% of Iraqi export, continue to impede the distribution of oil to global markets.

Routine pipeline maintenance for aging network and other issues continue to delay production and distribution. Out of the 16 new tanks the government commissioned to help address the problem, only 4 were built thus far.

Mr. Nijkamp said Majnoon pumping had to be postponed repeatedly during bad weather port shutdowns. Iraqi officials asked BP to cut late last month’s daily production by about 20%, said Mr. Hornbrook. Such requests seldom come with reason, he added, yet depending on how deep the cut was, bringing the wells back online takes days to weeks. Asked for a comment, none came from the oil ministry spokesman.

Issues continue to threaten exports increase. In 2013, widespread religious protest forced oil-field service companies Schlumberger Ltd. and Baker Hughes Inc. to temporarily suspend its operations.

Without customs clearance, equipments sit for 3 weeks at a dock near Majnoon, as the government’s approach to paperwork and clearances is slow, said Mr. Njikamp. Even processes to get foreign workers into Iraq are so measured.

Another concern raised by industry executives is the corruption in the country. Of 177 countries, Iraq is ranked 171 in the corruption perceptions index of watchdog group, Transparency International.

Prime Minister Nouri al-Maliki’s spokesman, Ali Al Mousawi believes change is in order for the old fashioned administrative system and that the government and the prime minister have to have real will for infrastructure development.

Struggling with the hold-ups, Ali Al Rikabi, general manager for an Iraqi company producing pipelines and oil-pumping facilities, said that it is difficult to work in an oil-pipeline construction that has to be fast but getting people over takes long. He said that when oil pipeline is delayed, so do operations and exports.

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