In recent weeks I discussed in this column the medium to long-term forecasts of both Opec and the International Energy Agency (IEA) where both converge to a large degree with small variations here and there.

In the reference case of Opec’s ‘World Oil Outlook’, the Organisation forecast Opec crude oil production in 2020 and 2035 at 29.9 and 35.7 million barrels a day (mbd) respectively. Forget the risk of an upside supply scenario from non-Opec and the risk of a downturn in the economy, where things could be much worse for Opec and then you understand why I said “This is a warning to some members who are increasing their capacity, overlooking market realities.”

In the IEA’s ‘World Energy Outlook 2013’, the report stressed the profound changes taking place in the availability of new sources of supply in the oil market, where the deduction from the report is clear and that “To satisfy growth in demand, unconventional oil (tight oil, oil sands and bitumen) are expected to contribute 10mbd and natural gas liquids 5mbd and conventional oil will lose 3mbd as a result.”

Here, Opec crude oil production is forecast in 2020 and 2035 at 29.4 and 33mbd respectively with the implication that it is stagnating for the next 10 years or so. This is, of course, without considering the clamour for tighter environmental and climate change policies where things could be worse for Opec. Even lower oil prices will not improve the prospect for Opec crude oil production significantly with the attendant fall in revenues.

I concluded that “The forecasts of both Opec and IEA call for real prudence and the closing of ranks to pass the difficult years ahead. Middle East countries should tailor their investment in order not to create surplus capacity that may weigh on prices.”

Iraq output

In the Platts conference ‘Oil Markets Middle East 2013’ that was held recently in Dubai, there was a panel discussion on Iraq and its rising production where the lately adopted National Energy Strategy contained three oil production scenarios. The high envisages the production of 13mbd by 2017, in line with the contracts signed with the international oil companies. The medium, which was adopted by the Ministry of Oil calls for the production of 9mbd by 2020 as a result of some realism and negotiations with some of the contracting companies. The low calls for the production of 6mbd by 2025.

The panel discussed the delays in the fields of development as a result of the deterioration in security and continued violence in the country in addition to “the institutional and bureaucratic delays and obstacles” such as customs clearance, the granting of visas and approval of contracts.

The sheer size of the work in drilling, surface facilities, pipelines, storage and terminals was also cited as a reason for delays. Even the common sea water treatment and supply project is delayed and may not be ready in time to boost production and preserve reservoirs.

These are all important issues, which may cause further delays in the Iraqi programme unless some drastic measures are taken to correct the situation, an unlikely event given the circumstances.

But the most important issue in my humble opinion is the targeted production level itself. The forecast supply and demand balances do not support requirements from Iraq except perhaps in the low production scenario. Opec production is expected to remain flat for the next 10 years or so and supplying much higher volumes from Iraq or any other country will undoubtedly cause a price collapse to the detriment of Iraq and all producers.

For obvious reasons, Opec Secretariat’s reports do not discuss individual member counties’ future production aspirations due to the sensitivity of this issue. However, Opec’s overall forecast is clear where no 9mbd from Iraq can be accommodated in 2020.

The IEA on the other hand, forecast Iraq production to be 5.8mbd in 2020 and 7.9mbd in 2035 and, therefore, we can safely assume that the 9mbd may be reached many years after 2035. The IEA projections do take account of the issues cited above in addition to the oil market expected evolution such that the current forecast for Iraq is 0.4mbd lower than the one produced in the 2012 report, a regression that we are likely to see again later.

Even the Energy Information Administration, the research arm of the US Department of Energy, projects Iraq’s production in 2040 to fall between 3.7 and 11mbd where the average could be close to 7 mbd.

Given all the above, one hopes that the lower production scenario for Iraq is in the strategy not just for academic reasons but as a fallback scenario where the production will rise gently with the evolution of the oil market, a situation that will reduce costs and without the risk of creating undue spare capacity.

— The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.