Rejuvenated Iraq may transform global energy

Iraq has the potential to be one of the world's largest oil producers given its huge oil resources. Recent news reports suggest that this potential is moving closer to reality. The impact of a rejuvenated Iraqi oil industry could be transformative for both Iraq and global energy security.

In October 2010, Iraq revised its proved conventional oil reserves upwards by 24 per cent to 143 billion barrels, the third-highest in the world. Yet output of 2.5 million barrels per day (bpd) places Iraq eighth in the world in terms of production, in a country where oil revenues are badly needed to pay for reconstruction of civil infrastructure.

The binding production targets that were promised to win Iraq's auction rounds in aggregate implied that Iraq would reach 12.5 million bpd of production by 2017, which would put Iraq in the world's top three oil producers within the decade. Yet the production targets announced at the time were still speculative, based on the oil majors' internal models and assumptions. Only once work on the ground commences in earnest would it be clear whether such production increases are truly technically feasible.

In addition to "below ground" risks many "above ground" challenges also remain. Access to water could be a critical issue, for instance, as huge volumes of water are needed for injection into Iraq's more mature reservoirs to stabilise current production levels before any output increases become possible.

However, the recent news that Eni- and BP-led consortia have hit their contractually mandated ‘improved production targets' faster than expected at the super giant Zubair and Rumaila oilfields, suggest that the critical transition from theory to practise is now under way despite the above challenges. If Iraq is able to achieve even half of the production increases officially targeted it could potentially reach 5 to 6 million bpd of production within the next 10 years, benefiting both Iraq and the global economy.

Production levels

At current oil prices such an increase in output, about 2.5 to 3.5 million bpd above the 2.5 million bpd currently produced, could raise an additional $75 billion (Dh275 billion) to $105 billion (Dh385 billion) per annum for Iraq, approximately doubling Iraq's GDP. This money could then be deployed to invest in redeveloping Iraq.

An increase in Iraqi production also has the potential to radically shift the global outlook for global oil markets and the world economy.

However, the global oil challenge is such that it seems perfectly feasible that all of this additional production will be needed. Oil prices are already at their highest since the 2008 price spike and supply and demand fundamentals are likely to tighten further.

Global oil demand rose by 2.4 million bpd last year compared to 2009 and is forecast to rise another 1.4 million bpd this year. Ensuring that Iraq fulfils its oil and gas potential could provide huge benefits to both the country and wider world. As an active player in the region, Crescent Petroleum is doing what it can to participate in facilitating this transformation.

The writer is executive director at the UAE-based Crescent Petroleum Group. The views expressed here are his own.