'Rapid Rise in Iraqi Oil Output Could Undermine Market'

The recent oil deals between Iraqi and foreign companies could be good news for its people but any rapid increase in the country's crude production could undermine the market, a veteran Arab oil analyst has said.

Nicolas Sarkis, Director-General of the Paris-based Arab Petroleum Research Centre (APRC), said the deals and other similar agreements in the future could lift Iraq's oil output capacity to 12 million bpd, similar to that of Saudi Arabia, the world's largest crude exporter.

Writing in the APRC's monthly magazine, he said the three major oil accords signed before the end of 2009 had removed what he described as one of the biggest obstacles to the development of the Iraqi oil industry, adding that they would open the way to a substantial expansion of national oil production.

According to Sarkis, whose centre acts as an advisor to the 10-nation Oapec, the first agreement was concluded in June with BP/CNPC and involves expanding Rumaila field from one million bpd now to 2.85 million bpd.

The second was signed in October with Eni in association with Occidental and Kogas and provides for output at the giant Zubair field to be increased from 195,000 bpd to more than one million bpd.

Most recently, a third one was announced in November with ExxonMobil and Royal Dutch Shell for the development of output capacity at the West Qurna 1 field from 279,000 bpd at present to 2.1 million bpd.

Sarkis said the deals can be credited to the Iraqi negotiators who succeeded in securing international oil companies' agreement to contractual conditions they had regarded as too tough and had rejected only a few months earlier.

He noted that the conditions include a rate of remuneration of US$1.90 to US$2 per incremental barrel produced, whereas BP/CNPC and ExxonMobil had sought double that US$4 per barrel and Eni had asked for as much as US$4.80 per barrel.

The agreement was made possible by easing other conditions, such as the rate of tax levied on the remuneration paid to foreign partners.

"This breakthrough in negotiations that had been dragging on for years theoretically brings the prospect of an increase in Iraqi oil production from its current level of 2.5 million bpd to as much as six million bpd by 2016. In addition, there are the expansion projects tendered in the second international bid round, which closed in December 2009," he said.

"Ultimately, Iraq could target a huge increase in its crude oil production capacity to as much as 10-12 million bpd, equivalent to that of Saudi Arabia. Such a prospect must nevertheless be treated with great caution. An overly rapid increase in Iraqi production would be bound to cause major upheavals on the world energy scene, in terms of the supply-demand balance, the level of oil prices, the development of alternative energy sources and a reconfiguration of the Opec production quota system, which Iraq will have to reintegrate sooner or later, after being exempt since 2003."- Business 24/7