Petrel Resources - moderated discussion/research part II

Iraq oil prospects in '2007, bleak as '06'
Ben Lando
United Press International
December 29, 2006


WASHINGTON -- Iraq has a lot of oil, more than any other country in the world except two.

Various factions are fighting over control of the country, as well as its oil, and there is a struggle between the central and regional governments over which side will oversee future development of Iraq's 115 billion barrels of crude reserves.

The security situation in the country is bad and getting worse, keeping investors from putting any people or resources on the ground that may not survive.

And even if oil companies or investors in Iraq's oil sector did decide to move in, there is no law telling what they can and cannot do, and what benefit they will or will not receive.

This is the state of Iraq's oil and, with 96 percent of its budget funded by oil revenues, Iraq itself.

Behind closed doors, Shiite, Kurdish, and Sunni political leaders - among others, including officials of McLean, VA-based BearingPoint, contracted by the United States - are negotiating a federal oil law.

Beyond those doors, beyond the walls of what is known as the Green Zone, a protected area in Baghdad and the only safe location aside from the semi-autonomous Kurdistan region in the north, about 1.9 million barrels of Iraqi oil is pumped daily.

This is below the 2.6 million barrels before the war; it is a tally only steady in that it can never be gauged or predicted.

"We're where we were two years ago as far as production goes," said Erik Kreil, an analyst with the Energy Information Administration, the data arm of the US Energy Department.

"Oil production [in 2006] really went up negligibly," he said. "A whole year has gone by and production went up approximately on average 100,000 barrels a day."

Attacks and a spotty - if not non-existent - electricity supply have created a bottleneck in Iraq's refining capacity and forced it to import petroleum products like gasoline. (Smugglers are also getting their hands on whatever gas supply there is and basically starving Baghdad.)

Iraq's oil ministry said it lost $11 billion and 651 days of oil exports from the start of 2004 to mid 2006 because of attacks on its oil pipeline from Kirkuk in the north to Ceyhan, Turkey. It was once a major avenue for Iraq's sales.

From January 1 to November 29 of this year alone, Iraq Pipeline Watch, a joint project between the Institute for the Analysis of Global Security and Threat Resolution, counted 94 attacks on "pipelines, oil installations, and oil personnel."

Security is so bad that passing an oil law may not have much of an impact, at least not at first.

"They're not there yet," said Alex Turkeltaub, a managing director of the Frontier Strategy Group, a consultant focused on the energy industry.

He said 90 percent of his clients "think it's going to get a lot worse before it gets a lot better."

"I do not see a source for substantial production increases in the coming year," he said.


The oil deal is virtually stuck now. The Kurds want regional control over all future oil contracts, which they claim is allowed by the Iraqi constitution, passed in 2005.

Sunnis, with no oil reserves, want central control so revenues won't stay in the regions.

Most Shiites back the Sunni plan, eyeing a controlling stake in a strong central government.

"All of the markers are negative" in 2006, said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies.

Next year isn't shaping up to be much better.

"I don't see much hope unless President Bush and his new secretary of defense come up with a brand new idea that Iraqis will like," Ebel said.

But on the ground, he said it will take both an acceptable oil law and change in security conditions - basically those supporting violence in Iraq to decide to work together - for the betterment of the country.

If not, as Ebel said, "it'll be the same all over again."