2013-02-01 01:53:40 - Recently published research from Business Monitor International, "Iraq Oil & Gas Report Q1 2013", is now available at Fast Market Research
BMI View: Although Iraq is set to lead the Middle East the region oil production growth in the Middle East region, a number of above ground risks and uncertainty related to projects in the pipeline results in widely varied forecasts over the next decade. Consensus remains elusive, as unattractive fiscal terms and a perceived better operating environment in the north better operating environment continues to support an exodus of foreign oil companies from fields in the south. Additionally, infrastructure constraints, political disputes between north and south, and project delays, add to the divergence among forecast and uncertainty.
We highlight the following trends and developments in Iraq's oil and gas sector:
* While low lifting costs, large reserves, and ease of production
from large onshore fields reduces the below ground risks associated with Iraq's upstream, unappealing licensing terms, regulatory uncertainty and ongoing security concerns continue to undermine the post-war oil industry. Baghdad's last licensing round drew just three successful bids. Without improved terms and increased international oil company (IOC) interest, Iraq will find it very difficult to meet its extremely ambitious oil production target of 11mn b/d by 2020.
* Our forecast is for bullish growth in oil output, underscoring the country's substantial hydrocarbon potential, however downside risks remain abundant. With both above and below ground challenges adding uncertainty to our outlook, project delays such as those at the Majnoon field or the exit of key IOC operators suggests that while Iraq's oil production will increase over the course of our forecast period, forecasting production will remain difficult.
* Baghdad could be set to offer the improved terms that would increase interest in southern fields, with the oil ministry announcing in September 2012 would receive bids for its upcoming fifth licensing round under 'completely different' terms, from the disappointing May 2012 results. The fifth round, set for 2013, will see licences issued for gas fields only, according to the same statement. However, the revisions are not likely to be sufficient in enticing oil majors to exit licences in the KRG for those controlled by Baghdad; therefore, some form of compromise between Erbil and the Central Government remains necessary if Iraq is to reach long-term production targets.
* Iraqi crude oil production in August 2012 reached its highest level in more than three decades at 3.07mn b/d, with OPEC estimated crude production at 3.18mn b/d in October 2012. Improvements to export infrastructure in the South also lifted exports to a new high of 2.57mn b/d, according to Paris-based International Energy Agency (IEA). Additional output is coming from a number of joint venture projects, including ExxonMobil's West Qurna-1, Eni's Zubair field and the China National Petroleum Corporation (CNPC)-led Halfaya project.
* BMI sees Iraq crossing the 6mn b/d oil production mark by 2017, with the largest contributions being made by the major southern fields, such as Rumaila, Zubair and West Qurna-I. Much of this increase depends on the successful execution of the water injection project being led by USbased ExxonMobil. However, Exxon's looming exit from the project, owed to its entrance into Kurdistan, could slow West Quma progress.
* Consumption of oil is set to exceed 1mn b/d by 2018, based on higher demand for refined fuels as the economy expands and from the country's growing power needs. The huge increase in crude production and export volumes implies a spectacular rise in state revenues, which should filter through to much greater macroeconomic strength.
* Iraq's refining segment may struggle to attract the investment necessary to substantially reduce imports of refined fuels. We expect an ongoing programme of refinery expansion, but plans are somewhat vague and domestic capacity looks set to remain well below refined products consumption levels.
* Iraq's natural gas sector has substantial potential, both through the capture of associated gas (through the Basra Gas joint venture) and through the development of non-associated fields. We see gas output ramping up significantly after 2013, with small exports starting as early as 2017.
* We are assuming an average OPEC basket oil price for 2012 of US$107.05/bbl, falling to US$99.10 in 2013. By 2016, we expect the price to average US$93.25, edging lower to US$91.50/bbl by 2021. Based on these assumptions and BMI production forecasts, Iraq's oil revenues should increase from an estimated US$86.9bn in 2012 to US$228.4bn by 2021.
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