2013-10-11 12:04:24 - New Energy market report from Business Monitor International: "Iraq Oil & Gas Report Q4 2013"
Increasing risks and the ramp up of a new of major upstream project highlight both the potential and perils of the Iraqi oil sector. Production performance and exports continue to fall victim to both politics and infrastructure constraints, even as substantial planned investment is planned for both Iraq and the autonomous Kurdistan region. As the political and security situation worsens, Iraq may miss out on some of the gains we have priced in over the coming years. Even as the Baghdad-Erbil relationship remains stubborn to resolution, progress on key projects such as the Basra Gas development and a planned Iraq- Jordan pipeline underscore a number of opportunities for oil and gas in Iraq.
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the following trends and developments in Iraq's oil & 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, Iraqi oil production will remain well below potential, in our view.
* Rising Iraqi volumes must also be balanced with rising non-OEPC volumes elsewhere. In light of OPEC's stated preference to maintain prices in the US$100/bbl range, the pressure to bring Baghdad back into the production quota system is likely to rise alongside its output.
* Our forecast is for strong growth in oil output, underscoring the country's substantial hydrocarbon potential. we are holding onto our current 2013 forecast of 3.3mn barrels per day (b/d) given the new volumes likely to come online over the remainder of 2013 and into 2014, which looks to be more promising for the oil sector, although we note that significant downside risks remain. With both aboveand below-ground challenges adding uncertainty to our outlook, project delays such as those at the Majnoon field, downward revisions to production targets at major fields, and the exit of key IOCs from the south suggest that while Iraq's oil production will increase over the course of our forecast period, forecasting output will remain volatile.
* The ongoing dispute between the Iraqi government in Baghdad and the Kurdistan Regional Government (KRG) in Erbil remains a threat to the development of the oil sector in the north and the south, with the central government pressing firms to choose between the two.
* With construction of a 300,000b/d pipeline under way and plans for a 500,000b/d link to Turkey on the drawing board, tensions may soon flare again even as the KRG has chosen to rely on trucks rather than the federal government-controlled Kirkuk-Ceyhan pipeline to export its crude. Indeed, the dispute over payments to oil companies operating in Kurdistan has led to the periodic cut-off of exports via Baghdadcontrolled pipelines.
* We see more downside risk than upside to our near-term forecast, and we could be forced to revise our 2013 figures down further should, for example, volumes from Kurdistan fail to return to market at preshut- in rates. The start of large fields, such as Shell's Majnoon, which is due to reach 175,000b/d by the end of 2013, has led us to maintain our forecast for output of 3.3mn b/d for now. Officials recently revised downward their long-term production targets, now expecting to produce 9.5mn b/d by 2020. We believe production will fall well short of that target, reaching only 6mn b/d by that date.
* Oil exports from Iraq are due to take a significant hit in September as maintenance and rehabilitation work are carried out at the country's main export terminal the port of Basra. The port, which normally handles around 80% of Iraq's exports, will see a reduction of 400,000-500,000b/d as repairs are underway. The fall in output could last more than a month according to reports citing officials at Iraq's South Oil Company.
* Challenges in sustaining steady levels of both exports underscore the importance of infrastructure to Iraq's oil sector. The Kirkuk-Ceyhan pipeline, already in disrepair, has fallen victim to more frequent attacks by insurgents and struggled to operate reliable in recent months. To the south, bad weather regularly interrupts loading operations at the port of Basra. While Iraq is making notable progress in developing a new export route to Jordan, the 1mn b/d pipeline currently planned is not due to come online until 2018 at the earliest.
* Iraq's refining segment may struggle to attract the investment necessary to substantially reduce imports of refined fuels. Iraq has an ongoing programme of refinery expansion, but plans are ambiguous, 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, which is advancing swiftly) and through the development of non-associated fields. We also expect gas production in the Kurdistan region to increase, and we expect gas output to be ramped up significantly after 2013, with small exports possible from 2020 via a liquefied natural gas (LNG) terminal to be constructed in the south.
* We are assuming an average OPEC basket oil price of US$103/bbl for 2013, falling to US$101.00 in 2014. Iraq's petroleum export revenues are projected to increase from an estimated US$93.7bn in 2012 to US$101.5bn in 2014.
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