Iraqi Oil: industry evolution, production dynamics and future competitiveness
Iraq is expected to make one of the largest contributions to OPEC production growth out to 2020 (having already added 1.7-1.8m b/d from 2011-2016). IOC’s in Southern Iraq have been the major contributors of growth, having added 2.3-2.4m b/d since 2009 (with approximately 700,000 b/d offsetting declines). Despite Iraq’s prized position in having some of the largest-scale low-cost oil resources at southern fields, harsh technical service contracts (TSCs) and technical challenges have tempered growth projections. Similarly, the front-loaded development of Iraq’s oil industry since the mid-2000s is apparent given the pace at which upstream growth has outpaced midstream capacity. Iraq’s midstream is related not only to pipeline development but also to storage tank capacity and infrastructure for crude segregation – a key driver of Iraqi production growth from 2015. As Iraq seeks to improve its competitive position, legacy factors are coming into play. These include: maintaining crude quality as the portfolio of Basra Heavy increases due to increased production from the Mishrif Reservoir; the challenge of limited availability of water for injection; handling associated gas volumes; and finally addressing Iraq’s dilapidated downstream and power segment.
This paper aims to examine Iraq’s oil industry from the “inside-looking-out” as Iraq’s upstream potential is inextricably tied with developments in both the midstream and downstream. The pace and scale of these developments will also take place against the backdrop of wider geo(political) and market-related factors: the post-ISIS political and fiscal agenda governing the oil sector; the investment pipeline for Iraq’s mid-and-downstream development (factors influencing crude quality, exports and revenues); changes in the crude diet of Iraq’s key refining customers (Asia, US); the trading strategy deployed by SOMO (and that of Iraq’s rival producers in the physical market); the changing structure of oil (and product) flows; and finally, the interplay between Iraq’s political (and non-state actor) system and the role of well-established and newer geopolitical actors relevant to Iraq’s oil complex – Iran, Saudi Arabia, Turkey and Russia. How quickly Iraq plays “catch-up” and responds to the factors addressed above will be key in assessing not only Iraq’s position in global oil markets (including physical pricing implications) but its future competitiveness in a rapidly changing oil and energy market system.