Middle East Economic Survey
VOL. LI
No 43
Suggested Parameters For Development Of Oil And Gas Fields In Iraq
By Falah al-Khawaja
Mr Khawaja worked in the Iraqi oil sector for 41 years, ending his career in July as head of state-owned oil engineering firm SCOP. He is now based in 'Amman, Jordan as an independent consultant (e-mail falahalkhawaja@yahoo.com).
Now that the first Iraqi upstream licensing round is underway, preparations have begun at the Ministry of Oil to identify the fields to be included in the second licensing round. The contract structure and choice of fields will be critical not just for the future of Iraq’s oil industry, but for the well-being of the country as a whole.
I have the following recommendations with regard to parameters to serve for the selection of these fields:
1. Aim to achieve the required 6.0mn b/d target indicated in the recently approved 10-year plan. The target to be achieved through the first licensing round is 4.5mn b/d, thus leaving a target of 1.5mn b/d to be achieved through the following licensing rounds.
2. The first priority is to compensate for expected depletion during the next five years. A lot of work needs to be done to establish exact depletion rates in various production scenarios for each of the fields in the coming rounds, and thought needs to be given to the best structure to deliver optimum recovery to ensure maximum revenue over the life of the fields.
3. Ensure that the selection covers the demography of Iraq as a whole. Thus all Iraqis in all areas will be involved in the oil and gas development, assuaging fears that any particular Iraqi community is being potentially sidelined by oil development. This will help to solidify the unity of Iraq, as well as spread the side benefits of employment and infrastructure development to all areas. For example, development of Najma, Jawan and Qasab fields, totaling some 2bn barrels of reserves, could bring much needed development to these areas, which are so far relatively untouched in terms of oil production. There is also the issue of just how much infrastructure development Basra province can absorb in such relatively short time.
4. Aim for the transfer of modern technology, especially in areas where we have little or no experience such as heavy oil, enhanced oil recovery and gas field operations. At some point Iraq will have to develop hitherto untouched heavy oil reservoirs in its giant fields. It would be invaluable to first gain experience in fields such as Najma, Jawan and Qasab or the Balad field, for instance.
5. Maximize Iraqi direct execution of hydrocarbon fields development and, wherever possible, structure bidding rounds to allow as much national execution as is realistic, with reputed consultancies.
6. Upgrade the civil infrastructure necessary for implementation of such huge projects (roads, bridges, hotels, housing schemes) as well as power, water supplies and so on. The state should take the lead in this developmental push, in tandem with the oil ministry, as part of an integrated national plan.
7. As the planned targets can be covered without resort to our supergiant fields such as Majnoon and West Qurna Phase 2, these fields can be left to future generations. Major world powers are buying crude for storage. We have natural storage, so let’s keep it. Some argue that it will cost more per barrel to develop the other fields, but this will be offset by the economic and political benefits to the whole country.
8. We should hasten the development of border fields, such as those in Misan province. Delineation of border fields and utilization agreements will not only bring development to these areas, but diffuse potential future conflicts.
9. Settle the issue of contracts that have clearly not worked, such as those for Subba and Luhais and Hamrine. Too much time has already been lost, and it is imperative that development of these fields is fast-tracked.
10. Introduce the idea of ‘packaging’, ie call for development of the fields together with gas treatment, oil refining and power generation facilities.
It is my hope that these parameters will be reviewed and enriched by contributions from my former professional colleagues in the Ministry of Oil.