Iraq could make up Global Oil shortfall
New data indicates Iraq has huge reserves

By now anyone who has ventured out of the office to an industry conference has heard the predictions for a sizable global hydrocarbon shortfall by 2030. Estimates vary, but by and large, projections indicate the world will use more than 100 MMb/d of oil in 2030, up from around 86 MMb/d today.

Meeting this growing demand is going to be a huge challenge. As Steven Kopits, managing director of Douglas-Westwood LLC in New York, told participants at the Society for Underwater Technology in January 2010, oil companies will need to find and get into production “one new Saudi Arabia every three years.”

Given that Saudi Arabia produces approximately 9.5 MMb/d, that is a very tall order. And it is not very likely to happen.

Part of the problem in meeting this enormous demand is finding the reserves – or at least, that was the problem before geologists reassessed Iraq’s potential. According to experts, the country’s oil reserves could be the biggest in the world, exceeding 400 Bbbl.

Though some remain skeptical, the fact is that Iraq awarded leases in 2009 that could account for nearly 10 MMb/d incremental capacity.
Of course, the fact that the reserves are in the ground does not mean getting them into production will be easy. According to Jim Burkhard, managing director of IHS CERA’s global oil group, Iraq will be a huge player over the next decade, but operators will have their work cut out for them.

Burkhard told attendees of the Microsoft Global Energy Forum in Houston on January 21 that Iraq’s reserves could change the world balance, explaining that between 1998 and 2009, “The entire world saw oil production increase by 10 MMb/d.” Now, he said, “One country has the potential to increase global oil supply by the same amount.”

For Iraq to actually add more than 9 MMb/d to world supply would be astronomical.

“There is an enormous amount of potential,” Burkhard said, but there are a lot of challenges. These include political instability, dubious security, and a lack of infrastructure. “Long-term potential is enormous,” he said, “but it’s not going to be easy.”

A “Wall Street Journal” report on the most recent licensing round says that supermajors, including Royal Dutch Shell, France’s Total SA, and Chevron Corp. are among the companies interested in Iraq acreage.

These heavy hitters have worked in many inhospitable places around the globe in the past and have managed to turn a profit. They have strong track records, and given the reserves estimates and the demand projections, they have enormous incentive as well. Shell and Petronas Carigali have already hit the ground running.

In late January 2010, Shell and Petronas signed a 20-year contract with the Ministry of Oil of the Republic of Iraq to provide technical assistance in the development of the Majnoon oil field in southern Iraq, one of the largest oil fields in the world. The consortium is targeting a production plateau of 1.8 MMb/d of oil, up from a current level of approximately 45,000 b/d.

“Iraq’s oil and gas reserves are among the largest in the world and we look forward to applying our experience and technology to support ongoing efforts to rebuild the country’s energy infrastructure,” said Shell CEO Peter Voser.

Shell, as lead operator, will hold a 45% share, with partner Petronas holding 30%. The Iraqi state holds 25% of the participating interests in all licenses. The signing of this agreement follows the contract award on Dec. 11, 2009, and the approval of the Iraqi Council of Ministers on Jan. 5, 2010.

So it seems the race has begun.

According to Douglas-Westwood’s Kopits, “Iraq can be a game changer if expectations are materially met.”

Time will tell if the optimism and quick entry of operating companies will allow them to meet those expectations