By Samar Rassam-Whitticombe, CEO of Somer Industrial Projects (SIP)
It has been a very eventful few months in the Iraqi Oil and Gas industry. We have had to contend with the volatility of oil prices and the Iranian deal (http://www.bbc.co.uk/news/world-middle-east-33521655)
Added to that is the current political situation in Iraq and Prime Minister Haidar al-Abadi’s move to form a new government.
The main issues facing Iraq continue to be ISIS and the economic crisis caused by low oil prices. Iraq has been seriously affected by the major disruption in the energy markets due to oil prices. This has resulted in lower revenues for the producing countries which affects their budgets.
A rise and much needed stability in oil prices is no doubt the wish of all oil and gas companies.
IP Week and Argus Media Events
This year I have attended the IP week in London which was followed by Argus Media in Abu Dhabi in March, and was lucky enough to meet Dr Falah Alamri, DG of SOMO.
In his speech he mentioned developing refining capacity through investors and also said that he had no prediction for prices as he didn’t have a crystal ball.
The Ministry of Oil are endeavouring to contract with global investment firms in order to develop refining capacity and provide petroleum products throughout the country. There was a statement from a source within the Ministry confirming that they were moving operations to rehabilitate and develop refineries across the country for the above purpose. Dr Falah Alamri repeated this information at the recent CWC event.
It is thought that this will be done through developing the Nasiriyah field, since the production from the Baiji refinery has stopped. Currently the demand for petroleum products has been successfully provided to citizens by importing them from overseas.
CWC 2016 Event
I attended the three day CWC 2016 event in London last week. The first day covered security issues and there were many discussions on geopolitics and liberated regions. Coincidentally, at the same time Iraqi forces were busy retaking Falluja. Iraq’s resources are being continually strained by the ongoing armed conflict which continues within the country.
On the remaining two days, Iraq’s oil and gas industry was addressed and, despite challenging conditions, it managed to hit records of oil production and was actually able to increase output production. Oil output has reached 4.7 mbpd and exports are running at a record 3.9 mbpd. These figures include Kurdistan and Kirkuk, but the main increase is from Southern Iraq.
It has been a difficult time for Iraq as it values the positive business relationships it has nurtured with International Oil Companies (IOCs) and the steep fall in oil prices has massively affected the balance of payments and budget revenue. The Iraqi government plans to pay IOCs in full for the first three quarters of the year by the end of 2016. They are confident that they can achieve this due to the recent increase in crude oil prices – from $27 in January to a current $38-39 per barrel.
The key to overcoming Iraq’s huge economic challenges is to adopt diversifying measures. For instance, Basra Heavy crude oil is one of the drivers of increased Iraqi oil production.
In his speech at this event, Dr Alamri stated that ‘the segregation of Basrah crude streams into Basrah Light and Heavy last year was considered a success, in terms of improving overall quality and increasing export and revenues, and he said international oil companies had expressed satisfaction with the grades’ stability’. He also stated that there was a keen interest in Basrah Heavy from US buyers, where it had displaced some Venezuelan and Mexican grades.
He announced that despite the difficulties that Iraq has been through it has emerged stronger, more developed, and even more determined to increase the country share of the oil market in order to fulfil the main task, which is to maximize Iraq’s oil revenues.
Therefore, key bottlenecks are being handled and all export facilities are going to improve and expand, which will make Iraq emerge as an important player on the scene of oil markets for decades to come.
Dr Alamri also added that SOMO were working very hard to overcome the obstacles and build new refineries. When Baiji refinery was lost it affected the country but a new refinery is now being built in Karbala.
The Iraqi Minister of Industry and Minerals, HE Mr Mohamed Sahib Khalaf Al-Daraji agreed that Iraq needs refineries. He stated: ‘We have the cow, but we buy milk from our neighbours.’ He also urged leaders in Baghdad and Erbil to sort out their differences and work together as 17% of the national budget is dedicated to the KRG region.
Other issues that were addressed at this event were Iraq petrochemicals and new projects such as Power Gen, infrastructure, refinery capacity, key objectives for the next five years and opportunities for foreign investment, for example, the Iraq Mega Faw Port.
The IMF has agreed to give Iraq a three-year $5.4bn loan agreement. Finance is required and sustains economic growth.
It was felt to be reasonable to expect that changes will continue to be seen in Iraq. The focus will be on increasing levels of efficiency and innovation in improving oil extraction, development and production. Employers are more likely to seek individuals who have the mind-set that enables these new levels of innovation. There will, undoubtedly, be exciting opportunities for those who are able to embrace changes.
In my opinion a united Iraq is for the benefit of the whole country.