Report: Iraq’s oil sector plagued by volatile oil market and uncertain political environment

The oil production in Iraq will continue to suffer owing to the problems being faced by the country, according to a GlobalData report.

The report estimates that the country’s oil production will be approximately five million metric barrels a day (mmbd) by 2020, which was earlier set at 12mmbd by the Iraqi Oil Ministry in 2009.

Titled ‘Oil growth story in Iraq loses steam‘, the report discusses how the global oil scenario coupled with political turmoil and the ongoing war with ISIS has dented the tremendous growth potential of Iraq’s oil industry. All these factors have increased the financial woes making it impossible to invest in projects to achieve the projected production levels, despite Iraq possessing abundant resources.

The country’s southern fields, including West Qurna-1 and Majnoon, have benefited from the current low oil prices with break-even prices of $9.7/bbl and $21/bbl, respectively. The revenues realised from these assets are, however, insufficient to repay oil companies operating in the upstream sector.

The GlobalData report highlights that as a measure to tackle the lack of funds and increasing capital expenditure, authorities contacted major operators to request for budget cuts. These operators included BP, Royal Dutch Shell and Lukoil with BP agreeing to the proposed budgetary cuts in 2015.

The oil major slashed the budget of its Rumaila field by approximately 50% to $1bn leading to a stable production at the rate of 1.4mmbd, while a similar cut is also expected to occur in 2016.

With consortiums operating in the country agreeing to cut their expenditure budgets, the report expects the production to grow albeit at a significantly lower rate. The present production rate is 4.3mmbd, which is estimated to increase slightly during the forecast period.

The government has incurred great losses due to the ongoing conflict with ISIS. Several fields including the Ajeel, Najma, Hamrin, Qayara, Batma, Qayara, Balad and Ain Zalah were captured by the group in 2014 leading to a campaign by the Iraqi authorities to recapture them.

The production facilities at these fields have suffered severe damages and have to undergo redevelopment to restore them.