The Prospects Ahead.

Iraq is among the countries least well-explored in the world, with the bulk of its proven oil reserves of 116 bn barrels being in the Cretaceous. Western geologists have suggested the country could eventually over 350bn barrels of recoverable oil and up to 900 TCF of recoverable natural gas. For such figures to be realised, however, Iraq needs to have the biggest number of IOCs possible to do proper exploration, as well as re-explore existing fields.

For one example, it is speculated that very deep beneath the Majnoon, Nahr Umr, West Qurna, North-South Rumaila and other nearby fields in the south lies what is called "The Great Rumaila Triangle" which could be the biggest single oil reservoir in the world, surpassing that of Ghawar in Saudi Arabia. If this is true, Baghdad would require a breed of decision makers less rigid than the current resource nationalists of the Oil Ministry. If and when "The Great Rumaila Triangle" is found, Iraq would be in a position to produce 25m b/d or more. If that ever happens the map of the Greater Middle East (GME) would have changed drastically.

Dr Shahristani, a highly-respected scientist who prides himself in having forced IOCs to accept his terms, fits more in the loftier world of science and research to take Iraq to the post-petroleum era. He is hardly the man to make the above-mentioned scenario a reality.

What Dr Shahristani is offering to the IOCs is a 15-20% return on their investment, reasonable under the circumstances. But this RoI is way too low a motivator the world's biggest IOCs require to turn Iraq into the biggest source of energy to the globe. Unfortunately, it will take sometime before the Iraqis and their neighbours in the GME realise that resource nationalism is the worst national narcotic they can have. It is unfortunate that times are changing rapidly, and the window of opportunity for those depending so heavily on fossil fuels is not likely to last long enough for the slow learners to catch up with the post-fossil fuel era when renewables become competitive sources of energy.

Even Abu Dhabi and Saudi Arabia are realising the tremendous potentials of such renewable sources of energy as the sun in the desert (see survey of Saudi Arabia in down13SaudiEnBasSep28-09). Men like Dr Shahristani should have concentrated on the potentials of a new generation of nuclear energy plants now being developed in the OECD world and should have led the focus on the non-oil sector, leaving this to the types of professionals required to maximise on the window of opportunity now open before it is too late.

Yet the 15-20% RoI is a good ticket for IOCs to enter Iraq and wait there while developing fields in low-risk ventures, better than staying out and waiting for things to improve. Dr Shahristani is hoping the list of IOCs accepting his terms will get longer.

For IOCs, however, politics threaten the legitimacy of contracts which are an investment risk. Disputes have already hindered attempts to attract the billions of dollars needed to overhaul an industry run down by years of sanctions and war. Contract legality is still unclear. For example, will ratification be respected by the next government?

There is no agreement in Iraq on who has the authority to approve the deals. The Oil Ministry says cabinet ratification is enough. MPs say only parliament has the authority and the current House of Representatives is full of resource nationalists who have proven to be more so than Dr Shahristani. Some IOCs fear future governments could tear up old contracts. The problem is part of a wider dispute.

More than six years after the US-led invasion and the toppling of Saddam's Sunni/Ba'thist dictatorship, Iraq has yet to reach consensus on how to develop and share petroleum wealth. The stalemate has delayed a new petroleum law for years and left it struggling to keep output from shattered infrastructure at pre-war levels.

Dr Shahristani made much of the transparency involved in the first round, which was televised live. Yet the new deals have been negotiated behind closed doors. Shell is re-negotiating with the Oil Ministry about the Kirkuk oilfield, one of Iraq's largest oil producing areas, after it failed to win access to this in the first auction. Kirkuk was offered as part of the first round.

Shell did not accept the Oil Ministry's fees of $2/b. It wanted $7.89/b. But it has since hinted it may accept a compromise - a fee higher than $2 but much lower than its asking level. The Oil Ministry has said it needs to get the approval of the PM before allowing anything above $2/b. The Shell-led consortium for this, which included China's CNPC and Sinopec and Turkey's TAPO, offered to raise output to 825,000 b/d against Iraq's minimum 600,000 b/d. But Sinopec is blacklisted by the Oil Ministry because it bought Addax' share in a Kurdish oilfield in northern Iraq. Baghdad does not recognise the exploration and production sharing agreements (EPSAs) signed by the KRG with IOCs.