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IRAQ - Part 1 - The Prospects.

Iraq's crude oil production in April is expected to average below 2.1m b/d, down from a pre-war level of 2.5m b/d, with exports averaging about 1.5m b/d. If the security situation improves and investments are followed through, oil output could rise by 500,000-750,000 b/d within weeks.

The Oil Ministry in 2004 drew up a comprehensive policy for the petroleum sector and submitted it to the Supreme Oil & Gas Council, targeting Iraqi oil production capacity at 3.25m b/d by end-2005, up from a currently installed capacity of 2.8m b/d, and a minimum of 6m b/d by 2010, with an ultimate capacity of 8m b/d. Iraq is by far the biggest oil province left in the world for foreign investors.

Saudi Arabia is the biggest oil province in the world; but its oil E&P is reserved for the state-owned company, Saudi Aramco, and it still seems there is no way that Riyadh would offer foreign firms any E&P investment opportunity other than its natural gas prospects. Iran and Kuwait are only offering service contracts. Opportunities on offer in other Middle East countries involve relatively small fields, with new E&P prospects not likely to result in giants comparable to those of Iraq.

Iraq has the world's biggest number of discovered oil and gas fields awaiting development by foreign firms under service contracts (SCs) for one category, and production sharing agreements (PSAs) for another category. Already the Oil Ministry has lined up a number of companies which have signed technical co-operation agreements - as a first step towards SCs and PSAs which can only be signed when a legitimate government is in place (see Part 2).

The geological prospects in Iraq are excellent, in some areas unique in the world. Highly prospective blocks will be on offer for foreign firms to explore (see Gas Market Trends of this week).

Economic conditions in the country are extremely bad, however. This is due to daily violence since August 2003 and confusion in the wake of a swift US-led offensive against Saddam Hussein's thuggish Baath Arab Socialist regime which has proved to be one of the bloodiest kleptocracies in history. People still have to queue for long hours to get fuel and power blackouts remain frequent (see Downstream Trends of this week).

With the help of the world's biggest oil majors, Iraq could eventually have the best of market shares on both sides of Suez. In the longer run, Iraq may become the world's biggest exporter of gas liquids (see Part 3) and one of the world's biggest producers of petrochemicals (see DT No. 19).

The quality of decision making in Iraq's petroleum sector will depend on the nature of government that will emerge after a constitution has been approved before end-2005 by a transitional National Assembly elected on Jan. 30. But early signs of what is to be expected will appear shortly from the formation of a government with the legitimacy to sign final SCs and PSAs (see Part 4).
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Publication:APS Review Oil Market Trends
Date:Apr 25, 2005
Previous Article:IRAN - The NIOC Background.
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