Oil production is the most important component of Iraqs economy. The country has proven reserves of 115 billion barrels, but it’s estimated that about 90 percent of the country is unexplored due to the military turmoil’s that marked Iraq’s recent history.
If these estimates are true, the undiscovered reserves could increase production capacity with 100 billion barrels. The cost of producing oil is also amongst the lowest. Finding cost is less than one dollar per barrel, while finding and development is estimated at $1.50 to $2.25 per barrel.
Oil production was deeply affected by the 2003 US-led invasion. Pre-invasion production was 3.5 million barrels a day and is currently around 2.5 million. Iraq’s Ministry of Oil expected to reach 6 million barrels a day by 2012. However, the country’s capacity of boosting production depends on three factors.
Boosting Oil Production depends on 3 factors
#1
First, Iraq must set up a viable business model for international investments switching from its long experimented state company model. The country may not have money to pay for international contractors without giving them a share of the profits. The Iraq Hydrocarbon Law comes into play.
#2
Second, Iraq is a member of OPEC, which imposes certain restrictions on production.
#3
Third, the country must increase security and deter any risks of terrorist attacks.
In May 2007, Iraqi Council proposed a legislation known as the Iraq oil law or hydrocarbon law which would authorize PSAs (production share agreements) with foreign companies, guaranteeing them a share of profits. The remaining revenue would be distributed by the central government on a per capita basis.
Furthermore, Iraqi provinces would receive autonomy in awarding exploration and production deals. Under this legislation, the state-run National Oil Company would only control 17 out of Iraq’s 80 oil fields, leaving operational control over two thirds of the fields in the hands of foreign investors. However, part of the profits would go into Iraq’s tax revenue.
After the $3 billion deal signed with China in 2008, Iraq started looking for other international partnerships, including Russia and Iran. The Russian company LUKoil is in talks for renewing its $3.4 billion deal with Iraq from the Saddam Hussein period. Gazprom Neft is another company interested in developing oil and gas plants in Iraq.
Iran plans to build a gas pipeline project passing through Iraq. The country aims to import about 200 thousand barrels of oil a day from Iraq for its Khuzestan refinery.
All these international partnerships should help Iraq reach the goal of more than doubling oil production by 2015. However, recent reports claim that these plans are somewhat unrealistic and that if everything goes well, Iraq may be able to increase production to approximately 4.1 million barrels per day by 2015 which leaves the range of estimates from 4.1 to 6 million barrels per day.
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by Darren Chabluk for http://DrDinar.com/blog
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