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Crude oil prices are high enough to encourage investments in marginal fields, Iraqi Oil Minister Hussain al-Shahristani said.

Iraq, holder of the world’s third-largest oil reserves, is producing oil at “far below” its potential and plans to add four oil refineries with 750,000 barrels of capacity a day to tap rising demand from Asia, al-Shahristani said at the Asia Oil and Gas Conference in Kuala Lumpur today.

“It’s not expected that there will be much oil available from other parts of the world,” he said. “Any additional demand, particularly from Asia, will have to be met by Iraq.”

The Middle East nation is seeking foreign investors to boost output after six years of conflict and prior sanctions destroyed its infrastructure. The country completed two bidding rounds for oil development rights last year and has awarded a dozen contracts to international companies.

The country will receive $150 billion in investments from fields awarded last year, al-Shahristani said.

Nations counting on oil for revenue and investments have seen income fell as crude prices declined on concern slower growth will sap demand for energy. The price of crude oil in New York lost 14 percent in May, the biggest monthly drop in 18 months, partly on concern the euro region’s debt crisis will slow economic recovery. U.S. crude oil inventories have risen every week but two since the week ended Jan. 22, according to data from the U.S. Department of Energy.

Refinery Study

Foster Wheeler AG said last week that it won a contract for a feasibility study and the engineering and design of an oil refinery at Nassiriyah in Iraq, as the Middle Eastern country seeks to boost its capacity to meet domestic demand and allow for some exports.

Iraq plans to build a 300,000 barrel-a-day facility at the southern city of Nassiriyah, Foster Wheeler said in a Business Wire statement June 2. The company didn’t disclose the value of the contract.

“Within a couple of years Iraq should be an exporter of petroleum products rather than an importer,” al-Sharistani said.

Iraq consumed about 638,000 barrels a day of oil products in 2008, up from 596,000 barrels daily in 2007, according to a report from the U.S. Energy Department.

OPEC Meeting

The Organization of Petroleum Exporting Countries, which supplies 40 percent of the world’s oil, isn’t planning any emergency meeting before its next scheduled meeting, he said. The next scheduled gathering is on Oct. 14.

Oil prices are “reasonable” and there is no shortage of supply, Mohamed al-Hamli, the United Arab Emirates oil minister. said June 2.

OPEC is set to reduce shipments this month as demand from Europe and the U.S. remains weak, according to tanker-tracker Oil Movements.

OPEC will ship 23.47 million barrels a day in the four weeks to June 19, the consultant said in a report on June 3. That’s down from a revised figure of 23.6 million for the four weeks to June 12 and 23.7 million in the four weeks to June 5. The data exclude Ecuador and Angola.

OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Iraq is exempt from the quota system.

Kuwait's Zain has signed a services management agreement with Motorola. Under the three-year contract, Motorola will operate and manage the Kuwaiti telecoms 3G network as well as handle the design, planning, support and optimisation.

The two firms also have existing contracts in Iraq, Saudi Arabia, Nigeria and Jordan for several different technologies, network domains and service functions.

( AME Info FZ LLC )

An Iraqi soldier at the roadblock motions for Ryan’s taxi to stop and then walks up to the taxi.

AHmed:  SbaaH ilkhair.	أحمد: صَباح الخیر  .	Good morning.
Soldier:  SbaaH innuur.  Wehn rayyiH?	جندي: صَباح النور . وین رایح ؟	Good morning.  Where are you going?
AHmed:  Aani da aakhuth haatha l Amriiki l finduq Baghdad.	أحمد: آني دا آخُذ  هذا الامریکي لفِندُق بَغداد .	I am taking this American to the Baghdad Hotel.
Soldier (to Ryan):  Agdar ashuuf                                                    jawazzak, rajaa’ann.	جندي: أگدَر أشوف جَوازَك رَجاءً .	May I see your passport please.
Ryan:  Na’am, Tab’an.  Itfathal.	راين: نَعَم ، طبعاً  . إتفضل .	Yes, of course.  Here it is.
Soldier:  Leesh jayt lil ‘Iraq?	جندي: لیش جیت للعراق ؟	Why have you come to Iraq?
Ryan:  Aani SaHafi w da-aktib cham taqriir w hamm kitab ‘ann il                   Harb fil ‘Iraq.	راين: آني صَحَفي و دا أکتِب چم تقریر و هم کتاب عن الحَرب في العراق .	I am a reporter and I am writing some articles and also a book on the war in Iraq.
Soldier:  Inta teHchi ‘Arabi kullish zehn.                Wehn t’allamit il lugha il ‘Arabiyya, wil lehja il ‘Iraqiyya?	جندي: إنتَ‌ تحچي عربي کُلِّش زین. وین تعلمت اللغة العربیة ، و اللهجة العراقیة	You speak Arabic very well. Where did you learn the Arabic language, Iraqi dialect?
Ryan:  Aani dirasit b madrasa fi Amriika.	راين: آني درست بمدرسة في أمریکا .	I studied at a school in America.
Soldier:  Zehn.  Itfathal jawazzak.  Iktib ‘ann hathiich.	جندي: زين. إتفَضَل جوازك . إکتِب عن هذ یچ .	Good.  Here is your passport.  Write about that.
The soldier points to an automobile that has been blown up by a bomb.
Soldier:  Mukharribiin fajiraw has sayarra . Tiss’a maqtuuliin w sbaaTa’ash majruHiin.	جندي: مُخَربین فَجِرو هالسَّیاره‌. تِسعه‌ مَقتولین و سباطَعَش مَجروحین .	Terrorists blew up this car. Nine killed and 17 injured.
Ryan:  Minnu hathoola il mukharribiin? Humma min il ‘Iraq lo ajaanib?	راين: مِنو هذوله‌ المخربین همه‌ من العراق لو أجانِب ؟	Who are these terrorists?  Are they from Iraq or are they                                         foreigners?
Soldier:  Ma adri.  Yimkin cham waHid Ba’thii min l ‘Iraq.  W yimkin yijuun min il Urdun, is Su’uudiyya, Suurya w min Hwayya buldaan.  Ya’nii, na’am, ajaanib.	جندي: ما أدري. یمکن چم واحِد بعثي من العراق. ویمکن یجون من الاردن، السعودية ، سوریا و مِن هوایه‌ بلدان. یعني، نَعَم، أجانب .	I don’t know.  Maybe some are Baathists from Iraq.  And some may come from Jordan, Saudi Arabia, Syria, and from many countries.  Meaning, yes,                                              foreigners.
The soldier turns to AHmed.
Soldier: AHsan ithaa truuHuun hessa.  Diir balik.  Waddi lil finduq. B-sur’a.	جندي: أحسن اذا تروحون هسه‌ . دیر بالَك. وديه‌ للفندق. بسرعة .	Better if you go now.  Be careful.  Drive him to the hotel.  Hurry.
AHmed: Yalla!  Khal nruuH.	أحمد: یاالله! خَل نروح.	C’mon!  Let’s go.
Soldier:  Ma’a ssalaama.	جندي: مع السلامة .	Good-bye.
AHmed:  Fii amaanillah.	أحمد: في آمان الله‌ .	Good-bye.

Leading High Risk Insurance Specialist Opens Second Iraq Office

AAIB Insurance Brokers, the leading Iraq insurance provider, has appointed Mr Michael Carr FCII as the Divisional Director of its Iraqi registered company Al Fajer Insurance and Reinsurance Brokers.  He will be based at AAIB’s latest office to open in Iraq, located in the southern city of Basra.

Mike Carr has over 25 years experience in the insurance sector working across a variety of operational, product management and business development roles.  His UK experience was built up at Zurich and Pearl before moving to work in Saudi Arabia, Jordan and Iraq.  He joins Jordan based AAIB from Saudi based company SABB Takaful, where he was the company’s Chief Operating Officer.

AAIB Founder and Managing Director William Wakeham said: “Mike’s appointment and the opening of our Basra office signals exciting times for AAIB.   We have been operating in Iraq since 2004 and have built up huge amount of knowledge and an incredibly sophisticated and cost effective portfolio of products.  In line with our ethos, to work alongside out clients on the ground, we are now expanding our presence in Iraq which is being driven by experienced and highly knowledgeable members of the AAIB team like Mike.  I am delighted to have him on board.  He is a huge asset to the company and an invaluable support to our clients working in Iraq.”

Jordan based AAIB was the first foreign insurance business to register offices in Iraq when it opened Al Fajer Kurdistan Insurance and Reinsurance Brokers in Erbil in October 2008.   The following year it opened the first ever registered premises in Iraq’s capital Baghdad which also operates under the locally registered name Al Fajer Insurance and Reinsurance Brokers.  In line with AAIB’s commitment to supporting the Iraqi insurance industry the company is actively recruiting and training up local Iraqi staff for administrative and other core functions in its offices.

AAIB is also the first company to provide dedicated medical insurance policy for local employees in Iraq, Iraqi Kurdistan and Afghanistan.   Launched in July 2009, the Regional Health and Health + Plans provide cover for in-patient and day-patient hospital treatment, including injury and illness resulting from acts of war, terrorism and kidnap.   The policy is underwritten with ‘A’ rated security through Lloyds of London and was specifically developed to meet the needs and requirements of international companies looking to provide essential healthcare benefits to their local employees.  With premiums starting from less than $10 per employee, per month, the policy has proved popular with companies, both large and small, looking to reaffirm their commitment and provide the best possible employment benefits and practises - not only for their expatriate staff, but also their local employees.

A pioneer of Iraq's insurance sector, AAIB’s reputation as one of the leading organisations in handling all major insurance requirements in challenging and high risk regions is gaining momentum.  Earlier this year, Managing Director William Wakeham was invited to address delegates at the annual Marsh National Oil Companies Conference in Dubai which, as part of the 2010 theme ‘NOCs into the Future: the Challenges and Opportunities Ahead’ addressed the current issues related to the management and transfer of energy risks in Iraq.   In his speech, entitled “Doing business in Iraq - real life and practical routes to success” Mr Wakeham imparted invaluable insights and lessons to some of the world’s leading oil companies.

For more information or interviews please contact:

Abby Smith at [email protected] or call M: +44 7825 336 933

Iraq's oil minister said Tuesday that world crude prices are "reasonable" and are high enough to encourage oil investment without hurting the global economic recovery.

Hussain al-Shahristani's remarks in an interview with The Associated Press added to perceptions that OPEC is not eyeing any immediate changes in output despite the past weeks' large price swings.

The 12-nation group has left its output targets unchanged for about a year-and-a-half, fearing that any sharp revisions could undermine slow gains as the world struggles to emerge from its worst recession in over six decades. It is scheduled to meet next in October.

Al-Shahristani said there has been "good progress" in the economic recovery and oil prices are not impairing that process.

"On the one hand it (oil price) is sufficiently high to encourage investment, to develop marginal fields, mostly outside of OPEC countries," al-Shahristani said. He stressed that it was important that there be "production from other regions and areas, to reduce total dependency on OPEC output."

"On the other hand it is not too high to adversely affect the recovery of the world economy," he said. "I think we are at the right balancing point."

The benchmark crude oil futures contract for July delivery was trading near $72 a barrel in late trading in Europe. That is within range of what OPEC kingpin Saudi Arabia and others in the producer bloc say is a reasonable price for producers and consumers.

Prices have fallen from $87 per barrel in the span of weeks on worries that Greece's debt crisis could spread to other European countries, undercutting the economic recovery.

The drop in prices, however, carries serious implications for Iraq, which sits atop the world's third largest proven reserves of conventional crude oil.

After years of sanctions and war, Iraq has staked its economic recovery on developing its oil sector.

Oil revenues make up nearly 95 percent of Iraq's income. The Baghdad government is relying on 12 deals with international oil companies, 11 of which were the result of two international bidding rounds last year, to dramatically increase oil output in future years.

But the lack of a petrochemical law, ongoing insurgent attacks and uncertainty about who will lead the next government continue to be challenges to developing the oil sector.

The oil minister said he expected the country's oil production capacity would climb to over 12 million barrels per day in six years.

Analysts, however, say that level is unrealistic given continuing security issues and the condition and limits of Iraq's current oil infrastructure, including pipelines.

Al-Shahristani said Iraq was taking steps to boost its export infrastructure.

Earlier Tuesday, Iraq's Supreme Court ratified election results from the country's March 7 contested parliamentary vote, clearing the way for a new government to be formed. The court ratified the results and declared a secular alliance led by former Prime Minister Ayad Allawi the winner.

Al-Shahristani, a key supporter of Prime Minister Nouri al-Maliki's State of Law coalition, said he is not pursuing any position with the new government should the premier retain his job. But he said he would consider staying on if al-Maliki asked.

( Associated Press )

Iraq is blessed with natural resources. It has water, oil, gas and sulphur, among many others. It also has adequate human resources. All that the country needs now is safety and security, and others to believe in its future.

Rebuilding Iraq: The century's deal'. The headline, which appeared in an Arabic-language newspaper shortly after the 1990-91 Gulf war ended, summarized it all.

Iraq, which has an abundance of natural resources, could offer investors numerous rebuilding contracts. This after the Americans had warned that they would, through the US-led multinational alliance, take the country back to the pre-industrial era.

Twenty years later, the circumstances look different. But the story has not changed much. Lack of total security and stability today is still obstructing the needed normal flow of investments into Iraq from different countries, including Turkey and the United Arab Emirates.

Yet, this doesn't negate the fact that Iraq is an un-utilized treasure for investments, say experts and economists.

"Iraq: the prize that outweighs all risks," was chosen as a title for a paper presented at a conference on doing business in Iraq that was held in Dubai recently. The situation in Iraq has changed a lot since the 2003 war. The whole political regime of the country was changed and it was torn apart.

One of the characteristics of the grand "prize" is the fact that it has a "$600 billion (Dh2.2 trillion) investment requirement," Luay Al Khatteeb, Executive Director at the Iraqi Energy Institute and author of the paper, explained.

Other features include nationwide reconstruction, long-term opportunities, constitutionally pro-market economy and plentiful oil and gas.

So far, the biggest chunk of investment money has been pumped into the more stable and secure northern region of Kurdistan. According to Iraqi Kurdish estimates, foreign direct investment stands at $12.5 billion.

However, things have started to change slowly.

Security improvement

"At the beginning, the trend was to invest in Kurdistan because of the security situation. However, the rest of Iraq is equally important," Hadeel Hassan, senior Associate at the Baghdad's office of Al Tamimi & Company law firm, explained to Gulf News. The company organized the Dubai conference on Iraq.

"The central government in Baghdad is indispensable and there are also [vital cities and areas, namely] Kirkuk and Basra," she said. Both cities have giant oil fields that are essential to the Iraqi economy.

"There are bigger and wider investment opportunities all over Iraq," she added.

With an average crude oil production of 2.45 million barrels per day, Iraq is the third largest OPEC producer. Iraq is also among the top five countries in terms of oil reserves. The country is also rich in phosphates and sulphur.

Foreign investment in oil extraction is not allowed in Iraq. However, foreign investment can be made in other oil-related services.

"Iraq is still the land of the century's deal, and it will continue to grow," Adnan Blebil, Director-General of the Iraqi Civil Authority, told Gulf News. "Today, we are looking for the necessities. The day will come when we will be looking for the unessential items, and the another day will come when we will be looking for the luxury things," he added.

With its nearly 30-million population, Iraq is a big market. It is also a "virgin" one. "All the country and all its economic sectors are virgin ones. Iraqi sectors need everything," Blebil added.

After the government implemented its "Law Enforcement Plan" in 2008, in which state security forces launched a campaign against illegal weapons and outlawed militias, the security situation started to improve.

"Even the security companies that had a presence in Kurdistan started heading towards Baghdad," Hassan said.

Changing economic circumstances

"A huge amount of investments are going into Iraq in the past 18 months," Rob Tolley, Director of Dubai-office of United Insurance Brokers Ltd, (UIP) pointed out.

UIP is among the insurance companies that are studying opening an office in Iraq in the coming few years, Tolley says.

Yet the image is still not that rosy.

Cost of protection and personal security could be many times over of what could be paid in other places other than Iraq. Knowing the country well is a must, according to security specialists.

While suicide attacks and insurgent bombings have tapered off in the past few years, local residents point to the fact that the attacks still taking place target Iraqis, a sign the attacks are political. In the past, the attacks targeted foreigners.

"Security is the capital of investment," said Jawhar Al Fahel, representative of Salah Al Deen province, in the Iraqi National Investment Authority.

Some projects carry a 10-year tax exemption, depending on the approval of the Iraqi Investment Commission. Under the commission's rules the exemption is usually applied to large projects in sectors such as health and energy.

But there are an increasing number of big foreign companies that are waiting for the right time to undertake projects in other parts of Iraq. Among them are UAE companies.

UAE companies

Two Emirati real estate and international investment companies, Al Maabar and Bloom, are close to signing contracts with the Iraqi National Investment Authority for two major housing projects in Baghdad and Karbala.

In late October 2008, the Abu Dhabi-based real estate investment company Al Maabar announced its plan to launch a $10 billion Al Rasheed Compound project in Baghdad. The project will cover 1,250 hectares in the centre of the city.

It comprises several key clusters including residential units, a commercial district, a technology centre, a hotel and hospitality district, health care and educational districts, and public facilities such as mosques and petrol stations. The company is backed by all four major Abu Dhabi developers: Aldar, Sorouh, Reem and Al Qudra. It was described at the time as the first real estate project on this scale to be undertaken in Iraq since the 2003 invasion.

However, the cost of the project, which involves a mixed use complex comprising residential, commercial, health, hotels and entertainment, is expected to reach $20 billion, according to recent Iraqi press reports.

Growing interest

The Banks of Karbala project, a $28-billion project, will overlook Ar Razazah Lake, 15 kilometers west of Karbala, according to Iraqi press reports.

Other UAE companies are eyeing a third project, "The City of the Future", according to top investment officials. Several companies want to participate in the construction of 150,000 housing units as part of a project envisaging one million new houses nationwide, they added.

The total cost of the projects is an estimated $70 billion.

"UAE companies are the top companies investing in Iraqi real estate," said Sami Al Araji, chairman of the Iraqi National Investment Commission.

While UAE companies have also shown interest in other fields, Araji said, "Talks are still in an early stage with the Investment Commission," and there will be announcements once results are reached.

He also alluded to other sectors, including energy, communications and banks. While some UAE companies already have a presence in Kurdistan, the negotiations underway are "on giant projects all over Iraq," Araji said.

Air and trade links

UAE airlines, meanwhile, have added Iraqi cities to their schedules and are planning more.

The two major UAE airlines are increasing their services. Abu-Dhabi's Etihad has daily flights to Baghdad, and Dubai's Emirates plans to follow suit starting July 1.

Before the end of the year, some reports predict, the budget airlines, Dubai-based flydubai and Sharjah-based Air Arabia, will join them.

Already Iraq is the UAE's second biggest Arab trade partner after Saudi Arabia and the 11th globally.

UAE exports to Iraq jumped 41 per cent last year to $4.24 billion and Iraq's exports to the UAE grew 952 per cent to $778 million, according to Shaikha Lubna Al Qasimi, UAE Minister of Foreign Trade.

Shaikha Lubna last week led a UAE delegation of representatives of nearly 40 companies to the inaugural UAE-Iraqi Businessmen's Forum, which was attended by many senior Iraqi officials. Shaikha Lubna said during her visit last week to Kurdistan that non-oil trade between the two countries increased 63 per cent from $3.79 billion in 2008 to $5.19 billion in 2009.

Turkey is Iraq's biggest trade partner, mainly Kurdistan, Al Fahel said.

With a volume of nearly $9 billion, Turkey tops the list of exporters to Kurdistan. Ankara also accounts for nearly 55 per cent of foreign companies registered in the region.

Asked about the importance of companies rather than governments in the field of investment, Khatteeb replied: "In developed countries, it is the market economy that leads. The private sector, and not politics, leads the developed countries."

29 May 2010 - The Guardian

An OPEC quota of 6 million barrels per day (bpd) will be too low for Iraq and it expects its quota to be no less than that of OPEC's most influential member Saudi Arabia, Iraq's oil minister said on Thursday.

Top oil producer Saudi Arabia's OPEC quota is just over 8 million bpd. Iraq is the only one of OPEC's 12 members that is exempt from quotas after years of sanctions and war.

Baghdad has signed deals to boost oil output capacity to a level rivalling Saudi Arabia, and tough negotiations are expected in the future on its reincorporation into OPEC quotas.

"Yes, we expect that Iraq's quota would not be less than any other country in OPEC," Iraq's Oil Minister Hussain al-Shahristani told Reuters in an interview, when asked if he expected Baghdad to have a quota equal to Saudi.

"Of course we don't think that 4 million barrels per day is an acceptable or reasonable quota for Iraq's production," he said, adding that a 6 million bpd quota would be too low.

Iraq strengthened its hands for any future negotiations when it agreed a series of deals that could boost its output capacity to around 12 million bpd in seven years from 2.5 million bpd now.

OIL PRICES

The recent drop in oil prices was unrelated to market fundamentals of supply and demand but was connected to Europe's financial crisis, Shahristani said.

Oil prices traded near $73 a barrel on Thursday, close to the bottom of the $70 to $80 range that many in OPEC have said is fair for both producers and consumers. The price dropped below $70 this week, which was too low to encourage investment in future projects to boost capacity, Shahristani said.

"What we noticed over the past days is volatility in the market -- that doesn't need any interference by OPEC in the time being," he said.

OPEC would continue to monitor oil price volatility to see if prices developed a downward trend before taking any action, Shahristani said.

"I think the oil market will correct itself and the prices will go back to what they were two or three weeks ago ... unless the crisis became worse in Europe," he said.

OPEC has left its output ceiling unchanged for more than a year since announcing a record supply curb of 4.2 million bpd in December 2008 to combat the global economic downturn.

Shahristani said he expected no change in OPEC output levels in October when the group next meets to discuss supply policy, if oil prices, supply and demand remained at current levels. "In general, I don't think that there will be big changes in the global oil market production or consumption or even in price levels that would need OPEC to take new decisions," he said. "I expect that OPEC would continue with current production levels."

Amman, 31 May 2010 - Dow Jones

The former head of Iraq’s largest state-owned oil company and advisor to the country’s oil ministry has criticised deals Baghdad signed with international oil majors to develop some of its biggest fields.

“There is no clear national plan on how to develop these huge oil fields,” Jabbar al-Luaiby told Dow Jones Newswires in an interview.

BP, Royal Dutch Shell and Cnooc Ltd, Exxon Mobil Corp and Italy’s Eni Spa. (ENI.MI) have bagged deals with Iraq to develop fields in the war-torn country, which holds the world’s third-largest proven oil reserves after Saudi Arabia and Iran, according to BP.

Al-Luaiby’s remarks could increase pressure on Baghdad to revise contracts awarded to foreign companies. Ayad Allawi’s Iraqiya bloc, which won the most seats in the recent parliamentary election, said it would like to review oil contracts signed with the majors.

“They’re huge deals that need the infrastructure, the potential and management which Iraq is currently lacking because of years of war, economic sanctions and destruction,” said al-Luaiby, who recently left his position as an advisor to Iraq’s oil minister.

Al-Luaiby added that international oil companies can still play a part in tapping Iraq’s vast resources once better infrastructure and oversight is in place. Foreign investment could help reverse the impact of two decades of war, sanctions and neglect on Iraq’s oil industry.

27 May 2010 - Newsweek

China is racing to secure Middle East oil deals, putting it on a possible collision course with U.S. interests in the world's most volatile region. China is now the biggest importer of Saudi oil, the second-biggest of Iranian oil, and the largest player in the Iraqi oil game. China is "being very aggressive," says Jon Alterman, director of the Middle East program at the Center for Strategic and International Studies. "They're putting a lot of money on the bet that having ownership of oil fields is a better guarantee of supply than buying oil on the open market."

Beijing is betting big in Iraq, which many Western companies are avoiding. In November, the Chinese National Petroleum Co. (CNPC) won a large stake in a $15billion deal to develop the Rumaila oil field in southern Iraq, thought to be the second largest in the world. That followed a $3billion deal to develop the Ahdab oil field in 2008. And two other Chinese firms just closed a deal on a large oil field in eastern Iraq. Chinese companies have also shown much greater willingness to take on risk by placing their own nationals in war zones: CNPC has an office in Baghdad partly led by Chinese nationals.

China is also ramping up its ties to Iran as many Western firms pull out. Last summer, China signed $8billion in oil and gas deals with Tehran. It's also increased sales of gasoline to Iran, which has a lot of oil but few working refineries or stable gas suppliers. In fact, China is now Iran's biggest economic partner, with more than $21 billion in annual trade.

China is moving to protect its new oil ties in the Middle East, presenting a challenge to the West. China is reluctant to follow the U.S. line on Iran sanctions because of its oil interests. The two Chinese warships that docked in Abu Dhabi in March also sent a blunt message: China is willing to back up its interests with firepower. For their part, U.S. officials have tried to reassure Beijing that it can meet growing energy needs without dealing with Tehran and have pressured Saudi Arabia to give China oil guarantees to wean it off Iranian oil. Still, there will likely be plenty of other disagreements ahead as China increases its Middle East footprint. "Bilateral quarrels and clashes are unavoidable," Sun Bigan, China's former Middle East envoy, wrote in an essay in a Chinese academic journal last fall. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

Gavin Jones, Partner with Upper Quartile,writing for The EIC

Iraq is fast becoming the engine for the oil and gas industry and is likely to hold this position for the next 10 years at least.    I hope that this article will address the scale and speed of development of this market for the engineering industry.

The scale of the opportunity is difficult to put accurate numbers to but is always in the hundreds of billions.   BP, Shell, Petronas, ENI, Lukoil, Statoil, Gazprom, China National Petroleum, Sonangol and Total are all rolling out development plans for fields with reserves quoted in the billions and production in the thousands of barrels.

International oil companies will manage many billions of contract value but make relatively little.    The 1^st licence round in June 2009 was heavily criticised – Iraq had not allowed production sharing agreements, they were unreasonable in what they were prepared to pay, they were expecting the oil industry to do too much rebuilding.   The Wall Street Journal announced that the licence round had flopped.   BP was the only company to accept what was on offer at half of what they bid then paid $500 million as a signature bonus.    The 2^nd licence in December 2009 round saw all available licences taken up and fees reduced to between $1.49 and $1.15 per barrel for the big fields: a remarkable change from the $40+ demanded initially.    The Iraqi Government has commitments to produce 12 million barrels of oil a day and $2 billion in cash commitments from the oil industry – guaranteeing commitments and in May agreed to set up a National Oil Company to manage these relationships.    Oh …. And then the Government launched a 3^rd round of bids for 3 gas fields on the 19^th May.

What about the service industry?    The working environment, the structure of the licences and the obligations mean that most of the work is going to be subcontracted in large chunks – at least in the early years.    Work has already begun, accommodation camps are being built, airlines have started commercial flights into Basra, Al Faw Port is being refitted at a cost of $4 billion, BP announced $600 million of drilling and down-hole service contracts and in addition Iraq will have to build floating oil terminals, clear land at Greenfield sites, repair pipelines, rebuild terminals, set up water-treatment plants for well injection, build oil-processing plants, lay pipelines, install gas-gathering equipment and power generators, haul in water and truck out fuel until pipelines are built. Water and power infrastructure remain major constraints, considerable spend on skills and CSR is also anticipated.  Schlumberger started recruiting 600 staff in May and Petronas is recruiting “hundreds” of staff.   Capital spending on oilfield services in 2011 alone is estimated to be five times that of Saudi Arabia, Bahrain, United Arab Emirates, Oman, Qatar and Kuwait combined.

What about the problems?     Well there are plenty and they keep coming.    Currently in the election aftermath there are calls to revisit licence awards.   This will cause some discomfort but I think the licences will stay – they are an excellent deal for Iraq with about 98% of the oil revenue remaining in the country and the required laws will be passed when the internal deals are done.    There will be ongoing discussions with OPEC – Iraq will challenge the pecking order in OPEC and weaken Saudi dominance as the world’s “swing producer” (the single mega-producer has been able to tweak the global price of oil by adjusting its own production).   Iraq is on course to pass Iran as the Gulf’s second-largest producer causing a significant realignment of power in the region.  Any decision on OPEC will be postponed until Iraq is in a much stronger negotiating position – my guess - at around 4½ mbbd and increasing.   Security issues remain but are changing in objective, increasing in magnitude but decreasing in number.    Iraq remains a dangerous place but security services are improving.   The biggest problem is getting all this easy-to-produce oil out of the country and into the international markets – deals are being done with Turkey and Ports are being rebuilt.   The oil is easy enough to produce but you still have to get the stuff to the big consumers like China.    This is the next big phase.

And the money?   If Iraq hits their 12 million barrel target this should tip $222 billion into the coffers annually but is going to take a few years.   Meantime the Government have negotiated a World Bank loan – on condition that they privatise the 240 State companies –and have been told that they can manage the $180 billion oil-for-food fund that the UN was holding over from the old days of sanctions and of the $120 billion in debts $55 billion - and 80% of whatever they owed China - have been written off.     The current state owned infrastructure and services are unable to respond to existing demand, the systematic dismantling of the private sector under the previous regime means there is no prospect of increasing capacity quickly.

My view is that the Iraqi Government has been a great deal more astute than many of the Governments advising them – they have sorted out the critical pieces of infrastructure (airports and ports); they have sorted out their income generation (oil) at a pace that would embarrass most developed Governments; they have put the gas gathering on the back burner (important but does not generate income) and are now starting to focus on the infrastructure to export oil; the next will be the schools, roads, hospitals and electricity to keep its citizens content.    20:20 hindsight is wonderful – but we have come a long way since the world announced last years licence round as a flop

Gavin Jones

www.upperquartile.co.uk