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OPEC is a maddeningly opaque outfit; its public pronouncements frequently seem carefully crafted to conceal its private calculations.

The 12-member cartel controls about one-third of the world’s daily oil supply — not quite enough to give it absolute control over the price per barrel, but enough to allow it to consistently manipulate the price to its advantage.

Its imposing headquarters in Vienna and the refined (if somewhat oily) manners of its delegates are at odds with the corrupt, violent, repressive and often plain crazy political environment that is the norm for most of its member states.

And now the world watches as this highly effective but oddly dysfunctional gang deals with the elephant in the room.

The elephant, of course, is Iraq and the fistful of deals it has finalized over the last few months with some of the world’s largest oil companies.

Iraq anticipates that these deals will boost output over the next seven years from the current level of 2.4 million barrels per day (bpd) to something between 10 million or 12 million bpd. Along the way, Iraq would zoom past its meddlesome neighbor and rival Iran as the No. 2 producer in OPEC (4.1 million bpd) and eventually challenge the Saudis, currently producing about 10 million bpd, for the No. 1 spot.

If all of that happens — a very big “if” given the uncertain state of affairs in Iraq — it would not only upend the pecking order in OPEC, it also would cast the region’s geopolitical balance in an entirely new light.

“Iraq is a problem for everybody,” said Giacomo Luciani, an oil industry scholar with the Dubai-based Gulf Research Center. “But at the moment, this is all very speculative. We don’t know what demand will be in five years, 10 years, and we don’t know to what extent Iraqi production will increase.”

For its part, Iraq has been sending very mixed signals. On the one hand, there is all the talk of quadrupling production in seven years; but in March, ahead of OPEC’s most recent gathering in Vienna, Iraq’s Oil Minister Hussain Shahristani said Baghdad would be willing to discuss production quotas with its OPEC brethren once its own production hit the 4 million bpd level.

One of OPEC’s founding members, Iraq has been excused from the organization’s quota regime for many years. That’s because it has yet to recover from the sharp drop in production that followed the Iraq-Iran War and continued through two more wars and a decade of sanctions.

Historically, OPEC has set quotas for Iraq and Iran at approximately the same level — this based on their proven reserves. But Iraq now believes it should be treated as an equal to Saudi Arabia.

If Iraq can actually deliver that much oil, it would challenge Saudi dominance as OPEC’s “swing producer”— the one mega-producer that can tweak the global price of oil by adjusting the spigot of its own production.

The Saudis do not seem overly troubled by this prospect. They apparently share the view of many analysts that quadrupling production in the space of seven years is easier said than done.

“I think that some of these oil companies have overstated how high they can take Iraq’s oil production,” said Kristian Patrick Alexander, a political scientist at Abu Dhabi’s Zayed University.

Among the factors that could slow the Iraqi project, Alexander mentioned the likely eruption of violence, especially with U.S. troops scheduled to complete their withdrawal by the end of 2011; the absence of a comprehensive oil law guaranteeing the legality of the deals with foreign companies; rampant corruption; a lingering dispute over control of oil fields in Kurdistan and, finally, the decrepit state of Iraq’s overall infrastructure.

“The projections [of 10 million to 12 million bpd] are somewhat optimistic,” he said.

If the Saudis can afford to take the long view of Iraq’s reintegration into OPEC, Iran can’t.

“Iran is much more vulnerable to declining prices and declining revenues. Saudi Arabia just doesn’t need the money to the same extent,” said Luciani, the industry analyst.

Even if its oil output is surpassed by Iraq, Iran would remain the dominant political and military power in the Gulf. But being out-pumped by Iraq is likely to make Tehran feel an even greater urgency to develop its nuclear capability in order to maintain its status.

The key player may turn out to be China, the world’s No. 2 energy importer. The Chinese are heavily dependent on Iranian oil and, as a result, Beijing for years has tried to shield Tehran as much as possible from the economic sanctions the U.S. and its allies would impose.

But that is changing. Now that the China National Petroleum Corporation has signed a major deal with Iraq, Beijing is signaling a new willingness to consider sanctions. And with the encouragement of the Obama administration, Saudi Arabia and other Arab oil producers are giving the Chinese quiet assurances that they will cover any decline in Iranian production resulting from sanctions.

All of this is bad news for the government in Iran, where any drop in oil revenue will make it increasingly difficult for an unpopular regime to hold on to power.

( GlobalPost )

The Iraqi government signed an agreement with the Chinese government to write off 80% of Iraq’s debts due to China, according to a foreign ministry press release.

“Iraqi Finance Undersecretary Fadel Nabi Othman signed for Iraq while the secretary of the committee of companies’ indebting Iraq signed for China,” read the statement as received by Aswat al-Iraq news agency.

“The agreement was signed in light of memorandums of understanding signed by Iraqi President Jalal Talabani during his visit to China in June 2007,” it added.

Iraq has been seeking to have its debts $120 billion debts accumulated during the former regime’s time, some of them in compensations over was, be dropped. The war-torn nation has managed to have most of that sum - $55 billion due for the Paris Club members – dropped.

Iraq still owes debts to some Arab countries, including Gulf States, at $21 billion: $15 billion to Saudi Arabia and $6 billion to Kuwait.

London, 12 April 2010 - OilAndGasNewsOnline.com

Total Opec crude oil supply rose in March as an increase in Nigerian output overshadowed a dip in Iraq, a Reuters survey showed, as members with agreed production targets reduced compliance to just 50 per cent. Supply from the 11 members of the Organization of the Petroleum Exporting Countries with output targets, all except Iraq, is averaging 26.93 million barrels per day (mbpd), up from a revised 26.73 mbpd in January, according to the survey of oil firms, Opec officials and analysts.

The survey implies Opec is now making just half of promised supply cutbacks agreed in December 2008 versus 55 per cent in February. Oil prices have doubled in the past year to more than $80 a barrel, encouraging members to pump more crude.

Total Opec supply rose 40,000 bpd to 29.25 mbpd, the survey found, with Nigerian output jumping by more than 100,000 bpd as domestic refineries resumed production.

Opec’s two largest producers, Saudi Arabia and Iran, both increased production by 50,000 bpd to 8.2 mbpd and 3.75 mbpd respectively. An Opec Gulf delegate told Reuters the group was concerned about rising prices.

“Prices above $85 for a sustained period of time could well be harmful. We have to be aware that the economic recovery is still fragile,” the delegate said on the sidelines of the International Energy Forum in Cancun, Mexico.

Separately, another Gulf delegate said Opec would raise oil production if oil prices stayed “too high” for a long time.

Opec compliance with agreed output quotas peaked at 81 per cent in April and March 2009, according to Reuters estimates.  The worldwide recession had seen prices crash from a peak of almost $150 a barrel in July 2008 to near $40 a barrel at the start of 2009.

Opec output is now at its highest level since December 2008.

Oil prices eased after the survey but were supported by expectations of a recovery in the global economy. Prices are within $2 of the 2010 high of $83.95 a barrel hit early January.

“The bullish case for oil in both the short and medium term is being predicated largely on the view that oil demand growth in China (and the non-OECD nations generally) will be sufficient to rebalance supply and demand,” Deutsche Bank analyst Adam Sieminski said, adding demand in developing nations could grow by 1.4 mbpd this year.

Now that the votes have been counted, the first big test facing Iraq’s fragile democracy is whether it can make the transition from one administration to the next without too much bloodshed or violence.

If this weekend's horrific sectarian slaughter and suicide bombings are any harbinger, things aren't looking good. But there will also come another test: whether the lucrative oil deals negotiated by the previous administration can survive the transition.

After a spectacularly successful auction of drilling rights last December, Prime Minister Nouri al-Maliki’s government spent the first few months of this year putting the finishing touches on 10 separate deals that, if implemented successfully, could see Iraq challenging Saudi Arabia as the world’s leading producer within the decade.

By any measure, these deals were the singular accomplishment of Maliki’s tenure. Oil Minister Hussain al-Shahristani earned the respect of the international oil community for driving a very hard bargain and delivering a deal that should quickly put his nation on the path to prosperity.

But in Iraq’s fevered political climate, no deal makes everyone happy, and the oil contracts could easily become a casualty as Iyad Allawi, the declared winner in last month’s election, begins the messy process of stitching together a governing coalition.

“The Maliki government did everything in their power to make sure those contracts would survive. They fast-forwarded the effective date of many of the contracts ... [and] they also had the contracts ratified by the Council of Ministers very quickly. Whether these actions are enough will be the main question,” said Thomas Donovan, an attorney with the Iraq Law Alliance, who has followed the process closely.

“My sense is that they will survive the challenge, and that they will last throughout the next transitional government and any government thereafter,” he said.

That is what some of the world’s largest oil companies — Exxon Mobil, BP, Royal Dutch Shell, Russia’s Lukoil and others — are banking on as they bet billions on Iraq’s ability to provide a politically stable and physically secure environment for them to go about their business.

And it is a gamble, says Giacomo Luciani, an oil industry scholar at the Gulf Research Center in Geneva.

“At the moment, we don’t know what’s going to happen. But we do know that the oil contracts are the main source of power, the main source of money, the main source of everything in Iraq,” Luciani said.

“We have to see what kind of coalition emerges and whether it finds it tactically convenient to raise objections to the oil deals,” he said.

Iraq nationalized oil production in 1961, and thereafter the notion of keeping Iraq’s oil under Iraqi control has played well for nationalist politicians from Saddam Hussein to today’s crop of Sunni and Shiite rivals. The reality, however, is that the dilapidation of Iraq’s oil fields that resulted from years of war and sanctions can only be repaired by a massive influx of capital and technology from international oil companies.

And Shahristani, the oil minister, can hardly be accused of giving away the store when he auctioned off the rights to develop some of Iraq’s prize oil patches. The successful bidders signed 20-year service contracts that will pay them a relatively modest per-barrel fee for each barrel they produce above an agreed minimum.

“He [Shahristani] obtained a very good deal for Iraq, but that doesn’t mean the deal will be confirmed. You are assuming that everyone is pursuing Iraq’s national interest, and that might not be the case,” said Luciani.

“In principle, I don’t think there’s a prejudice against foreign companies’ involvement. But one can see how it becomes part of someone’s political agenda,” he said.

Another major worry is security. With the U.S. planning to reduce the number of troops in Iraq to 50,000 by the end of August, and to effect a complete withdrawal by the end of 2011, providing security for the oil companies will fall to the Iraqis.

The worry was highlighted two weeks ago when authorities in oil-rich Basra province found a small weapons cache and a note threatening foreign oil companies. The incident appeared to be more theater than threat, but security experts admit it is hard to gauge the level of grassroots mistrust of foreign oil companies and how this might be exploited by those wishing to destabilize the government.

Much will depend on the new government and its choice of oil minister, said Ben Lando, editor of the influential Iraq Oil Report.

Although Allawi, a former interim prime minister, has been declared the winner in the March 7 election, it is not clear if he will be able to pull together enough allies to form a governing coalition. Even less certain is who will get the job as oil minister.

Shahristani, a former nuclear scientist who spent time in Saddam’s prisons, is widely respected in oil circles and could be asked to stay on, no matter who leads the next government.

“Shahristani is definitely not out of contention, though any coalition with the Kurds involved drastically reduces his chances to the point of elimination.” said Lando.

That’s because of the ongoing dispute over control of reserves in the semi-autonomous Kurdish region. Shahristani has antagonized the Kurds by refusing to recognize the contracts signed by nearly two dozen foreign oil companies with the Kurdistan Regional Government.

Others who might be considered for the oil post include Thamir Ghadhban and Ibrahim Bahr al-Uloom. Both held the job previously and are known in the oil community.

Even the wily Ahmad Chalabi’s name has been mentioned. Chalalbi, famous for providing the Bush administration with dubious intelligence about Saddam’s weapons of mass destruction, served as interim oil minister for a few weeks in 2005. He is also Allawi’s cousin, although in their case blood does not appear to be thicker than oil.

"The ministry plans to increase the oil production of all oil fields, especially these that are located in the southern provinces," an official source in the Iraqi Oil Ministry said.

"The Oil ministry plans to increase the oil production in April to about 59 million barrels in order to increase the revenues to 267 million dollars." The representative of the oil ministry Abdul Karim Al Luaibi told The Independent National News Agency of Kurdistan (AK news).

 "More than 27 foreign companies from different nationalities bought quantities of exported oil through Basra and Khor al-Amayah ports south of Iraq, and Ceyhan in Turkey, and this will revive the economic situation in the country."

"The ministry will increase its works to export more oil in the coming period," Luaibi added.

The Oil Ministry exported last month 57 million and 900 thousand barrels and the revenues reached to 229 million dollars where the average of each barrel is 73.4 dollars.

Iraq produces about 2, 4 million barrels of oil per day and constitutes 85 percent of the state revenue.

It is noteworthy that Iraq has the third oil reserve in the world estimated with 115 billion barrels after Saudi Arabia and Iran.

The storm brewing on the Organization of Petroleum Exporting Countries (Opec's) horizon over future Iraqi oil output could engulf the producer group sooner than it would like.

Opec was unlikely to discuss Iraq at its meeting on March 17 but it may need to do so within a couple of years.

"There's only one issue, but it's a big one. It's a tsunami. Iraq," said Leo Drollas at the Centre for Global Energy Studies. After years of sanctions and war, Iraq is exempt from the output targets OPEC uses to set supply levels. 

But as Baghdad embarks on an unprecedented oil industry development, Opec will at some point need to bring Iraq back into the fold to prevent millions of barrels of new oil supply undoing its work to balance markets.

OPEC officials and analysts have said the issue is not urgent, as it could be years before Iraq makes significant increases to current output of around 2.5 million barrels per day (mbpd).     Baghdad's failure to reach past ambitious targets has fed the skepticism.

The consensus among analysts is that it would take around five years for Iraq to boost output by between 1 mbpd and 1.5 mbpd. But output gains could surprise Opec in their speed. "You could be looking at 1.5 million barrels in two years," said a senior executive at one of the oil firms involved in Iraq.

 "That could make a huge difference to the supply and demand balance." Iraq's deals call for foreign firms to boost output potential to 12 mbpd in seven years, which would leave it snapping at the heels of Saudi Arabia's capacity of 12.5 mbpd.

Iraq faces huge political, security and logistical challenges in reaching that target. The first test will be how the new government that emerges from elections will handle contracts signed by oil firms.

Commodities Now - Apr 1 2010

Toronto, Iraq's ambitious plans to boost crude oil production to as much as 12 million barrels per day in coming years is not likely to be met due to a myriad of challenges, IHS Cambridge Energy Research Associates said in a report on Wednesday. These "highly ambitious plans ... are unlikely to be fully realized given political, security, operational and infrastructure challenges," noted IHS CERA, an energy sector advisory firm based in Cambridge, Massachusetts.

The report points out that Iraq starts out with rich oil resources that have suffered from “underinvestment and underdevelopment for decades.”

“But Iraq’s new expansion timetable would dwarf the most rapid build-ups that we have recently seen in places such as Russia and Saudi Arabia,” said IHS CERA Senior Middle East Director, Bhushan Bahree. “The political, security, operational and infrastructure challenges in the country, along with a likely shortage of skilled personnel, are likely to hamper progress towards such an unprecedented achievement.”

Iraq’s recent elections and current efforts to form a new government could exacerbate existing sectarian and other tensions in the country and it is unclear what approach a new government could take regarding oil contracts. Security will also remain a concern as foreign workers and oil company operations expand in areas that have been prone to violence in the past, the report says.

The report identifies infrastructure and logistics as “major challenges.” Iraq is responsible for providing the infrastructure needed to receive the extra oil but its plans for providing a “complex network of capital-intensive infrastructure”—from ports and roads to power and water crucial for operations—in synchronization with the development oil fields are not known, representing a major potential bottleneck.

“Iraq’s expansion timetable appears extraordinarily ambitious in comparison to the recently completed capacity increase in Saudi Arabia,” says Bahree. “Saudi Arabia has significant security and infrastructure advantages yet it took Saudi Arabia between four and five years to expand its net output capacity by some 2 million barrels per day. Iraq will certainly be challenged to match this pace, much less exceed it.”

Though Iraq is unlikely to meet its “very stretch target” of elevating its capacity to 12mbd in six to seven years, the expansion of its production capacity still represents a significant increase with strong implications for OPEC and the regional balance, the report finds.

Iraq is not currently a party to OPEC’s production quota system. A significant ramp-up in Iraqi production would put the issue of bringing Iraq back into the quota system back on the agenda. Any issue within OPEC is likely years away; however, as it is widely assumed that the major producers will wait until Iraqi output begins to approach its OPEC share negotiated in 1988, which is at parity with Iran.

The discussion of quotas is also likely to be put off because OPEC cannot address quotas pertaining to Iraq without also discussing the allocations of other countries, such as Angola, Nigeria and Venezuela that dispute their current output targets.

“Expansion beyond parity with Iran is likely to generate a strong reaction from Tehran, which views parity as one of the concessions that it had to make for peace with Iraq in the late 1980s,” Bahree says. “Equally important will be the conflicting oil strategies that the two countries are pursuing. Iran, unable to raise its own output, is pursuing a strategy of maximizing oil revenues through higher prices. Iraq’s unfolding strategy is just the opposite—expanded volume to increase revenues.”

People in the Arab world need fuller and freer information about shrinking water supplies but their governments are withholding it for fear of fuelling unrest, a United Nations expert said on Thursday.

Arable land makes up just 4.2 percent of the Middle East and North Africa and is expected to shrink due to climate change - a potential source of political instability, analysts say, in a region where economic privation has sometimes sparked conflict.

"Arab countries do not disclose enough information on their water out of concern that transparency could fuel unnecessary public concern and unrest," said Hosny Khordagui, regional program director of the UN Development Program (UNDP) Water Governance Program for Arab States.

Disclosing figures on water scarcity might be perceived as reflecting bad management on the part of Arab states and so is generally avoided, he told a UNDP round-table on Arab environmental issues.

"If we have public participation, we would have better management, participation and more justice," Khordagui said, adding that ministers were accountable to those who appointed them and not to the public.

"Don't expect accountability without real democracy and free elections," he said.

People in the Middle East and North Africa have access to an an average of just 1,000 cubic meters of water a year, seven times lower than the worldwide rate, according to the UNDP's Arab Human Development Report.

As climate change takes its toll and the region's populations grow at nearly twice the global average, that figure is projected to shrink to just 460 cubic meters by 2025.

Coordinated water policy will be a challenge in a region where water politics is often seen as a zero-sum game and can be used as a lever in larger political feuds.

"If we lose one more drop of water and our capacity to give Arab citizens their right to food, this is a political issue par excellence," said Ismail Serageldin, a former World Bank environmental expert.

In one example, a temperature rise of 1-1.5 degrees in one area of Sudan in 2030-2060 would slash maize production by 70 percent, the UNDP report said. Such scenarios could be repeated elsewhere in the region.

Agriculture consumes more than 85 percent of water in the region, home to the Fertile Crescent in which the first civilizations of the Middle East emerged. Less water could make it impossible for already poor farmers to earn a livelihood, pushing them to move to overcrowded cities.

Droughts in Syria have already displaced hundreds of thousands of people. A September U.N report found that climate-related natural disasters displaced 20 million people in 2009, nearly four times more than conflicts.

"More people in Yemen will leave their villages because of water and environmental reasons," said Ali Atroos, manager of the planning department in Yemen's Ministry of Water.

Yemen is one of the region's most water-stressed countries, with per capita access to water seven times below the average in Europe. Some villages are pumped water only once a month, Atroos said.
Experts urged immediate action to confront the dire issue.

"Water is a security factor. If people do not have water to drink and to use for food production, that would be a direct threat to national security," said Hassan Janabi, Iraq's permanent ambassador to UN agencies in Rome.

At the MEED's 2010 Arabian Power and Water Summit that started on March 29 in Abu Dhabi, MEED said new power capacity requirement to 2015 is 7,500MW and new desalination requirement to 2015 is 310 million gallons per day, which calls for substantial investment.

The summit raised issues that will need to be dealt with going forward, such as how governments can create commercial and economic frameworks that will ensure that the most economic investment decisions are made. Governments still need to determine what the ideal portfolio for GCC future power generation is and how to integrate alternative fuel sources into existing structures.

Edmund O'Sullivan, MEED Events chairman, said "the purpose of the Arabian Power and Water Summit is to provide a platform for the industry leaders to come together and discuss the best way to meet the key strategic and technical challenges that lie ahead. The success of the power and water industry is vital to the region's growth so it is imperative that the industry's decision makers are fully informed of the different solutions available to fulfill power & water demand." For the first time anywhere in the Middle East, the summit also featured a presentation regarding the challenges Iraq is facing as part of their reconstruction effort.

John Dempsey, generation adviser, Iraq Transition and Assistance Office (ITAO) and Jeff Larkin, country manager - Iraq, Parsons Brinckerhoff, outlined the plans to raise the $26 billion that the country's Minister of Electricity has estimated is needed to refurbish and increase the electrical sector capacity in the country.

"It is of critical importance that companies and individuals have their fingers firmly on the pulse of industry developments and the opportunities within it. The involvement of so many of the region's governmental organizations is testament to the high regard that our annual summit is held within the region's power and water sectors, and the value that it offers delegates," O'Sullivan pointed out.

( The Saudi Gazette )

The LUKOIL-Statoil consortium could begin producing oil at the West Qurna-2 oil field in Iraq in 2013, LUKOIL Vice President Andrey Kuzyayev said. LUKOIL’s capital investments in the project could be as much as $3.7 billion, the Oil and Gas Information Agency reports.

LUKOIL President Vagit Alekperov said his company could increase investments in oil production in Russia and double production in its foreign projects. For the next three years, $3 billion has been allocated for LUKOIL’s foreign projects. K2K NEWS reports that LUKOIL intends to increase its oil and gas production to 446,000 barrels per day by 2015.

LUKOIL is currently involved in projects in West Africa, Venezuela and Saudi Arabia and is reviewing the possibility of beginning projects in Uganda and Kenya.

( Oil and Gas eurasia )

Iraq exported 57.9 million barrels of crude oil in February 2010 at an oil price of $73 a barrel, the Iraqi Ministry of Oil said on Tuesday.

“Iraq has made $4.229 billion U.S. dollars in revenues,” according to a ministry statement received by Aswat al-Iraq news agency.

A total of 45.2 million barrels have been exported from Basra oilfields and 12.7 million barrels from Kirkuk.

The crude has been sold to 26 oil companies and exported via the ports of Basra, Khour al-Amiya and the Turkish Ceyhan.

However AFP reports that Iraqi oil revenues dipped on slightly lower oil prices despite the highest level of exports in 20 years.

"Revenue was 4.229 billion dollars, based on an average price of 73.4 dollars per barrel and exports of 57.9 million barrels," ministry spokesman Assem Jihad told AFP.

Iraq had revenues of 4.44 billion dollars in January, based on oil prices of 73.97 dollars per barrel.

The oil ministry said at the beginning of March that exports in February had reached 2.069 million barrels per day, the highest level since Saddam Hussein's invasion of Kuwait two decades ago.

With an estimated 115 billion barrels, Iraq has the world's third largest proven oil reserves behind only Saudi Arabia and Iran.

( Aswat Al Iraq )