2024-02-17T09:19:10+00:00
A-
A
A+
/ Iraq is heading east, especially to China, as it seeks to increase its oil production to 7 million barrels per day by 2027 from about 5.4 million barrels per day in mid-2023, after a wave of exits by some Western companies.
China Petroleum & Chemical Corp. is the largest Chinese investor in Iraq and has stakes in the Ahdab, Halfaya, Rumaila and West Qurna 1 fields.
Chinese companies collectively have direct stakes in about 24 billion barrels of reserves and are responsible for producing about 3 million barrels per day of Iraqi oil, according to S&P Global Commodity Insights.
Other Asian investors, including Indonesia’s Pertamina, Japan’s Japex and Itochu, have also taken stakes in Iraqi projects.
China is the largest buyer of Iraqi crude, importing an average of 1.18 million barrels per day, or 35% of Iraqi crude. Iraq was China’s third-largest oil supplier in 2023, after Russia and Saudi Arabia.
Recently, ExxonMobil exited Iraq, when it transferred its 22.7% stake in West Qurna 1 to Iraq’s Basra Oil Company.
PetroChina is responsible for operating the project.
Exxon Mobil previously sold a 32% stake in the Bashiqa license in the Kurdistan Region in 2021, and Shell exited the Majnoon field in southern Iraq in 2018.
However, BP operates the Rumaila oil field, and Eni operates the Zubair field at the same time.
Western companies’ sales have increased China’s control over Iraq’s oil sector, and its involvement has so far been received positively, with Chinese companies adhering to local regulations and their projects running smoothly, S&P Global Commodity Insights said in a recent report.
“Increasing production is possible from a geological perspective, but from a practical perspective it will be more difficult due to export capacity constraints,” said Sarah Hijaz, head of technical research in the Middle East at S&P Global Commodity Insights.
Iraq produces 4 million barrels per day under the OPEC+ agreement, although it raised production to 4.27 million barrels per day in January, according to the latest Platts survey of alliance production.
Problems facing production
Iraq’s plans to increase its oil production face domestic problems including limited export capacity due to old and deteriorating infrastructure, and access to water.
Disagreements over control of production in the semi-autonomous Kurdistan Region have also affected the country’s crude oil output.
The Kirkuk-Ceyhan pipeline was shut down in March 2023, and Iraq has increased production at other fields to compensate for lost production in the north.
S&P Global expects most production in the Kurdistan Region could recover quickly if the dispute over the Ceyhan pipeline is resolved, and despite sporadic reports of negotiations, little progress has been made.
“Oil exports from Kurdish oil fields are unlikely to resume soon unless the parties involved reach a compromise on their positions, and so far none of them have made any significant move,” said Shawan Zalal, director of Carducci Consulting, to S&P Global.
Foreign oil companies in the Kurdistan Region cut costs and continued to sell crude oil to the local market at reduced prices while receiving direct advance payments from international oil companies to cover their operating costs.
Iraq’s breakeven oil price
Iraq still needs high oil prices as well as foreign investment to support production as well as the state budget over the next few years.
S&P Global estimates Iraq’s fiscal breakeven oil price at $101 per barrel in 2023, $97 per barrel in 2024, and $103 per barrel in 2025.
The breakeven price for oil is well above current levels, which are under downward pressure due to growing non-OPEC supply and concerns about the global economy.
Platts priced Iraq’s main Basra Heavy crude at $77.97 a barrel on February 14.
Russian presence
Despite the withdrawal of some Western companies from the Iraqi oil sector, the Russian invasion of Ukraine has not affected the activity of Russian energy companies in Iraq, which includes Gazprom’s participation in Badra (central), Rosneft’s operations in Kurdistan, as well as Lukoil’s stake in West Qurna 2 and the newly discovered Eridu field.
Lukoil also recently signed an agreement with Iraq’s state-owned Basra Oil Company to extend the oil services contract for the West Qurna 2 field by 10 years until 2045 and double oil production from the field to 800,000 barrels per day.