Iraq Seeking $20 Billion Investment to Build Oil Refineries
Iraqi Oil Minister Hussein al-Shahristani has high hopes for his country’s refining industry, and is asking for international investors to help support his vision. (image: uk.biz.yahoo.com)
Over the last year or two, Iraq has been making measured but steady progress toward its goal of returning to its pre-2003 position of prominence in the international oil sector. In November of last year, the Iraqi Oil Ministry struck deals with foreign companies to work Iraqi oil fields for the first time in the nation’s history. On Saturday, the AFP reported that the country has plans to ramp up its production of refined products alongside development of its crude production infrastructure, and is seeking $20 billion in investment to get started.
Iraqi Oil Minister Hussein al-Shahristani made a bold and optimistic statement on the future of Iraq’s capabilities to produce crude oil and refined oil products, declaring, “Iraq during the next six years will become the biggest producer and exporter of crude as well as a major exporter of refined products.”
To achieve the status of “major exporter” of refined products, the Oil Ministry is asking for a total of $20 billion to help construct four new refineries. The Ministry is open to all levels of investment, including partnerships with the Iraqi government, which plans to invest $25 billion of its own funds to modernize its crude production and refining infrastructure.
Most oil industry analysts note that the resurgence of the Iraqi oil industry over the next five to ten years could provide a massive boost to global oil supplies. Al-Shahristani’s call for investment and bold challenge to other oil-exporting nations makes it clear that the Iraqi government plans to make the transition to world oil power as fast as possible.
Iraq’s potential contribution to world supplies of crude and refined products is so large that it could have some effect on heating oil prices. The nation currently produces about 9 million liters (about 2.38 million gallons) of heating oil per day. Adding four modern refineries could quadruple that figure and provide the kind of increase in world heating oil supplies that has the power to make prices inch downward.
Possible US Sanctions Persuade Oil Trading Firms to Stop Gasoline Sales to Iran
Despite being a world leader in oil production, Iran lacks the refining capacity to supply its domestic demand for gasoline. (image: s.wsj.net)
The US is still working on legislation to impose new sanctions on gasoline sales to Iran, but the threat of sanctions is already having an impact. On Monday, Reuters reported that oil trading firms Vitol, the world’s largest oil trader, and Trafigura are going to stop selling gasoline to Iran. The firms join BP, Glencore, and Reliance Industries, who have already stopped selling fuel to Iran as the fear of US sanctions convinced them to halt their supplies.
The US is trying to use sanctions to pressure Iran to abandon its nuclear program. Firms who have operations in the US would be penalized for trading with Iran if sanctions pass. Gasoline sanctions are considered one of the most severe and effective sanctions that could be levied against Iran. Though it’s the world’s fifth-largest exporter of oil, Iran lacks the refineries necessarily to produce adequate supplies of its own fuel products and imports 40 percent of its gasoline.
In December Iran cut its rations of gasoline, but so far its domestic consumption has remained steady, reported Israel’s Haaretz on Sunday. The current rations allow consumers to buy 80 liters (down from 100 liters) at a subsidized price of roughly 10 cents per liter; any gasoline purchased beyond the allotted amount costs four times as much. The failure to reduce demand, coupled with Iran’s generous gasoline subsidies, could make sanctions especially painful. As major suppliers stop doing business with the country, Iran will have to seek out smaller suppliers that demand higher prices.
Low Oil Prices Could Lead to More Cooperation from Iran
Iran’s president may have to tone down his belligerent rhetoric if oil prices stay below $100 much longer. (image: vimooz.com)
Iran’s influence on oil prices appears to be a two-way street. Just as saber rattling by President Ahmadinejad or any other hints of possible armed conflict between Iran and its neighbors can push up oil prices, oil prices can force the Iranian government into negotiating with the international community. According to a report published by CNN Money on Thursday, the current price of crude oil (around $75 per barrel) is wreaking havoc on Iran’s economy and could force Ahmadinejad to the negotiating table over his country’s controversial nuclear program.
According to CNN Money, the economy of Iran, the world’s fourth-largest exporter of crude, requires an oil price of $100 per barrel for sustained economic stability. With current prices at just three-quarters of that target, many believe that the Islamic republic is already feeling the economic pain. The poor state of the economy in Iran is playing a role in the growing unrest among its people. As Fariborc Ghadar, a senior adviser at the Center for Strategic and International Studies and a professor of global business strategy at Penn State, explained, “[The regime] has to shoot their own kids. Women in the cities are angry. The economy is in terrible shape. The place is a mess.”
Minor Progress in Opening Iraqi Oil Flow in Kurdistan
There is a flame of hope in the dark desert of Kurdish/Iraqi oil negotiations. (image: kurdistan4all via flickr.com)
In Iraq, what promised to be one of the greatest oil bonanzas of modern times is now looking less like the proverbial spouting geyser and more like a crude-based quagmire. Since 2002 more than 30 foreign companies have set up operations in oil-rich Kurdistan, a semiautonomous region in Iraq, hoping to cash in on the immense oil reserves recently discovered there.
However, according to Sunday’s New York Times, a complex political dispute between Kurdistan and Iraq, involving the scrutiny of at least one oil contract held between the Kurdish government and an outside company, still threatens to choke off oil production and send profit margins into the red, though there are some faint glimmers of hope.
Iranian Troops Leave Iraq Oilfield
Iraqi oilfield. (image: trendsupdates.com)
A conflict between Iran and Iraq that erupted in late 2009 over a seized Iraqi oil well has finally ended peacefully. Reuters reported Wednesday that the small contingent of Iranian troops has fully withdrawn from the disputed and inactive oil field inside Iraqi territory. Foreign ministers from both countries agreed to “maintain friendly relations and withdraw all military forces in the area to their original positions.”
While Tehran initially dubbed the incident a “misunderstanding,” Iranian troops did move 100 meters into Iraqi territory in mid-December and refused to budge. The well in question was drilled in 1979 and has been inactive since 1980 due to war between the two countries.
As HeatingOil.com reported earlier this month, the border dispute tapped into two of Iraq’s most sensitive concerns: “sovereignty and oil.” The peaceful resolution to the conflict will likely go a long way towards bolstering relations between the neighboring, and oil-rich, nations.
Exxon-Led Consortium Finalizes Deal to Develop Major Iraqi Oil Field
An employee at the Tawke oil field, Iraq. (image: wsj.com)
In Iraq’s latest effort to expand its oil production, its Oil Ministry sealed a deal on Monday with a group of international companies led by ExxonMobil Corp. to redevelop the West Qurna-1 field in southern Iraq. According to Forbes.com, the field has reserves of about 8.5 billion barrels, and the new contract will boost production from 285,000 barrels per day to 2.325 million barrels per day.
The consortium is led by Exxon, and includes Royal Dutch Shell, which holds a 15 percent share. It marks the first time a United States company has been allowed into Iraq’s oil patch since the 2003 invasion.
Iraq opened its borders to foreign oil companies back in December, lacking the infrastructure, the experience, and the technology to alone tap into its 115 billion barrel reserves. Since then, HeatingOil.com has reported on the initial auctions, the deal with Royal Dutch Shell, and how Japan is trying to get in on the act.
Boosting production in the region should be a good thing for people around the world. An increased supply in the global marketplace will help to keep prices low for heating oil and other energy consumers alike.
Shell, Petronas Finalize Deal on Iraqi Oil Field
Shell and Petronas aim to increase Majnoon’s oil production by more than 1 million barrels per day. (image: news.sky.com)
BBC News reported that on Sunday, oil leviathan Royal Dutch Shell and Malaysia’s state run oil company, Petronas, finalized a contract to develop Iraq’s 12.6 billion barrel Majnoon oil field. The deal includes a 20-year service contract and the companies will receive $1.39 per barrel of oil. Shell owns 60 percent of the venture and Petronas owns the remaining 40 percent.
The agreement was signed at Iraq’s oil ministry in the presence of Iraqi oil Minister Hussain al-Shahristani and Mounir Bouaziz, an executive at Shell.
This joint venture is the latest in a line of deals for Iraqi oil, and is part of Iraq’s plan to increase its oil production and make it one of the world’s largest oil producers. To revive its oil industry, which has been affected by years of sanctions and war, Iraq needs the assistance and expertise of foreign oil companies.
The size of Iraq’s known oil reserves ranks only behind those of Saudi Arabia and Iran. At about 2.4 million barrels, Iraq’s daily output is relatively small for a country with as much known oil reserves. However, the country aims to triple its output over the next several years.
Shell and Petronas have pledged to increase the Majnoon oil field’s output to 1.8 million barrels per day from just 46,000 barrels per day.
Iran-Iraq Oil Well Dispute Provokes Iraqi Fears
A wall along the Iran-Iraq border in Wasit Province. (image: cheeseitz87 via flickr.com)
The border dispute between Iraq and Iran over an inactive oil well that began in mid December has been taken up as a cause by some Iraqi nationalists. The Washington Post reports that the fighting for Fakka oil well No. 4 in Iraq’s Maysan province has “inflamed passions in Iraq.”
Differing reports surfaced about the showdown over this oil well, with conflicting reports about whether or not the dispute had actually been settled. The New York Times reported that, despite claims the skirmish was over, officials from Iraq were claiming there were still Iranian soldiers in the region. Then Reuters ran the news that the incident had ended, with Iranian officials dubbing the affair a “misunderstanding.”
Saudi Arabia Invests in Future Oil Production and Refining
Saudi Finance Minister Ibrahim al-Assaf. (image: arabnews.com)
As reported Sunday by the Economic Times, Saudi Arabia will invest in oil production and refining to “achieve stability in the international oil markets.” According to the nation’s oil minister, Ibrahim al-Assaf, the goal is to “increase production and refining capacity to maintain balanced and acceptable prices by both producers and consumers.”
It’s a good story, but does it make sense? Saudi Arabia recently completed a huge expansion of its production capacity, bringing it to 12.5 million barrels per day. However, it doesn’t actually pump anything like that—it’s currently producing 8 million bpd, which means it already has more than 50 percent surplus capacity.
Second, Saudi Arabia has so much surplus because it, unlike such OPEC members as Nigeria and Qatar, honors the organization’s production quotas. If the kingdom is voluntarily pumping less than it could, why does it need yet more capacity that—by its past practices—it will not use?
BP Economist, Arab Oil Producers Say No Peak Oil Any Time Soon
Peter Davies, former head economist at BP, says fears about peak oil production are “overstated and exaggerated.” (image: telegraph.co.uk)
An article in Emirates Business 24/7 this week announced new studies and figures aimed at proving that claims about peak oil are “exaggerated.” This latest round in the high-stakes game between oil producers and climate-change whistleblowers, however, isn’t exactly from the most neutral of sources. The primary claim reported was made by Peter Davies, a former chief economist for BP, while delivering a speech during a recent seminar held by the Saudi Association for Energy Economics (SAFE)–the article notably omits that Davies is no longer in BP’s employ. While paying lip service to the fact that global oil resources are, in fact, finite, Davies countered “theories” about peak oil by saying generally that technology and economics will find a way to stretch our oil resources much farther into the future than predicted:
Those who believe in peak oil tend to believe that technology and economics don’t matter, and I think this is false. The application of technology, the innovation of new technology and economic forces especially mean that recoverable oil resources can increase. If there is a peak in oil, it will come from the demand side. There are always fears, but these remain overstated and exaggerated. Read More »
Iraq Looks for Partners to Develop its Oil Superfields
Sonangol logo. (image: brandsoftheworld.com)
On December 30, the BBC reported that the Angolan national oil company, Sonangol, inked a deal with the Iraqi government to develop two fields in the country’s south, the Qayara and Najmah oilfields in Nineveh province. The deal is the latest in a series of partnerships Iraq has forged with foreign oil companies to help develop its outdated oil infrastructure. Iraq has the third-largest proven oil reserves in the world, but its crude output has hovered below 4 million barrels a day, and often below 2 million, since the late ‘70s.
Earlier development bids went to international giants such as BP, Royal Dutch Shell and Lukoil; Exxon Mobil was the only American company to make a successful bid, and the geopolitics of the region may have been a factor in that result. Despite its rich reserves, Iraq’s political instability is a high risk for the shareholders of American conglomerates, whereas state companies such as Sonangol, which is used to operating in politically tense areas, are beholden only to themselves. The Qayara and Najmah fields are located in a region that is a hotbed of Al-Qaeda and Sunni Muslim insurgent activity, but the dangers of extracting oil there also earned Sonangol a price per barrel of between $5 and $6 from the Iraqi government, higher than the price paid at other larger, more lucrative and safer fields. Sonangol has said it will invest $2 billion in Qayara and is in talks with several other companies that have shown interest in joining in on their development plans.
Iraq Threatens OPEC’s Power Over Oil Prices
Iraq’s production capacity is enough to create conflict within OPEC and even destabilize the Middle East. (image: z.about.com)
Iraq is threatening to throw a serious wrench into OPEC’s plans, reports Business Insider. OPEC members have said they are content with oil prices in the range of $70–80 per barrel and maintained their production targets at their recent annual meeting. But Iraq might not adhere to OPEC’s production quotas. The cash-poor country recently auctioned off some of its largest oil fields, with Russian and Chinese companies winning the most lucrative contracts. According to analysts, the auction could boost Iraqi oil production from 2.5 million barrels per day to as much as 12 million by 2016, which would quadruple its capacity and make it a rival to Saudi Arabia, the world’s biggest oil producer.
Such a drastic increase in oil production could threaten to undermine OPEC’s influence on oil prices, which currently stand at an amount that the Saudi Arabian oil minister, Ali al-Naimi, believes keep producers and consumers happy. If OPEC does not cut production to compensate for Iraq, the price of oil could drop significantly. OPEC will pressure Baghdad to adhere to their targets, but if Iraq flouts those targets there is little OPEC can do.
OPEC Maintains Production Targets
OPEC is keeping its production values unchanged for 2010. (image: reuters.com)
At a meeting on Tuesday, the Organization of Petroleum Exporting Countries (OPEC) decided to maintain its production targets for the coming year, a sign that prices are high enough to ensure revenue but not disrupt economic recovery, according to The New York Times. Most of the nations belonging to OPEC—chief among them Saudi Arabia—appeared happy with current oil prices; but other countries expressed concern over the fact that certain OPEC members (like Nigeria) have been exceeding production targets and thereby threatening to reduce prices.
Last year OPEC cut production by 4.2 million barrels a day in order to counteract slipping demand caused by the economic downturn. The maneuver worked; oil prices that had tumbled to as low as $33 a barrel a year ago recovered to $80 this fall. Since then, prices have slid back down to $70 a barrel, in large part because Nigeria and Qatar have ramped up production in recent months while American and European demand has remained weak.
Iran Claims Seizure of Iraqi Oil Well was a “Misunderstanding”
Point-of-view of a soldier guarding the Fakka oil wells near Amara, Iraq, not far from the Iranian border where the incident occurred. (image: theglobeandmail.com)
Last week, a border skirmish between Iran and Iraq over an oil well in Iraq’s eastern Maysan province has ended peacefully, and Iranian officials are now calling the incident a “misunderstanding.”
Reuters reported on Tuesday that the Iranian and Iraqi foreign ministers have come to an “understanding” and that Iran’s foreign ministry is calling for the formation of an expert committee to address the border issues between the two countries. Iran and Iraq fought a war from 1980-1988 that was sparked by a border dispute and have a history of territorial conflict; news of the incident sparked a moderate rise in global oil prices on Friday, as speculators anticipated the possibility of a new conflict. A meeting of the proposed committee could do much to end this type of price fluctuation in the future, by settling once and for all some of the lingering disputes between the two oil-producing neighbors and OPEC members.
Rising Oil Output Protects Against Crude Price Spikes
A steady flow of crude is a buffer against sudden changes to demand or access. (image: upstreamonline.com)
Last week, militants threatened oil supplies in Iraq and Nigeria, two of the world’s most beleaguered crude producers. Typically, the prospect of conflict in either country, no matter how fleeting, would be enough to trouble the market and create a sizeable spike in global oil prices. This time around, however, crude prices rose only 70 cents, to end the week at a modest $73.36 a barrel, a sign that the oil sector’s growing capacity to shrug off sudden losses in production will, at least for the moment, keep crude prices stable.
According to an article published on Sunday by the Wall Street Journal, several major oil producers have improved production capacity in recent months, ensuring a steady supply of crude despite the occasional disruption. Earlier this year, Saudi Arabia said it increased its production capacity to a record 12.5 million barrels a day, while Qatar will soon ramp up the capacity of its offshore Al Shaheen oil field to 500,000 barrels a day (about three times the current capacity of Iraq).
Another Forecast for Falling Crude Oil Prices in 2010
A strong dollar could keep oil prices down in 2010. (image: weakonomics.com)
Forces such as emerging market demand, speculation, and a weak dollar—all of which have supported higher oil prices in 2009, despite a recession—may not sustain oil prices in 2010, according to an article published on Seeking Alpha on Monday. First of all, signs exist of a global tightening of monetary policy, said author Peter Cooper. In addition, the true strength of emerging market economies, such as China, is being called increasingly into question.
Third, the US dollar is recovering after an extended decline against the euro. Cooper cited weak global demand caused by the recession as a fourth reason that oil prices might be lower in 2010, as demand could lag even as the global economy lurches toward recovery.
Why OPEC’s “Perfect” Oil Price Could Backfire
Saudi Arabia’s oil minister, Ali Al-Naimi, called oil prices “perfect” but they may breed competition. (image: nytimes.com)
In the world according to OPEC, $75 is the magic number for a barrel of oil. According to Amy Myers Jaffe at the Houston Chronicle, OPEC’s thinking goes like this: seventy-five dollars is enough to maintain investments in difficult-to-reach oil such as deep water and tar sands oil, assures that oil producers can fund national budgets, and allows investors to profit. And since the global economy is currently recovering, albeit slowly, with $75 oil, OPEC figures that $75 is not that damaging to the recovery. American drivers are still driving with $75 oil, and Chinese drivers are buying cars.
But, Myers Jaffe says, this is wishful thinking. She says there are two reasons why $75 is, in fact, too high.
Iran-Iraq Standoff Ends Peacefully, But Oil Pipeline Explodes in Separate Incident
A barbed-wire fence protects an oil pipeline in central Iraq. (image: Chris Stahl via flickr.com)
On Friday HeatingOil.com reported on a confusing account of a possible Iranian incursion into Iraq and seizure of an oil well near the Iraq–Iran border. While the details of the event are still very muddled, it seems that the incident has been resolved peacefully.
The New York Times has reported that on Sunday the Iranian soldiers who occupied the oil field withdrew, but, according to Iraq’s deputy foreign affairs minister Labeed Abawi, the Iranians “are not completely out of Iraqi territory.” No answer was given for the obvious question of where the Iranian soldiers are now. In another confusing statement, Iran’s state news media reported that their troops have returned to their posts along the border, but they never crossed into Iraqi territory. Again, no answer was given for the question of where the soldiers were if they were not at their posts.
Analyst Flynn: Iran’s Missile, Texas Fog Drove Up Oil Prices This Week
Phil Flynn speculates that the Iranian missile firing earlier this week has harried perceptions of oil market stability among traders, thus raising prices. (image: telegraph.co.uk)
Phil Flynn weighs in on this week’s rise in oil prices in his column in the International Business Times yesterday. We had previously reported that the price increases on Wednesday and Thursday were due to declines in distillate (according to both API and EIA inventory reports) and in crude stockpiles according to EIA, but the API reported a 900,000 barrel rise in crude inventory. Flynn put forth a number of theories about the inventory numbers themselves as well as other causes for the crude and heating oil price increases.
First and foremost, Flynn believes that foggy weather conditions that halted imports in the Houston shipping channel caused a temporary dip in reserves due to a break in the supply chain, and that numbers will rebound next week when the inbound crude hits the system. He does note, however, that demand for heating oil, gasoline, jet fuel and other distillates are up, especially over last year’s numbers for the same time period.
Kuwait Will Adopt New Sour Crude Oil Price Index
Kuwait, the latest oil producer to favor ASCI. (image: lonelyplanet.com)
Kuwait has joined Saudi Arabia and will now price U.S.-bound oil using the Argus Sour Crude Index (ASCI), according to an article published Monday by Bloomberg.
Previously, both nations priced oil according to West Texas Intermediate (WTI) contracts. The primary reason for the switch is dissatisfaction with the movement of WTI prices; the Saudis have claimed they were losing too much money due to volatility in WTI trading.
In addition, Bloomberg says that there has been a growing demand among U.S. refiners for the sour crudes produced in the Persian Gulf whereas WTI is a sweet, light form of oil.
