This is a best prospect industry sector for this country. Includes a market overview and trade data.
In 2020, Iraq produced 4.3 million barrels of oil per day, the sixth largest producer in the world. It has the world’s third largest proven conventional petroleum reserves at 147 billion barrels, after Saudi Arabia and Iran with approximately 297 billion and 155 billion barrels, respectively. Iraq’s proven natural gas reserves were approximately 125.6 trillion cubic feet at the end of 2020.
The majority of Iraq’s known oil and gas reserves form a belt that runs along the eastern edge of the country. Iraq has nine fields that are considered super giants (over 5 billion barrels) as well as 22 known giant fields (over 1 billion barrels). According to independent consultants, the cluster of super-giant fields of southeastern Iraq forms the largest known concentration of such fields in the world and accounts for 70 to 80 percent of the country’s proven oil reserves. An estimated 20 percent of oil reserves are in the north of Iraq, near Kirkuk, Mosul, and Khanaqin.
Iraq’s crude oil production averaged 4.3 million barrels per day (bpd) in 2020. Although Iraq has plans to eventually expand production, it currently seeks to reduce production levels to maintain its commitments to OPEC. At present, the majority of Iraqi oil production comes from the North and South Rumaila oil fields (~ 1.5 million barrels per day).
Currently, the Ministry of Oil (MOO) has central control over oil and gas production in federal Iraq territory through its five operating entities, the middle/Midland Oil Company, the North Oil Company (NOC), the Dhi Qar Oil Company, Basrah Oil Company (BOC), and the Missan Oil Company (MOC). Several international oil companies (IOC) are active in federal Iraq, and typically operate under technical service contracts (TSC). TSCs allow IOCs to recover their costs through service fees, but many industry observers believe federal Iraq needs to move towards a more market-friendly contract. Some major Western oil companies have announced plans to divest from Iraq.
Kurdistan Regional Government Issues
The management of oil and gas remains central to disputes between the KRG and the Iraqi government. The KRG passed its own hydrocarbons law in 2007. The KRG has signed oil production-sharing, development and exploration contracts with several IOCs. Production and exports from the KRG region total 500-550 thousand bpd and 400-450 thousand bpd, respectively.
Iraqi oil exports are currently running at near full capacity in the south, while export capacity in the north needs to be expanded to export significantly higher volumes.
Significant production increases will also require substantial increases in natural gas and/or water injection to maintain oil reservoir pressure and boost oil production. Iraq has associated gas, but it is currently being flared. Iraq has recently embarked on plans to utilize the flared gas for power generation and other value-added purposes. Another option is to use water for re-injection, and locally available water is currently being used in the south of Iraq. However, fresh water is a scarce commodity in Iraq, and large amounts of seawater will likely have to be pumped inland, which would require major upgrades in infrastructure.
Furthermore, Iraq’s oil and gas industry is the largest industrial customer of electricity, with over 10 percent of total demand. Large-scale increases in oil production would also require large increases in power generation. However, Iraq has struggled to keep up with the demand for power, with shortages common across Iraq. Significant upgrades to the electricity sector are underway to supply additional power with more projects slated for the future. Iraq announced plans to sign delineation agreements on shared oil fields with Kuwait and Iran, but these aspirations have been on hold for years.
Iraqi refineries have antiquated infrastructure and only operate at efficiency rates of around 50 percent. Despite improvements in recent years, refineries produce too much heavy fuel oil and not enough refined products. In 2020, total production of oil byproducts throughout the country was about 700,000 bpd, whereas domestic market demand was 1 million bpd, mainly for gasoline/benzene. In September 2020, the Ministry of Oil announced it intended to boost refined product production by a third by 2022.
The Al Basrah Oil Terminal (ABOT) on the Persian Gulf has an effective capacity to load 1.3 million bpd and support Very Large Crude Carriers. A second export terminal, Khor Al Amaya Oil Terminal (KAAOT) is only partially operational with export capacity of 400,000 bpd. There are four smaller single port moorings on the Arabian Gulf, all functioning at less than nameplate capacity due to infrastructure constraints.
Oil Infrastructure Sub-sector
The GOI initiated arbitration proceedings against Turkey over oil exports through the Iraq-Turkey Pipeline (ITP) in 2014, and the ongoing dispute has major implications for the future of Iraq’s oil production and exports. Despite the ongoing arbitration, Iraqi exports from GOI- and KRG-controlled fields continue to transit the ITP. The ITP is currently Iraq’s only pipeline to run through another country. Overland routes have also been used to export limited amounts of crude. Iraq currently ships oil to Jordan’s Zarqa refinery by road tankers at a rate of 10,000 bpd, though this amount could increase to 15,000 bpd.
Natural Gas Sub-sector
An estimated 70 percent of Iraq’s proven gas reserves lie in Basrah governorate in the south of Iraq. Two-thirds of Iraq’s natural gas is associated with oil fields including Kirkuk as well as the southern Nahr (Bin) Umar, Majnoon, Halfaya, Nassiriya, the Rumaila fields, West Qurna, and Zubair. Just under 20 percent of known gas reserves are non-associated; around 10 percent is salt dome gas. The majority of non-associated reserves are concentrated in several fields in the North including: Ajil,Bai Hassan, Jambur, Chemchemal, KorMor, Khashem al-Ahmar, and al-Mansuriyah. The Akkas field in Western Anbar province is believed to hold up to 5.6 trillion cubic feet of non-associated gas.
At nearly 132 trillion cubic feet (Tcf), Iraq’s proven natural gas reserves at the end of 2020 were the 12th largest in the world. About three-quarters of Iraq’s natural gas reserves are associated with oil, and most of this associated natural gas is in the supergiant fields in the south. Iraq’s dry natural gas production was 378 billion cubic feet (Bcf) in 2019. Iraq consumed 636 Bcf of dry natural gas in 2019, much of which the electricity sector consumed. According to the World Bank, Iraq flared 632 Bcf of natural gas in 2019, ranking as the second-largest source country of flared natural gas in the world behind Russia. Natural gas is flared because of insufficient pipeline capacity and other midstream infrastructure to move the natural gas from production areas.
In 2013, the Basrah Gas Company (BGC) was established as a 25-year incorporated Joint Venture between Iraq’s South Gas Company (51 percent ownership), Shell (44 percent) and Mitsubishi Corporation (5 percent). As the main gas processing hub in Iraq, BGC plays its role in fulfilling Iraq’s strategy of energy independence and economic diversification through exports by capturing currently flared gas from the Rumaila, West Qurna 1, and Zubair oil fields. Iraq is seeking to expand its flared gas capture capabilities.
Iraq exports the majority of its crude oil. Plans to export natural gas remain controversial due to the amount of idle and inefficient electricity generation capacity in Iraq, much a result of a lack of adequate gas feedstock and internal gas transport capability.
Oil and Gas Equipment & Services Opportunities
Due to some oil majors looking to divest from current TSC operations, the GOI is looking at its regulatory environment to once again attract international expertise in operations. It is unclear what concessions the GOI may make at this time. The GOI is expanding projects to capture flared gas, to increase oil and gas transportation infrastructure, including a possible gas import terminal in Basrah, and to improve diversification from importing Iranian gas, which at times is intermittent. Additionally, the GOI is increasingly focused on renewable energy options, concluding its first solar tender and drafting renewable energy legislation. Provincial governorates and municipalities are also looking to increase renewable energy.