Western firms eye huge oil reserves in Iraq

[Neo]

January 21, 2007 Sunday Muharram 01, 1428

Western firms eye huge oil reserves in Iraq

By Syed Rashid Husain

RIYADH Jan 20: While Hugo Chavez and Ahmedinejad were busy attempting an energy rich, ‘anti-imperialist’ bloc, very much in the US backyard, another interesting piece of energy jigsaw was getting into place finally. Iraq's massive oil reserves, the third-largest in the world, are about to be thrown open for large scale exploitation by Western oil companies under a “controversial law” to be shortly introduced before the Iraqi parliament.

The US also appears to be making moves on the global energy chessboard and with the move it would be still difficult to deny the accusation that the US invaded Iraq because it wanted a foothold in this energy rich region--who knows!

When the US Vice-president Dick Cheney as the head of the oil service company Halliburton, said in 1999, "So where the additional) oil is going to come from? The Middle East, with two-thirds of the world's oil and the lowest cost, is still where the prize ultimately lies," he definitely had a point. Iraq is definitely a prize worth seeking, in this era when energy security is on global agenda.

This major shift in Iraqi energy policy is taking place while Baghdad is under occupation. The British newspaper Independent says the US government has been involved in drawing up the law and indeed it cannot be without the US tacitly pushing the Maliki government -- one has to concede.

Critics of the plan say that Iraq is being forced to surrender an unacceptable degree of sovereignty, as the new law envisages a “production sharing agreement” – highly unpopular and indeed unusual in the Middle East where oil industry is mostly state-controlled. This is also happening at a time when nationalisation of the energy assets is very much in, all around, especially in the US backyard.

The battle for oil is raging, some claim and indeed with some rationale. As per reports, the new law would give oil majors 30-year contracts to extract Iraqi crude and allow the first large scale operation of foreign oil interests in the country since the industry was nationalised in 1972.

The new law, once adopted, would permit Western companies to receive up to three-quarters of profits in the early years. Those behind the plan envisage this as the only way to get Iraq's oil industry back on its feet after years of sanctions, war and loss of expertise.

Saudi Arabia is currently locked in a multi-billion-dollar programme to expand its output capacity to 12.5 million bpd by 2009. Saudi Oil Minister Ali Naimi emphasised in the New Delhi during the week that Saudi Arabia is to pump some $80 billion in its energy infrastructure. That is huge by any means and interestingly, all that is without the involvement of the oil majors.

The country's earlier known plans called for maintaining its spare production capacity – one of prime metrics that drives crude price levels - at around 2 million barrels a day. After visiting the country, Guy Caruso, head of the U.S. Energy Information Administration, said last month he believes Saudi Arabia is about six months ahead of schedule and its spare capacity could hit 3 million barrels a day by 2011.

The first phase, increasing production to 12.5 million barrels a day from current capacity of 11.3 million barrels a day, has now been placed on an accelerated timeline. The second phase — to grow capacity as high as 13.5 million barrels a day by 2011 — is in the planning stage.

The United Arab Emirates and Kuwait have also spoken of plans to boost capacity to four million bpd each, while Iran also intends to raise capacity despite existing financial and technological constraints.

A study "Gulf oil after the war on Iraq -- Strategies and Policies," compiled by the Abu Dhabi based Emirates Centre for Strategic Studies and Research was released late last week. It says Gulf oil producers would be required to pump $523 billion over the next 25 years to lift their production capacity to meet the growth in global demand.

But the book cautioned that such investments could be hampered by ambiguity about world oil consumption, uncertainty in war-ravaged Iraq and socio-political turmoil in Saudi Arabia and other regional oil heavyweights. .

"Annual spending in this sector has to rise from an estimated $12 billion at present to $23 billion annually in the last decade of the mentioned period," the report emphasised.

The 375-page compilation noted that oil investments in the Middle East remain a fraction of the required global oil capital of more than $2.2 trillion, attributing this to the fact that the region has the lowest production costs in the world.

The European Commission unveiled sweeping plans last week to diversify its energy sources, slash carbon emissions by 20 per cent and enforce rules for fuel competition. Asean countries also joined the chorus.

The global energy balance is in a flux. Too many variables indeed and all these could go a long way in denting the investment enthusiasm. Energy diplomats have a major task in hand. Viable investments in energy sector, so as to ensure sufficient supplies in the longer run, do not appear an easy task in the prevailing circumstances.

http://www.dawn.com/2007/01/21/ebr4.htm

[A.Rahman]

Mission Accomplished~