Iraq Oil Report

China says a multi-billion dollar oil deal with Iraq is still being negotiated. This contradicts reports last week from Iraqi officials, who said the deal had been signed, Daniel Schearf reports for Voice of America.

China’s Foreign Ministry on Thursday said negotiations with Baghdad to exploit an Iraqi oil field continue.

Iraq’s embassy in Beijing last week said Iraqi officials had signed a $3 billion deal with China National Petroleum Corporation.

Iraqi officials in Baghdad later confirmed the reports, but China’s Foreign Ministry spokeswoman, Jiang Yu, indicated they were wrong.

Iraq should solve security problems and set up a credible legal framework for cooperation with international oil companies.

Carlo Stagnaro, Director of the Energy Department in the Italian Bruno Leoni Institute, told Trend Capital by e-mail that huge investments were needed to rebuild the oil infrastructures. This leads to the need to set up a credible legal framework.

“If at least a reasonable certainty is provided, a double dividend can be expected for Iraq: oil and gas exploitation will help the country to start growing, and the wealth creation may help to stabilize it politically,” Stagnaro said.

Fresh details have emerged of the service deal signed with China for the development of the Al-Ahdab oil field, giving an indication to other oil majors about the type of contracts on offer in the country in the continued absence of an oil law.

London-based consultant Global Insight says China National Petroleum Corporation (CNPC) will develop the field and manage production for a 20-year period at an initial price of $6-a-barrel, which will fall to $3-a-barrel as investments are recouped.

Around 25,000-barrels-a-day (b/d) is expected to be produced in the first three years, rising to 110,000 b/d in the future, Middle East Business Intelligence reported.

Global Insight notes that although CNPC is not allowed to market the crude itself, the relationship will place it in a good position to guarantee a flow of oil from Iraq to China.

Iran is pressuring Iraqi authorities to exclude U.S. oil majors from contracts to develop the country’s massive oil fields, sources at the Oil Ministry said.

The sources, speaking on condition of anonymity, said the authorities currently favor Chinese and Russian companies to those of the United States, Azzaman reported.

Their remarks come following a contract the ministry signed last month with China’s state-owned oil firm CNPC.

The $3bn oil services contract is a renegotiated deal of the Ahdad oilfield which CNPC had agreed to develop in 1977.

China is the first country to win such a contract since the 2003 U.S. invasion of the country.

“After several very difficult years, economic prospects for Iraq are improving and the authorities are persevering with the implementation of their economic program in 2008. With the recent improvement in security, oil production and exports are increasing while inflation has been reduced,” the IMF said. “Progress has been made in strengthening governance and fighting corruption in the hydrocarbon sector, through oil-metering and Iraq’s participation in the Extractive Industries Transparency Initiative. An extension of the metering system to all oil sector activities will further strengthen transparency in the sector.”

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Lebanon hopes to sign a deal with Iraq in the next two months to buy crude oil below market prices, after Baghdad agreed to sell oil to Jordan at $22 a barrel, Bloomberg’s Massoud A. Derhally reported.

“We are hoping for a similar agreement,” Lebanese Minister of Finance Mohamad Chatah, 57, said in an interview in Beirut. “There is clearly a desire on the part of the Iraqi government to help Lebanon.”

An agreement will help reduce inflationary pressures in Lebanon, which imports all of its energy and has an annual $2 billion energy bill, excluding what it pays for electricity, Chatah said. Lebanon’s trade deficit widened 34 percent in the first half of this year to $5.6 billion from a year earlier.

Iraq oil flowed to Turkey at the rate of 480,000 barrels per day on Thursday after exports restarted on Wednesday, Trade Arabia reported.

The pipeline from northern Iraq to Turkey’s Ceyhan oil terminal in the Mediterranean is Baghdad’s secondary export route. Most of its exports are through the main terminal at Basra in the country’s south.

The oil flow through the pipeline to Turkey stopped for a day earlier this week. A vessel was due to complete loading a million barrels of oil at Ceyhan on Thursday for Italian refiner ENI.

Another ship was waiting to load 600,000 barrels for Italian refiner Iplom, he added. Total Iraqi crude in storage stood at around 200,000 barrels on Thursday.

Iraqi Kurdistan has been primed for a wave of foreign investment for years, but officials say the grand goals of a relatively peaceful northern enclave are frustrated by violence plaguing the rest of Iraq.

“We have many things: oil, iron, phosphate,” said Baqi Salaye, a Kurdish businessman.

Investments in housing, tourism, industry and other sectors, not including oil and natural resources, total around $16 billion from 2006 through mid-2008, Missy Ryan reported for Reuters.

U.S. officials say foreign investment across Iraq has also been hindered by a lack of confidence in its overall regulatory regime. They expect change with the passage of an oil law in Iraq, which has the world’s third largest proven reserves.

Senator Barack Obama had other fish to fry than energy policy during his Thursday speech at the Democratic National Convention, which is why he dispatched one of the biggest campaign issues in just four terse paragraphs. The upshot? Sen. Obama’s energy recipe seems a lot more centrist and less ambitious than many Democrats would probably like.

That was clear from his supply-side trifecta: support for more natural gas (which often means gas shale); support for more clean-coal technology, an expensive and as yet unproven technology; and his embrace of nuclear power provided it can be “harnessed safely,” presumably a reference to the lingering issue of nuclear-waste storage, writes Keith Johnson for The Wall Street Journal.

But the headliner was his “clear goal” as President: “In ten years, we will finally end our dependence on oil from the Middle East.” Not U.S. dependence on oil, but on imports from the Middle East.

Iraq is now producing as much power as it did on the eve of the US-led invasion of 2003 but is still meeting barely 50 percent of peak demand, a senior electricity ministry official said.

“2008 is the first year when production has reached the level prior to that of Saddam Hussein’s fall,” the ministry’s operations and control chief Adel Mahdi told AFP in an interview. “But we still need much more.”

Current production stands at 5,302 megawatts, virtually the same as the 2002 level of 5,305 MW, Mahdi said.

But demand has risen sharply over the same period, forcing the ministry to continue rationing domestic supply. The average household still receives just six hours of power a day from the national grid.

Iraq has halted oil exports through its northern pipeline to Turkey, Reuters reported.

The line is Iraq’s secondary export route, handling about 430,000 barrels per day. Most of Iraq’s crude shipments sail from its main southern oil terminal at Basra, at a rate of about 1.6 million bpd.

Exports through the northern line from Iraq’s Kirkuk oilfields stopped early on Tuesday. The reason for the halt was unclear, but the flow has been regularly interrupted during the past month.

Jordan seeks Iraqi natural gas to supplement its imports from Egypt, Xinhua said.

Minister of Energy and Mineral Resources Khaldoun Qteishat said Jordan was making contacts with Iraq to develop gas fields and examine the possibility of allocating part of their production to Jordan.

According to Qteishat, Jordan’s needs of gas for industrial purposes until the year 2017 stands at 1.5 billion cubic meters a year, which cannot be met by the Egyptian gas import only.

Flush with oil revenue, Iraq has budgeted $50 billion so far – as much as the United States – to rebuild the country. This month, the US Government Accountability Office predicted that the Iraqi government could end the year with a $79-billion budget surplus.

But Iraq has been slow to spend its money. By March, the latest month for which data is available, it had spent only 2.7 percent of its budget, according to a quarterly report released last month by the US special inspector general for Iraqi reconstruction. By contrast, the United States has spent nearly all of the money it has appropriated, writes Anna Badkhen for The Christian Science Monitor.

The slow pace of reconstruction frustrates Iraqis, who are struggling with staggering unemployment, power outages, water shortages, and streets choked by sewage and trash. Many are particularly exasperated by such projects as the beautification of the road to Baghdad International Airport.

Iraqi Ministry of Oil’s, MOO, technical staff were able to put gasoline production units of Daura Refineries (Midland Refineries Company – MRC) back into service, after few days of shut-down, Voices of Iraq reported.

“Daura Refineries resumed producing gasoline, after repairing a technical malfunction that occurred days ago,” ministry spokesman Asim Jihad said.

“Produced gasoline reached distribution points,” he said.

“On Monday, MOO supplied 6.450 million litters of gasoline to gas stations,” he added.

“The MOO has enough gasoline to cover citizens’ needs,” he noted.

“Wake up, America. We went into Iraq for oil,” said prepared remarks by Ohio Congressman Dennis Kucinich for the Democratic National Convention Tuesday. “The oil companies want more. War against Iran will mean $10-a-gallon gasoline. The oil administration wants to drill more, into your wallet. Wake up, America. Weapons contractors want more. An Iran war will cost 5 to 10 trillion dollars.”

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The long-suffering bill that would govern Iraq’s oil industry and divvy up oil wealth has been stalled more than a year, bogged down in political squabbling and symbolic of problems rippling below the surface here despite success on the security front.

Just last year, U.S. and Iraqi officials repeatedly announced that passage of the oil bill was imminent. The bill was seen as crucial to laying the groundwork for long-term security and political reconciliation in Iraq, since it would guarantee equal distribution of the oil profits on which Iraq’s economy depends.

Now, the topic rarely comes up, and when it does, it is in a far more sober context, Tina Sussman writes for The Los Angeles Times.

Oil supplies meet and may slightly exceed current world demand, Iraqi oil minister Hussain al-Shahristani said at a press conference in Poland.

Sharhristani did not say whether or not the supply situation meant OPEC needed to cut output at its September meeting, saying the group would have to first review its market data, Reuters reported.

Sharhristani also said he expected Iraq’s OPEC target to reach 4.5 million barrels per day within five years and 6 million barrels per day within 10 years.

In the last few decades the Iraqi oil industry has been mismanaged and has suffered many problems, thereby losing out on many opportunities. This unfortunate situation continues to be the case for this industry. During the past two years, the present Iraqi Ministry of Oil has not had any effective policy to improve the severely bad conditions of its oil industry. Iraqi oil production remains low, and it is only due to improved security in the north of Iraq that oil is once again flowing in Kirkuk and being transported to Turkey, bringing Iraqi oil production to 2.5 million barrels per day, writes Ali Hussain writes for the Middle East Economic Survey.

Political gridlock has overtaken security risk as the primary hurdle facing the rehabilitation of Iraq’s oil industry, according to oil executives and analysts.

Cabinet disagreements and unrealistic expectations from Baghdad are already threatening to scupper the oil ministry’s plans to sign short-term technical support agreements with international oil companies.

This could also complicate the more ambitious plans to agree longer-term development contracts that would involve big investments by oil majors, Carola Hoyos, Roula Khalaf and Ed Crooks report for The Financial Times.

Negotiations between Iraq and major international oil companies over deals to boost output are still under way and have not stalled, a senior Iraqi oil official said.

Last Sunday, a U.S. diplomat said talks to sign no-bid and short-term contracts had broken down and the Iraqi government was likely to abandon them, the AP reported.

Royal Dutch Shell Plc said it was still in talks with Iraq about a short-term service contract to help boost oil production, despite a U.S. diplomat in Baghdad suggesting such deals may be dropped, says Reuters.

“Negotiations go on,” a Shell spokesman said, but he declined to give further details.

Iraq and China will sign a deal next week to develop the Ahdab oil field, restoring an agreement that was canceled after the 2003 U.S.-led invasion and is worth US$1.2 billion, an Iraqi spokesman said.

The governor of Wasit province, where the billion-barrel field is located, left Wednesday for China to join Iraqi Oil Minister Hussain al-Shahristani at the ceremony in the next few days, provincial spokesman Majid al-Atabi said.

“The governor will discuss the logistic cooperation with the Chinese company, especially the security side,” al-Atabi told The Associated Press.

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Iraq is likely to abandon plans to sign up to $3 billion in short-term oil contracts, a U.S. diplomat said, putting in doubt deals that would give foreign oil firms their first major foothold in the country for decades, Missy Ryan reports for Reuters.

“It appears that on present form (the Iraqi government) probably won’t proceed with most of these or all of them,” Charles Ries, coordinator for Iraq’s economic transition at the U.S. embassy, told reporters in Baghdad.

“But I think that some of the companies are open to continued discussions even on relationship grounds, and some of the companies … don’t think it’s worth their time.”

Frustration over the sluggish pace of Iraq’s oil production is rising in the country and abroad as global prices soar. Much of Iraq starves for electricity and fuel as vast amounts of oil and gas sit untapped in the ground. Iraq’s oil industry needs a virtual overhaul to reach a level of production that could erase chronic fuel shortages in the country and rake in windfall profits to be had on the world market. The Iraqi government and more than two dozen oil companies are in the midst of drafting plans to begin the work. But the chances of success anytime soon are far from certain, Mark Kukis writes for Time.

Iran’s energy minister said his country was ready to offer technical services to Iraq in the fields of energy and electricity, expressing content with the current level of cooperation between the two neighboring countries, Voices of Iraq reported.

“Iranian experts, who acquired a good know-how in setting up power stations and extension of high-pressure lines, are ready to offer their experience to their Iraqi counterparts,” Pervez Fattah.

The Chinese firm, Shanghai, has started constructing a major thermal power plant in the southern Province of Wasit, Salah al-Rubaai reports for Azzaman.

Electricity Minister Kareem Waheed attended the laying down of the foundation stone for the plant, the largest ever project a foreign firm begins constructing in Iraq since the 2003 U.S. invasion.

Kareem said on completion the plant will generate 1320 megawatts of electricity.

He said under the $924 million contract the Chinese were to have the plant constructed in 48 months.

“It is a good initiative from a foreign firm to start implementing such a project in the country following the improvement in security.

“Hopefully this will encourage other firms to follow suit,” Waheed said.

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