Analyst forecasts ‘major risks’ ahead in Iraq

Iraq has ambitious targets, aiming for 500,000 b/d annual oil output expansion and a long-term goal of 6 million b/d, according to a recent report by analyst BMI.

“However, there are major risks involving attacks on oil installations, Iraq’s OPEC entitlement, and the success of new energy policy in stimulating IOC [international oil company] investment,” BMI said.

IOCs in 2008-09 are expected to enter production-sharing agreements with the state, which should help accelerate the growth in oil output.

Based on the efforts of existing contractors and national oil industry bodies, BMI is forecasting average oil production of 2.3 million b/d for 2008. Production in May was 2.5 million b/d, with 2 million b/d exported.

Further field reactivation work and the initial IOC efforts point to output of an estimated 3.15 million b/d in 2012.

BMI is forecasting an increase of 86.5% in Iraqi oil production during 2007-18, with crude volumes rising steadily to 4 million b/d by yearend 2018.

Iraqi oil consumption

BMI forecasts that Iraq’s real gross domestic product will grow at 10.6% for 2008, following 5.4% in 2007. “We are assuming 7.4% growth in 2009, followed by 9.4% in 2010, 10.1% in 2011, and 5.5% in 2012,” the analysts reported.

Oil consumption during 2007-18 is set to increase by 111%, with growth slowing to an assumed 5%/year towards the end of the period.

“We expect oil demand of 620,000 b/d in 2007 to rise to 975,000 b/d in 2012, depending on investment in infrastructure and the development of domestic production,” BMI said. The analysts expect demand of 1.31 million b/d by 2018.

As percentage of region

Iraq will account for 10.89% of Middle East regional oil supply by 2012, while creating 8.25% of its demand, BMI reported.

Regional oil production, which stood at 22.87 million b/d in 2001, averaged 25.42 million b/d in 2007 and is set to rise to 28.94 million b/d by 2012.

Regional oil use of 8.24 million b/d in 2001 rose to 10.61 million b/d in 2007. It should average 10.86 million b/d in 2008 and then rise to around 11.81 million b/d by 2012.

Natural gas comparisons

Iraqi gas production is expected to climb to 35 billion cu m by the end of the 2007-18 period.

During this time, gas demand will grow 166%, and export potential will rise to 24.4 billion cu m by 2018.

Iraq in 2007 consumed 1.08% of the Middle East’s gas, with its market share forecast at 1.11% by 2012. It contributed 1.1% to 2007 regional gas production and by 2012 could account for 2.61% of supply.

The entire Middle East in 2007 consumed 370 billion cu m, with demand of 541 billion cu m expected for 2012, representing a 46% growth.

Middle East production of 363 billion cu m in 2007 should reach 575 billion cu m in 2012, which implies net exports rising to 34 billion cu m by the end of the period.

OPEC 2008 prices

BMI also released figures for the Organization of Petroleum Exporting Countries’ basket prices, revising its projections for 2008 upwards from the last quarterly report.

“We are now assuming an OPEC basket price average of $106[/bbl] for 2008, compared with the $81 estimate provided by our last quarterly report,” the analyst said.

Based on recent price differentials, Brent would average $109.71/bbl for 2008; WTI, $110.64/bbl; and Urals, $106.88/bbl.

In second-quarter 2008, BMI estimates that OPEC’s basket price averaged just under $115/bbl, up 24% from the first quarter.

The basket price had exceeded $127/bbl on May 22, slipping back towards $121/bbl later in the month. In June, BMI assumed an average $120/bbl to deliver a quarterly estimate of $114.98/bbl.

By comparison, the estimated second-quarter 2008 average prices for the main marker blends are $118.63/bbl for Brent, $119.61/bbl for West Texas Intermediate, and $115.89/bbl for Russian Urals (via Mediterranean delivery).