CERA: Former Iraqi oil minister calls for Iraq production cap, reservoir

Rather than trying to match or surpass its prewar oil production level of 2.8 million b/d, Iraq should "cap [oil] production at a maximum 2 million b/d, export no more than 1.5 million b/d, and start immediately on subsurface [work]" to assess and repair damaged reservoirs in its oil fields, said Issam Al-Chalabi, a former oil minister.

Iraqi and US officials "should forget about reaching what [former Iraqi President] Saddam [Hussein] used to do. This should not be the objective. The objective should be to install proper management of the oil reservoirs," said Al-Chalabi Feb. 11 at an annual energy conference in Houston, sponsored by Cambridge Energy Research Associates.

At the same conference last year, Al-Chalabi, who served as Iraq's oil minister from 1980 through October 1990, said western oil field service companies "ought to be the first to venture into Iraq because they are badly needed" after a decade-long ban on importation of oil field technology into that country. However, he said Tuesday, "Up to this very minute, there has been no subsurface work whatsoever" to increase production of Iraqi oil or even to analyze the damage to producing formations from years of neglect and overproduction.

Past wreckage

Kirkuk and other major Iraqi oil fields "have sustained various kinds of damage" to their reservoirs as a result of "13 years of sanctions, mismanagement, overproduction, and last but not least reinjection of various products," including "hydrocarbon wastes," said Al-Chalabi, chairman of Al-Sanam Petroleum & Economic Consultancy, which last year reestablished offices in Baghdad from Amman. Kirkuk's total oil reserves of 8.7 billion bbl at the start of this year included "1.48 billion bbl of total injected crude oil and products as from 1991," he said.

"Some kinds of damage are only curable over a long term and at high cost. Others are practically irreversible," said Al-Chalabi. The result of injection of oil products in some fields resulted in the rise of oil-water contact, he said.

"The common major abuse has been overproduction, particularly for major fields," he said. Both before and after the recent war to oust Saddam, he said, "Oil production rates were decided more by the political desires and priorities of those in power than by sound reservoir management."

Al-Chalabi said, "We knew why [such abuse] continued during the Saddam regime. The question is, why is it continuing today? We are losing more oil."

Future repairs

To revitalize Iraq's abused oil fields, he recommended that Iraqi and US officials "get everybody involved, going into every field with engineering studies, testing, workovers, drilling."

After the successful invasion of Iraq by US-led coalition forces last year, he said, "Expectations [as to Iraq's future oil production] ran very high. Top US officials made a number of statements saying 3 million b/d would be expected within 2-3 months. But that may well not be attainable for some months to come." The country's oil production is now at 1.8-2 million b/d.

"One of the questions to be raised is, was there really a well-defined [postwar] oil policy by the US, knowing what to do after the fall of [Saddam's] regime, because everyone knew that a war was inevitable and everybody knew the outcome. So everybody expected that the coalition forces, after months of deliberation, would have put a solid plan together, particularly in regard to oil. But the answer unfortunately is that they have not had a clear oil policy," said Al-Chalabi.

Aside from "two minor locations," virtually no damage was inflicted on Iraq's oil installations during fighting between coalition and Iraqi forces, Al-Chalabi said. As soon as coalition forces established dominance over the Iraqi military, he said, "The ministry of oil was protected. The headquarters of the ministry in Baghdad was protected, but not the oil industry. What happened throughout the war and after, mostly after, for some reason looting was allowed to go unchecked."

At one location, he said, "There were British forces protecting the oil installations during the daytime, but then they were withdrawn back to their camps at night. When they returned, they discovered that the facilities had been looted."

Coalition forces could have protected Iraq's oil infrastructure "if they had wanted to," said Al-Chalabi. "Was there a reason for it? I think this is one of the questions yet to be answered."

After the end of military hostilities, he said, some Iraqi oil officials "took the initiative of going to the ministry to convince American Marines that they should be allowed to start running the [oil ministry] administration. . .to try to provide some local oil products for the people—gasoline and kerosine."

Because of pipeline sabotage, he said, Iraq "to this day" is unable to resume pumping Kirkuk oil through the northern pipeline to Mediterranean export facilities at Ceyhan, Turkey. "I think the pipeline has been sabotaged over 100 times," he said. "Despite the contract with a foreign company to protect the pipelines and installations, they seem to be continually subjected to sabotage."

Foreign participation

Iraq resumed export of oil from its southern fields through a terminal in the Persian Gulf, "signing term contracts for 700,000 b/d in July, then 1 million b/d in August, and 1.5 million b/d in September," said Al-Chalabi.

Earlier questions of when major oil companies might participate in Iraq's oil industry, along with talk of privatization of its oil industry or of Iraq's withdrawal from the Organization of Petroleum Exporting Countries, have now "dried up," said Al-Chalabi. Participation by foreign oil producers "will only happen after a properly legitimate Iraqi government is installed after proper elections," with "a parliament and a hydrocarbon law and proper fiscal and legal laws," he said.

Iraq has a refining capacity of more than 710,000 b/d and a domestic consumption in 2002 of 330,000 b/d. Yet it is now importing "gasoline, kerosine, LPG, and gas oil from almost every neighboring country," said Al-Chalabi. "Some officials say the importation of refined products can be stopped only after new refineries are installed, up to 1 million b/d [capacity], so they can provide 300,000-400,000 b/d [for domestic supply]."