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Analysis: Iraq oil debate review

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by Ben Lando
Washington (UPI) Feb 28, 2008
Iraq's draft oil law is stalled in Parliament, the national government and Kurdistan Regional Government are moving forward with their own deals -- unconstitutional, the each says of the other -- and Iraq's oil production is stalled at just more than 2 million barrels per day.

Perhaps it's a good time to take a step back and recap the debate over Iraq's oil sector and its possibilities. To do so, United Press International has reviewed three recently published documents providing contrasting and varying insight. It's not exhaustive, but a good addition to an important discussion.

The first is "An Opinion Opposing the Existing Draft Iraqi Oil & Gas Law," by Fouad al-Amir, a 70-year-old Iraqi resident with "40 years in the Iraqi Ministry of Oil," according to an ex-Iraqi oil official.

"The importance of Iraq comes from its high oil reserves, and the very good possibility of increasing it," al-Amir wrote. He called it suspect that U.S. officials and Big Oil companies have had their eye on Iraq's oil since before the war, citing Vice President Cheney's energy task force documents, State Department study groups and an oil company-funded think tank calling for a certain type of contract.

Iraq's oil sector has been nationalized since the 1970s, though Saddam Hussein gradually displaced many technocrats with political allies, and oil production decreased.

A proposed oil law that receives heavy backing from Washington is being touted as a way to direct investment to the oil sector, through at least partial denationalization. The fear by opponents, such as al-Amir, is that through production-sharing contracts private companies will be allowed too much access and even control over Iraq's oil. PSCs, which the KRG has signed in frustration with Baghdad, give companies a guaranteed minimum cut of the oil, after recouping their costs, deals looked upon as favorable by Wall Street.

"The existing laws in Iraq allow all kind of oil development, except foreign sharing in Iraqi oil," al-Amir wrote. "There would be a need for (an) oil law later when safe and stable, political and social, matured conditions are prevailing. żż It should be reorganized to emphasize central planning and decentralized application of the plans."

The Iraq National Accord, a political party led by former Iraq Prime Minister Iyad Allawi, who is angling to replace current Prime Minister Nouri al-Maliki's governing coalition, has issued a critique of the current process of the oil and gas law, as well as of the national Oil Ministry.

The INA calls for an immediate passage of the Revenue Sharing Law to "create trust on all sides." It's set to be included in a package of laws along with the oil law, the Ministry of Oil law and the Iraqi National Oil Co. law.

INA calls for the INOC to be re-established and given the task of operating currently producing fields "and double their current production," while international and Iraqi private oil companies should bring into production the discovered but not developed fields.

"The government's role should be regulation and oversight, while having capable companies Iraqi and international, investing and working in all areas of Iraq," the paper said.

And it repeated the claims of the KRG in its dispute with the national government. It said Baghdad made "unauthorized changes" to the draft oil law agreed to in February 2007. That law is now stuck in Iraq's Parliament. The KRG decided to move forward on its own, passing a regional oil law and signing dozens of contracts with international oil companies.

The INA said any contracts will increase oil production, thus revenues, and should be considered "positive." It said the Supreme Court of Iraq should determine which side is correct in the dispute, which is based on either sides interpretation of the 2005 Constitution, and criticized national Oil Minister Hussain al-Shahristani for, among other things, calling the KRG deals "illegal," blacklisting companies that signed with the KRG and cutting those firms from Iraq oil purchases.

While the timeline for finding agreement on the oil law is unknown, a new report from the Center for Global Energy Studies says there is much than can, and should, be done to enhance Iraq's hydrocarbons sector in the meantime.

"The fact that the nation is composed of different sects and races has contributed less to the problem than politics, the security vacuum post April 2003, and the very slow process of building up and equipping the national army and security forces. The conditions in Kurdistan have been safe enough for business. In the southern governorates of Basra and Missan, security conditions have been relatively satisfactory for field activity to continue," according to the Executive Summary of the report -- which is offered by the London-based consultancy for more than $26,000.

"Field activity in the short term can, however, go ahead in Anbar, Basra, Missan, South Thi Qar (Nasiriyah), parts of Wasit, in addition to Dohuk, Erbil and part of Sulaimaniya" provinces, the report added. Large-scale exploration is the biggest holdout until the government decides who controls the oil strategy.

Other issues include the flaring of 70 percent of gas produced during oil production, instead of utilizing it in power generation.

Plans in the early 1980s to boost production to 6 million bpd were cut short by successive wars, U.N. sanctions and Saddam's mismanagement of the sector. Security issues keep out contractors and political stalling keeps Iraqis from doing any major projects. Production increases will come after wells, pipelines and other infrastructure are fixed, upgraded and protected, the report said.

And although Iraq's export facilities have a 3.5 million bpd capacity, according to the report, increasing production to the 6 million bpd target -- or higher -- "would definitely require expansion of the production centers, trunk lines, main lines and export facilities."

The northern pipeline from Kirkuk to a Turkish port has only recently been regularly protected from insurgent attacks, and is now flowing at about 350,000 bpd -- less than a quarter of its capacity. Meanwhile exports from the southern ports are heading toward the 1.9 million bpd mark. Other pipelines have been bombed and remain out of operation.

The report predicts average daily production will reach 2.692 million bpd by 2010, with exports at 2.217 million bpd. Such oil sales would continue to bring in the tens of billions of dollars -- especially at today's oil prices -- which fund nearly the entire Iraqi federal budget.


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