Iraq’s Oil and the Future

Posted on November 15, 2008


Wednesday the 13th of November will be a day to remember. For a number of hours I and my research group had the opportunity to discuss Iraq’s oil in detail with Dr Issam A. R. al-Chalabi. He has worked in Iraq’s oil industry for 23 years and has been chairman for SCOP, the State Company for Oil Projects, the chairman of INOC, the Iraq National Oil Company, as well as Iraq’s vice-oil minister and oil minister. At the time of war in Kuwait he was dismissed and moved to Jordan. Few people can have a better knowledge of Iraq’s oil.

Figure 1: A summary of discoveries in Iraq and the number of fields found.

Jean Laherrere, the former head of exploration for Total, has made a summary of the oil discoveries in Iraq. It shows that during the years that Dr al-Chalabi had leading positions in Iraq their discoveries increased from 70 to 140 billion barrels. Today, Iraq is reported to have 115 billion barrels in its reserves. Our conversation began with a discussion of the size of these reserves. Are there “political barrels” in the reserves and how had they arrived at the figure of 115 billion barrels?

In 1968 the decision was made to hold Iraq’s oil reserve figures secret, but during his time Dr al-Chalabi worked to have them openly accounted. He asserted that during the years that he was responsible for Iraq’s reserve figures there was not a single time that Saddam Hussein had ordered him to report these in any way to suit a political purpose.

The precondition for finding oil is suitable geological structures. In Iraq there are 525 of these to investigate. Obviously they have chosen the most promising structures to investigate first. To date they have studied 125 of these. When Dr al-Chalabi was responsible for this activity Iraq had 40 seismological teams and 30 to 40 teams drilling for oil. The seismological investigations were all of a 2D nature. The first opportunity he had to introduce 3D equipment was in 1990, just before he was removed. Dr al-Chalabi considers that Iraq is still virgin territory in terms of exploration. An exploration well, a so-called “wildcat”, can either be dry or can hit oil. He said that they had been very successful and that 73 % of the wells that they drilled had resulted in new finds, a fantastic success rate that is probably among the world’s best. Despite difficult conditions, exploration continued during the eight years of the war with Iran. Iraq also has the right to drill for oil in a small area of the Persian Gulf but so far they have not done so.

In June 1990 a group of geologists and petroleum engineers gathered to assess Iraq’s oil reserves. Geologists are usually optimists and they reported that the reserves should be 140 billion barrels. When the petroleum engineers made a more realistic estimation with, among other things, a recovery factor in the range of 15 to 25 %, they arrived at a figure of 115 billion barrels of oil. Compared with Saudi Arabia that uses a recovery factor of over 50%, that is a very conservative judgement. One reason for the conservative viewpoint is that they only had access to 2D seismological analyses.

In the structures that they have researched they have only drilled shallow wildcats but with modern deep drilling technology Dr al-Chalabi estimates that they will find significantly more oil in the old structures than in all the remaining structures yet to be explored. The figure that was cited was twice as much. With this as a guide and the estimate that they will find an additional 30-40 billion barrels in the old structures we can expect that Iraq has a future potential of 40-60 billion barrels, i.e. a maxiumum of two years of global oil consumption.

Dr al-Chalabi considered that the period spanning 1973 to 1980 was Iraq’s golden age for oil. Then there was money and also peace in Iraq. From Figure 1 we can also see that it was a very successful period. They found, among others, the field “East Bagdad”. In reality, part of Bagdad’s population lives on an oilfield.

We discussed the geographical distribution of the reserves and Dr al-Chalabi considered that 60% exists in the southern areas while the rest is evenly distributed between the north and middle regions.

The discussion moved on to production of oil. When the Ottoman Empire was carved up after the first world war a number of nations were created and the jewel in the crown became Iraq. After considerable negotiation it was decided that future income from oil extraction would be divided between Great Britain, France, Holland and the USA – i.e. “The winner takes it all”. Iraq’s national oil company was formed and the rights to explore for oil were given out to well known oil companies. After a number of political changes Iraq had a government that decided in 1961 that all exploration rights that had not been used would be recalled. The national oil companies were left only those oil fields that were in production, approximately 5% of the original land area. During the 1970s even these areas were nationalised and the international oil companies were thrown out. They tried to begin a legal process without success without success. Iraq became master of its own oil.

Before the meeting we had prepared a scenario for future production, Figure 2, that shows that it is quite simple to raise oil production to 5 million barrels per day, but that this requires investment.

Figure 2: Iraq’s past production history is taken from BP’s statistics and future production includes an overview of today’s producing fields plus suitable new fields.

Oil production figures show that war is an effective way to stop production. The southern part of the field Rumaila lies in Kuwait. This part may amount to 5% of the field’s total area. The question of where exactly the border lies in the desert has been a source of tension. Kuwait decided to begin production from its part of the field before there was an agreement with Iraq. The geological structures are such that, if one pumps out oil in the south it will automatically be refilled from the reservoir in the north – Iraq’s oil was flowing under the border. To counter this a number of oil wells were opened on the Iraqi side of the border. Many assert that the oil production from Rumaila was one of the reasons behind Iraq’s invasion of Kuwait. Today the UN has set the border so that even the wells that earlier lay in Iraq now lie in Kuwait.

In 1979 there were well advanced plans to increase oil production to 6 million barrels per day. War and politics changed these plans drastically. However, the oil is still there in the ground and at the end of the 1980s they began to discuss the old plans again. Once again war and politics put a spanner in the works.

With marginal investments today’s production, (that comes from 18 or 19 fields), could be increased by 4 million barrels per day. With additional investment in new fields the old plans can be realised and Iraq can become a nation with an oil production of 6 million barrels per day. Our calculations are not as optimistic but we certainly do not have all the correct numbers.

We then approached the political part of our discussion. Time and again Dr al-Chalabi brought up Iraq’s law number 80 from 1961 that states that parliamentary approval is needed for foreign companies to obtain ownership rights over oil in Iraq. They are now discussing a new oil law that will transfer the power to make this decision to the government and there is a great deal of opposition to this among the population.

Recently they called for tenders for extraction rights in a number of oil fields. The fact that 125 companies from all over the world expressed their interest shows that Iraq’s oil is decisive for future global production. Dr al-Chalabi does not think that these companies should be responsible for production. He thinks that responsibility should remain in Iraqi hands. Certainly Iraq needs help from service companies and maybe also foreign oil companies but the right to determine over oil production should remain with the people. What is happening now is taking Iraq back to the time just after the first world war. “When one mentions Iraq one thinks of oil and when one mentions oil one thinks of Iraq.” Alan Greenspan, Colin Powell and more and more of those that steered USA’s invasion of Iraq now confess that the war was about oil.

I wrote in a debate article in Uppsala Nya Tidning [Uppsala’s daily newspaper] on 3 October 2002, ”The war that is now being planned against Iraq can be dressed up in whatever suit they wish and made to smell nice with the help of eau de cologne but when you unbutton the jacket it still smells of oil”. I was criticised then for my views but one can see now that I was right.

To conclude we discussed Iraq’s discoveries of natural gas. These are modest compared with the reserves in Iran and Qatar. The discussion quickly moved to the agreement that Shell recently signed with the Iraqi company South Gas. Dr al-Chalabi became very agitated and asserted that Shell, in principle, has obtained a monopoly on gas extraction in Iraq and the price they paid is only a tenth of what may be worth 40 billion dollars in 20 year’s time. He was involved with the construction of the natural gas infrastructure and asserted that the repairs needed are quite limited. Iraq’s people should take care of gas production themselves.

This is part of the information that we received. As a university-based researcher I am very pleased that Dr al-Chalabi thought it was completely OK to report our conversation openly. We will look critical at the numbers, but in terms of future discoveries in Iraq they will probably find many more oil fields. The question is if they will every find any more supergiants. Adding al supergiants and giants oilfields our list adds up to 27 “elephants”. The world needs the production from these fields. According to Dr. al-Chalabi, the Iraqi government plan to sell out the five supergiants with around 43 billion barrels. In a planed second round they collect most of the rest giant fields with 52 billion barrels. Left over for Iraq will be 115 – 95 = 20 billion barrels. I can understand if Dr. al-Chalabi is upset as he has been part of the discovery of 70 billion of the barrels that will be on the market.

Dr al-Chalabi’s visit to Uppsala University was concluded with a lecture where approximately 200 students, university employees, the public and the press also could hear part of what we had discussed.

Kjell Aleklett and Dr Issam A. R. al-Chalabi, former Oil Minister of Iraq

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