New Iraq-Iran alliance in boosting oil output to challenge reigning Saudi Arabia will be game changer

Iraq and Iran plot oil revolution in challenge to Saudi Arabia
Iraq's goal of pumping 9m barrels a day of crude could be a game changer for oil prices and British companies

By Andrew Critchlow
The Telegraph
Jan 28, 2014

Iraq sets its sights on the top spot of Middle East oil producers

Iraq is poised to flood the oil market by tripling its capacity to pump crude by 2020 and is collaborating with Iran on strategy in a move that will challenge Saudi Arabia's grip on the Organisation of Petroleum Exporting Countries.

"We feel the world needs to be assured of fuel for economic growth," Hussain al-Shahristani, Deputy Prime Minister for Energy in Iraq told oil industry delegates attending a Chatham House Middle East energy conference.

Al Shahristani said on Tuesday that Iraq plans to boost its capacity to produce oil to 9m barrels a day (bpd) by the end of the decade as Baghdad rushes to bolster its economy, which is still shattered by war and internal conflict. Iraq was producing 3m bpd in December, according to the International Energy Agency.

Iraq's intention to challenge Saudi Arabia's status as the "swing producer" in the OPEC cartel could see a dramatic fall in oil prices if Baghdad decides to break the group's quotas and sell more of its crude on the open market.

"It's very difficult to predict actual world (oil) demand by 2020 because the world economy is unpredictable," said Mr al-Shahristani.

British oil giants BP and Royal Dutch Shell are also poised to benefit from Iraq's ambitious production plans. Both companies are already managing two huge oil fields in southern Iraq which are vital if Baghdad is to achieve its goal.

However, even if Iraq is able to achieve its target of boost production capacity it is unlikely to be able to put in place sufficient pipeline and port infrastructure to export the additional crude.
Iraq's main export terminal for loading oil tankers at Al Faw near Basra will require billions of pounds worth of improvements in addition to the refurbishment of its pipeline network.

Iraq's ambitious plan could see it clash increasingly with the regime in Saudi Arabia, which has used its influence in OPEC over the last decade to keep oil prices above $100 a barrel. Saudi itself is now under pressure to boost output to maintain market share. The kingdom pumped 9.8m bpd in December up by about 100,000 barrels from the previous month.

Experts say that attention within OPEC, which pumps 30% of the world's crude, could increasingly focus on compliance with more of the group's members tempted to pump more barrels to protect their share of the market as the cartel grapples with the rise of US shale oil production.

OPEC agreed in early December to renew for six months its 30M bpd output cap for the first half of the year to keep prices above $100. However, quotas have in the past proved difficult for OPEC as a group to enforce without any binding penalties for over-producing. Since its restoration to OPEC following the 2003 Gulf War, Iraq has been excluded from the group's quota system to allow its economy to recover but pressure is mounting for it to comply this year.

The International Monetary Fund this week warned that Iraq's weak economy remains vulnerable to fluctuations in oil markets. Crude oil exports account for 93% of government revenues. The IMF estimated that Baghdad required an average oil price of $106.1 per barrel in 2013 to balance its budget, up from $95 in 2011 because of higher spending.

Despite Mr al-Shahristani's hopes for boosting Iraq's energy sector there are severe concerns over security amid fears the country may again be slipping toward a civil war between Sunni and Shia Muslim factions.

In a further challenge to Saudi Arabia, which is mostly closed to international oil companies, Mr al-Shahristani revealed that Baghdad is working with Iran to help it attract investment ahead of the possible lifting of sanctions. Oil companies are understood to be queuing up to win Iranian oil deals.

"Iran has been in touch with us," said Mr al-Shahristani. "They want to share our contracts model and experience."

Combined, Iran and Iraq hold greater reserves of oil than Saudi Arabia and the potential with the help of international investment to match its capacity to produce oil, which currently stands at around 12.5m b/d of crude.

© Copyright of Telegraph Media Group Limited 2014

Is There More to the Recent Oil Spill Than Meets the Eye?

The recent oil spill off the coast of Louisiana seems to ill timed just as the government lifted a decades ban on off-shore drilling. There seems to be more to this story than meets the eye. BP, an oil-industry stalwart, who has an impressive safety track record and touts itself among the cleanest and best in terms of environmental safety has just been a total disaster.

The political fallout will be huge, especially since there`s a considerable amount of voice and opposition to off-shore drilling. Its not conceivable to think a crippling "sabotage" took place at this specific time. Its well within the realm of possibility, not doubt about the it. Safety records and practices, equipment and training have vastly improved environment and personal safety in the oil business and the point well an entire oil platform would just caught on fire and get destroyed is just mind-boggling.

Now, last week's explosion on a deepwater rig finishing a well for BP left 11 workers missing, presumably dead, and a subsequent oil slick that now covers about 28,600 square miles (74,000 sq. km) and could not have come at a worse time for the oil industry. This is a PR nightmare for BP, especially since it touted itself for its impeccable safety track in the oil industry. This has smeared it`s image and must to restore it to begin anew.

After a decades-long moratorium on drilling in most areas outside the Gulf of Mexico, the Obama administration last month unveiled a limited expansion plan.

The Obama administration has stood by its proposal for new offshore oil drilling in the wake of the accident and seems unlikely to change course on the issue any time soon. The president's plan was already a fairly modest, opening only parts of the U.S. Atlantic coast and Alaska to drilling.

A lot will depend on the cause and severity of the oil spill, but the outcome could undermine supporters of more oil drilling and embolden lawmakers, particularly from Florida, who dislike the expansion plans.If the oil reaches land, damaging coastlines and disrupting sensitive ecosystems, public sentiment could turn against the offshore drilling and make it difficult for lawmakers to call for a significant increase in drilling.

Regardless of how quickly the spill is contained, it will undoubtedly add clout to the arguments of offshore drilling opponents. Lawmakers in coastal states dependent on tourism are already using the accident to question the safety of the offshore oil industry.