If the world’s third-largest oil exporter overcomes an array of challenges, the International Energy Agency predicts the Middle Eastern country could more than double its oil supply within about eight years.

Iraq could more than double its current oil supply by 2020, becoming the world’s largest oil contributor and evolving into a key supplier for the energy-hungry, fast-growing Asian market by 2035.

A recently released International Energy Agency (IEA) study revealed Iraq’s oil production could jump from its current level of 3 MMb/d to more than 8 MMb/d by 2035, with high production coming from supergiant fields near Basrah in southern Iraq. Helping facilitate the heightened status would be a resolution on hydrocarbon sector governance that has divided the country, resulting in independent oil companies leaving southern Iraq en route to the northern Kurdistan region.

“How this works out in practice will be determined by the speed at which impediments to investment are removed, clarity on how Iraq plans to derive long-term value from its hydrocarbon wealth, international market conditions, and Iraq’s success in consolidating political stability and developing its human resource base,” the report stated.

Iraq has an estimated 143 Bbbls of proven reserves, the country’s Ministry of Oil reported in October 2010. The figure positions the country as having the world’s fifth-largest proven oil reserves and third-largest conventional proven oil reserves following Saudi Arabia and Iran. However, the report notes that most of Iraq is unexplored or greatly under-explored.

Oil and gas discoveries continue to be made by international oil companies. Among the latest are oil discoveries by WesternZagros Resources, General Exploration Partners, and DNO International. All three found oil in Kurdistan, one of the latest hot spots for exploration. The Kurdistan Regional Government has awarded about 50 oil-exploration contracts to international companies.

The low cost of developing oil in Iraq, uncomplicated geology, and the abundance of hydrocarbons are luring companies to the Middle Eastern country. Oil production capacity could skyrocket in this decade by about five times what it is today, according to the report.

In spite of the abundance of oil, there are still other challenges Iraq must overcome. Among these is being able to meet electricity demand, considering Iraq’s daily power outages. The report noted that Iraq needs 70% more net power generation capacity to meet demand. Meeting the demand would require installing about 70 gigawatts of generation capacity and shifting from reliance on an oil-fired power mix to a gas-fired one. Currently, more than half of the nearly 71 Bcf of gas produced in June 2012 was flared due to a lack of sufficient gas processing facilities.

Infrastructure constraints are another area in which Iraq must strive to improve. The report noted that Iraq has a heavy fuel surplus with no domestic use or possibility for export. Similar infrastructure problems also hold true for gas as pipelines, processing facilities, pumping stations, and storage tanks deteriorate.

“Despite the problems with infrastructure, Iraq has been an increasingly important supplier of oil to global markets. Oil exports have rebounded in recent years, making Iraq the third largest oil exporter in the world (after Saudi Arabia and Russia),” the report explained. “An increasing share of these exports has been directed to fast-growing Asian markets, rising from 32% in 2008 to 52% by 2011, while the shares going to North America and to Europe fell over the same period to 26% and 22%, respectively.”

Other challenges involve logistics, security, and the ability of international markets to handle Iraq’s production growth. The report also stated coordinated progress in areas to “ensure the timely availability of rigs, sufficient water for injection to maintain reservoir pressure, and adequate storage, transportation, and export capacity,” also would be needed.

The scenario projected an oil and gas investment of about $400 billion from 2012-35 would be needed.

The investment could pay off for Iraq, considering oil revenue accounts for a significant amount of government income. In 2011, oil revenue made up about 95% of the government income and represented more than 70% of the country’s GDP.

“There is a strong alignment between the needs of the global market for growth in Iraq’s production and the needs of Iraq for revenue to build the foundations of a modern and prosperous economy,” the report said. “Building such an economy and turning the country into a global energy powerhouse will not be an easy task, but this is a prize within the reach of the people of Iraq.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.