With substantial proven crude oil reserves, Iraq has enormous potential to increase oil production; however, infrastructure, politics and sanctions stand in the way.

Access to tens of billions of barrels of oil onshore makes Iraq a huge frontier and a promising area for present and future resource development, IHS managing director Raad Alkadiri said during IHS CERAWeek in Houston. When talking to people who have worked in the Middle Eastern country, he added, they will say that by circumstances – war, sanctions, etc. – some of the country’s biggest reservoirs are in their teenage years and are nowhere near peak or depletion.

But “when you look at the context of Iraq’s future potential and where it’s likely to reach over the next five to 10 years in terms of production, you get a slightly less happy picture than the below-ground one,” Alkadiri said. Part of the problem stems from not having met previously set expectations – 12.5 MMb/d by 2017 – which turned out to be too high. “When Iraq embarked on this in 2009 what it was trying to do in seven years was what it took Saudi Arabia 70 to do and under much more benign circumstances and with a better contract and better participation.”

Now, the oil ministry is targeting 6 MMb/d to 8 MMb/d by 2020.

Perhaps the biggest constraint that could prevent Iraq from reaching even part of its potential, Alkadiri continued, is infrastructure.

“Iraq is nowhere near having the infrastructure in place to be able to move molecules from the wellhead to international markets that it will require for some of these even more conservative export and production figures,” he said, adding problems run the full gamut from onshore infrastructure to export terminals – insufficient pipelines, insufficient pumps, and insufficient storage. This has created bottlenecks in some areas.

The legacy left from the Saddam Hussein era has wreaked havoc on Iraq. In addition to the setbacks and security issues brought on from war and sanctions, Iraq has suffered from a lack of access to education and international relations due to not having exposure internationally, according to Alkadiri. The oil and gas industry in Iraq is also battling a human resources issue, which he said is getting worse.

In addition, politics has come into play, working into the ministry in the last 10 years or so, Alkadiri added. Under the old regime, ministry officials were appointed based on competence; but nowadays representatives from different factions are holding significant jobs.

The situation has created an atmosphere in which people struggle to make decisions, out of fear in some instances, which tends to funnel decisions to a minister, who then becomes overwhelmed. Company executives, for example, must see the prime minister to be placed on an agenda to request visas, Alkadiri said.

“The relationship between the [international oil companies] and the Iraqi state is in the lowest ebb for the last five years,” he continued. “There are significant problems, and there is a brewing crisis essentially over whether the Iraqis are honoring their contracts.”

He was somewhat pessimistic about the industry’s future in Iraq, noting that the workings of government, institutions, and political relations have not improved in the past 11 years. Concerns such as the power of the central government relative to the region and different communities having equal access to political power still exist. Improvement in these areas requires major political compromises, which Alkadiri said is not happening.

IHS predicts Iraq will produce between 4 MMb/d and 5 MMb/d by the end of the decade. Alkadiri called the estimate reasonable, given all of the challenges the country faces. But he added there is a possibility that the figure could be significantly lower.

“Unless the Iraqis can sort out the budget and more importantly unless Iraqis can sort out some of the contractual issues that they have, which is stopping simple things like subcontractors working therefore there is no drilling on major fields that is taking place, … you are not looking at a question over the next two to three years of how much production will increase,” Alkadiri said. “What you are looking is what the decline rate is going to be in production and just how bad and how fast some of those problems will kick in.”

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