LONDON — Iraq's oil production is increasingly important to meet world energy demand, industry executives meeting in London said Tuesday, as they predicted that the political fallout from the Gulf of Mexico spill will have a long-term impact on U.S. production.
After years of sanctions and war, Iraq – home to some of the world's largest reserves – is finally finding the political stability necessary for oil extraction.
"Iraqi supply is one of the largest game changers," International Energy Agency executive director Nobuo Tanaka told the annual Oil & Money conference.
Royal Dutch Shell PLC Chief Executive Peter Voser said his company has already raised oil production from Iraq's Majnoon field to 70,000 barrels a day, from 45,000 barrels a day previously.
Voser said that the risk of operating in Iraq had increased in recent months, but Shell's operations were still performing well.
"We are moving and we are increasing production at this stage," Voser said. "It's relatively little investment as some of the infrastructure is already there."
Earlier this month, Iraq sharply boosted the estimate on the country's proven oil reserves to 143.1 billion barrels, an almost 25 percent increase that transforms the war-ravaged nation into the home of the world's second-largest proven reserves of conventional crude oil.
The oil-rich nation, which was the birthplace for the Organization of the Petroleum Exporting Countries, has struggled to raise its oil production and exports after years of sanctions and wars left much of the vital sector in poor shape.
But two international oil licensing rounds last year opened the door for international oil firms to re-enter the Iraq market. Among the tasks they undertook were new seismic surveys of the fields which they were awarded – efforts that have contributed to raising the overall reserve estimate.
Iraq hopes that new production from the 10 oil fields awarded during the two auctions will raise overall output to 12 million barrels per day by 2017 – a level that would put it nearly on par with Saudi Arabia's current production capacity – from around 2 million barrels currently.
But former Iraqi oil minister Issam al-Chalabi sounded a note of pessimism. Al-Chalabi said that ongoing uncertainty about when a national election would be held in Iraq, security issues and a lack of infrastructure to transport the forecast oil all cast serious doubt on the government's new target.
"Iraq will be a game changer, but not to the extent hoped for by the present government and not as quickly as they hoped for," Al-Chalabi said. "I'll cut my hands if Iraq can provide 12 million barrels of oil per day – 6 million yes, maybe."
Shukri Ghanem, Libya's de facto oil minister and head of Libya's National Oil Corp. also said he believed that target was optimistic, but acknowledged that reaching even half that could have a "major impact" on OPEC.
That group meets in Vienna on Wednesday, when it expected to leave output quotas unchanged amid concerns about global economic recovery.
BP was back in the spotlight at the conference with a session on the lessons and challenges arising from the Deepwater Horizon rig explosion.
Voser was the most outspoken on the disaster, criticizing both the British company's internal investigation and the design it chose for the blown out Macondo well.
"From what I know today Shell clearly would have drilled this well in a different way and would have had more options to prevent the accident from happening," Voser said.
But he also acknowledged that the industry as a whole was not prepared to deal with a spill of that size.
Voser said he expected tighter regulation following the spill and that Shell would be more selective about who it would partner with on projects in the Gulf of Mexico, noting that an extension to the current moratorium imposed by the U.S. government on new deepwater drilling would have a "sizable" impact.
The White House said Tuesday the government will lift a moratorium, due to last until the end of November, on deep water oil drilling in the Gulf of Mexico "very soon" – likely this week.
But David Williams, CEO of Noble Corp. cited ongoing political factors – many analysts link an early ending of the moratorium to U.S. Senate elections on Nov. 2 – but added that a de-facto moratorium could continue if the Federal government refuses to issue permits.
That scenario would lead to more uncertainty and an exodus of rigs from the Gulf of Mexico, he said, impacting the offshore drilling industry for some time, as he called for more clarity from U.S. President Barack Obama's administration.
Michael O'Dwyer, Morgan Stanley Managing Director, said that he did not expect to see a return to drilling until late 2011 as the issue "becomes entangled in the political process and beyond."
O'Dwyer said that the ownership structure in the Gulf was likely to change in coming years with smaller places probably forced out of the region because of the delays.