The Future of Iraq and Impact on Energy Markets Click to continue.

The Future of Iraq and Impact on Energy MarketsClick to continue

The Future of Iraq and Impact on Energy Markets

Presented by xxxxxxxxxxxxxxxxx

ForEmerging Markets Risk Conference

June 12, 2003

Geopolitical Brief

The Future of Iraq and Impact on Energy

Markets


Iraq’s place in the energy world (until now)

Most of Iraq’s export routes were developed with war in mind Iran-Iraq war disrupted transport routes to Syria and

Gulf waterborne exports; necessitated building new export routes through Saudi Arabia and Turkey

In the post-war peace, production reached 3.1 million bpd just before the Kuwaiti invasion

1991-2003: Gulf war and sanctions Gulf war damaged much of the infrastructure and

sanctions limited rebuilding efforts Production averaged 2.04 million bpd in 2002


Industry status post-war

Post war chaos hindered development Looting of oil fields in the south Sabotage of transport pipelines in the north



Repair efforts mixed South (Rumaila)

prewar production was 1.2 million bpd security problems almost nonexistent short trip from oil fields to export platform in the Gulf (less

than 150km) no Sunni population along route, so no militants and no

sabotage within six months southern production capacity hit 2.0

million bpd; most old production sites now producing (at improved rates)



North (Kirkuk) prewar production was 0.8 million bpd fields are secure, but pipelines are not preferred target for Sunni guerillas export route passes through Baiji – a major Sunni

population center sabotage and attacks on personnel commonplace in 2003 prevented any resurgence in production for export all northern production – when it flowed at all – supplied

refineries in Baiji and Baghdad


The coming year

South (Rumalia) Iraqi Oil Ministry has already begun greenfield

investments Iraqi Oil Ministry is preparing packages for foreign bids Saddam era contracts granted for political reasons will

be handled by the ministry, with American assistance


The coming year

North (Kirkuk) Massive damage assessment must be carried out Repair work to the Kirkuk-Ceyhan (Turkey) pipeline will

take weeks Then exports will come back on line as fast as they did

in the south Barring additional attacks, northern production will

easily reach 1.0 million bpd by the end of 2004 (the Turkish export route’s current maximum capacity)


The coming year

Western Desert Iraq lacks the ability to explore and exploit it itself Any/all infrastructure will be need to be built from

scratch Potentially as much as 100 billion barrels Foreign firms will have to be brought in Operations may begin, but certainly not begin

producing, in 2004


Immediate problems

Export limitations Only current export route – Basra loading platform in the

Gulf – is maxed out at 1.6 million bpd Southern exports need a new outlet…options in order of

likelihood connection to Iran’s refinery at Abadan: 350,000 bpd using Kuwait’s oil ports: 400,000 bpd Khor al Amaya loading platform: 1.2 million bpd (after

repairs) ILSA pipeline via Saudi Arabia: 1.6 million bpd


Immediate problems

Guerrilla conflict Northern reconstruction cannot commence until the

insurgency ends

Legality Western firms will not begin operations without legal

cover That requires an internationally accepted government That will probably require elections Foreign firms won’t most likely have boots on the

ground until the fourth quarter


Impact abroad

Short term (until end of 2004) Recovery of Iraqi production was the fastest in history But occurred while the U.S., Japan, Europe and China

were all experiencing rapid growth, so minimal effect on prices

Production increases will now come more slowly in comparison, with only mild short term effects on prices


Impact abroad

Long term (2005-2006) Once political difficulties are ironed out, Iraq will have

export route potential of over 6 million bpd without building new infrastructure

Existing production regions can produce that much without bringing the Western Desert on line

The addition of 4 million bpd from Iraq alone – in addition to planned supplies from other producers – will lead to a steady drop in crude oil prices

That is already leading to a crack up of OPEC as the various producers are increasing their investment in order to maintain market share


Strategic Forecasting, Inc.700 Lavaca St., Suite 405

Austin, TX 78701 (512) 744-4300

www.stratfor.com

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