Accessibility links

Iraqi Oil Industry Moving, But Facing Many Problems - 2004-06-23


Iraq's interim government assumed full control of the country's oil industry earlier this month from the U.S.-led coalition. The government is promising to quickly speed up production and use the money from oil sales to help pay for reconstruction projects. But Iraq's new leaders will need to address a host of problems if they are to fulfill that pledge.

The first evidence of the enormous task ahead for Iraq's petroleum industry can be seen on the grounds of the state-run North Oil Company, which oversees Kirkuk's bubbling oil fields.

A large colonial-style building, which once served as the company's headquarters, stands in ruin, gutted by looters who rampaged through the area as Baghdad was being seized by U.S. troops in April of last year.

Speaking inside North Oil's new headquarters on another side of the compound, the company's deputy general director, Manaa al-Obaydi, says the looting was a major setback for the 57-year-old company, which had already been suffering from decades of neglect and U.N. sanctions.

"Office looting, like chairs, pens, pencils, et cetera. That did not matter to us a lot because if one wants to do his job, he can do it somehow. What we really suffered during the looting is the equipment and spare parts," he said.

A tour of North Oil's processing plant with senior engineer, Nooradin Bahadi, reveals why every piece of equipment and every spare part are considered precious.

"Now, we are in oil treatment unit," he said. "The gas goes to the gas compressor station and the oil goes to the refinery. We have here two units. This is the new unit."

New unit is hardly an appropriate term for the facility. The newest machinery here is more than 30-years-old and companies have long stopped making such equipment and spare parts for it.

North Oil's sister company in southern Iraq has similarly outdated equipment and related problems. That means a mechanical breakdown in a plant or in an oil field anywhere in the country can cause long production delays, as engineers scramble to improvise a solution.

But the engineers have not been trained in the latest technological advances that might enable them to deal with the problems more effectively.

Under Saddam Hussein and U.N. sanctions imposed after Iraq invaded Kuwait in 1990, oil engineers could not participate in technical exchanges with experts outside the country. Industry practices that are routine throughout the world, such as three-dimensional seismic surveys and directional drilling, remain virtually unknown here.

Oil industry experts say the new Iraqi government must make it a priority to conduct seismic surveys and other studies in order to determine realistically how much oil Iraq can produce.

Iraq is believed to have the second-largest oil reserves in the world, after Saudi Arabia. But the last study of any kind was done two decades ago, and it is not known how many fields in Iraq are still usable and how many have been depleted or damaged.

Despite the many problems that need to be resolved, Iraqi interim oil minister, Thamir Abbas Ghadban, predicted earlier this month that the country was on track to substantially increase oil production by the end of the year.

"We are currently producing around 2.5 million barrels per day and average production figure during 2002 was not more than that," he said. "We are confident that by year's end, we will be above capacity, around three million barrels per day."

Mr. Ghadban said Iraq needs every drop of oil to meet rising domestic demand and to quickly generate revenue through exports. The interim government has pledged to use the oil money, more than $60 million earned daily, to rebuild Iraq's infrastructure, not to build palaces and buy weapons like Saddam Hussein did.

The oil minister acknowledges that sabotage of oil facilities and pipelines remains a major obstacle to increased production. But he says his ministry has formed a national security force to guard oil infrastructure and has reached agreements with Arab, Kurdish, and other tribal leaders across the country to help the force.

Then, last week, saboteurs struck two critical pipelines that move oil to tankers in the Persian Gulf. The attack followed another act of sabotage three-weeks earlier on export lines running from Kirkuk to the Turkish port of Ceyhan.

Both attacks halted exports and raised serious concerns about the determination of insurgents to continue their activities, even after sovereignty is officially transferred to the interim Iraqi government on July 1.

Middle East oil industry analyst Ruba Husari, at the London-based Energy Intelligence Group, says it is still too early to predict whether Iraq can meet its production goal this year.

"Whether they can achieve that largely depends on the security situation, on how much they can protect the pipelines," she said. "It also depends on the capability of bringing in some foreign companies to work on short-term contracts to enhance production in the oil fields."

Oil Minister Ghadban says he is already negotiating with several foreign oil companies to come to Iraq to assist in rehabilitating the struggling industry. But analysts say the turmoil and danger in Iraq will likely keep most foreign companies away, at least until the situation is stabilized.

XS
SM
MD
LG