Friday, March 7. 2008
It is clear now, and we are at the end of the fifth year of occupation, that the reasons announced by USA for the war were completely untrue, and the main reason,
which was not announced, was Iraqi oil, a fact knows for many who were following the Iraqi affair then. Lot of articles, books, debates and analyses were performed in the last five years, in USA and other countries emphasizing the oil reason. Here we are not going to repeat this, but we are going to point out those that are connected to this paper.
1- USA policy to develop Iraqi oil.
When Dick Cheney was the head (CEO) of Halliburton, he addressed a number of big oil companies heads, at a meeting held in 1999 at the “Institute of Petroleum”, reminding the oil companies that by 2010, the oil industry will need extra (50) million barrel daily MBD . The oil will be always a government affair since 90% of world reserves are controlled by the oil national companies. Middle East will remain the main supplier, since it has two third of the world reserves and the cheapest to produce. (Of course Cheney was ignoring Kyoto Treaty when he estimated the extra need by 50 MBD, now it maybe half of this figure since Europe and Japan went ahead with applying the treaty). Then, Cheney became USA vice president, and the oil file was his work and interest. He formed what was called “Development Group”, or “Cheney Basic Force”, that included the heads of the biggest American energy companies. In March/2001 this group ended what was called “National Energy Policy”, advising USA Government to take initiative in the Middle East, pressuring their governments to open their oil market for foreign investment.
So USA was preparing the political atmosphere along site the military preparation for the occupation of Iraq. State Department took the initiative to prepare post war plans for Iraq future since April\2002, by forming several groups, and the most important one was “Oil & Energy” group, which included Iraqi expatriate experts as well as foreign ones, chosen by the state department. This group, and after several meetings, between December\2002 and April\2004, gave their advice which was that Iraq should be open on oil companies very soon , and create the proper atmosphere to attract foreign investment to work in accordance to PSAs Production Sharing Agreements , and in flexible ways.
In 2004 the “International Tax & Investment Center ITIC” issued its study “Oil and Iraq Future”, advising that the PSAs are the proper legal and financial solution to ease the work for developing Iraqi oil industry. The members of ITIC are about (110) company, including oil giant companies like BP, Shell, Chevron, Exxon Mobil, Halliburton, Conoco Phillips, and others.
So the Road Map for oil development of Iraq was put by USA and oil companies, that is should go PSAs before consulting the real Iraqi experts or the Iraqi people. PSAs are one of the major reasons for rejection the oil law, which endorsed those kinds of agreements. PSAs are “risk contracts”, that is you may or may not find oil or gas, and we are taking in Iraq about already well known defined discovered oil fields, some of them are “elephant” fields, without any “risk” what so ever.
2- Oil Reserves and Needed Investment:
The importance of Iraq comes from its high oil reserves, and the very good possibility of increasing it. It is now clear that there is shortage of oil in the world, and the shortage will be more in future, even with the application “Kyoto Agreement” to control global warming. We are not going here to inter in a debate whether we have reached “Peak” stage of oil production, but definitely we are near it.
There are different figures quoted for world oil reserves. Here we are taking about “conventional oil”, which exclude bitumen and sand tar. According to estimate of BP for 2005, the total of oil reserves are about (1190) billion barrel BB, 67% of it in the ME , and 77% of it in Opec countries, which may be enough for nearly (40) year , assuming today consumption. Out of this reserve about (263) BB, 22% in Saudi Arabia, the biggest reserves in a single country. Then Iran, (132.5) BB, and Iraq (115) BB as the third country. There is a lot of talk about exaggeration of Saudi oil reserves.
Now the question arises; is the importance of Iraq comes only from its (115) BB?!. To answer this, a lot of new evaluations and studies have been done in many reputable institutes and companies. “The Institute of Analysis of Global Security”, in a report, issued on 12 May 2003, mentioned different figures. The report said the “Petroleum Economic Magazine” estimated the reserves (200) BB. Also a study by “Federation of American Scientists”, estimated it as (215) BB. The joint study of the “Council of Foreign Relations” and “James Baker III Institute Rice University” raised it to (220) BB. The “Center for Global Energy Studies and Petrology & Associates” put it as (300) BB.
In a very recent study by HIS, issued in May/2007, it said that it was very easily to add another (100) BB, to raise the Iraqi reserves to (215) BB. The study of the Iraqi expert Tarik Shafiq put it as (330) BB. As an example, the reserves of East Baghdad field was always estimated as (11) BB. A very recent study done by one of the very big companies, that restudied the previous information and using new technologies , reached a new estimate as (15) BB.
So, we can easily say that USA has found the “Treasure “, which may contain 25% of world oil reserves. They thought that by occupying Iraq, the Iranian regime will fall easily, and the whole oil will be in USA hand. But things did not go the way they wanted it!.
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The draft oil law included (4) annexes, the first (3) defined (78) discovered oil fields. The fourth annex, specify (65) exploration blocks, good number of them contain structures of high possibility of finding hydrocarbon, but no well has been drilled. Here, we should mention that in previous exploration in Iraq, (7) wells out of (10) exploration wells were successful and oil or gas was found, so the risk of not finding oil or gas in those blocks is very small.
Different studies, in USA and Iraq, just before the war and after it, estimated the investment needed to raise oil export to (3.3) MBD million barrel a day, (or to produce 4 MBD), as (4) B$ billion dollar, to be spent in (2-3) years. And also estimated the investment needed to raise export to (6.3) MBD, as (21) B$, to be spent in (4-5) years. Now some are talking about double of those estimates, without any new real study, just to frighten some Iraqis that the investments are very high and we have to accept sharing with foreign companies. Even if we add 50% to the first estimates that were done through proper studies, we will need (33) B$ to be spent in (5-6) years, and production would be increased gradually.
The Iraqi expert, Tarik Shafiq, sent last spring a memorandum to the Iraqi parliament, informing them that with existing reserves (115) BB, we could develop production gradually to (10) MBD, and maintain it at this level for (10) years, and continue at this level for another (10) years when production will start to decrease, and this could be done without any need to discover another single barrel. He compare the situation with Russia, where production is (9.5) MBD, while oil reserves is only (74) BB.
3- Why the Insistence on Passing Iraqi Oil Low Now?
The existing laws in Iraq allow all kind of oil development, except foreign sharing in Iraqi oil; which means that it would not allow PSAs. But what USA wants and already planed, are PSAs. So a law must be issued to satisfy their planning. This could be seen from the pressure they are putting on the government and parliament.
As for Iraqis objecting on passing oil law now, including me, we see no immediate need for it, since we can develop easily oil industry without it. We have the oil field which can easily produce (7) MBD, we have the investment needed for a gradual properly planned development, we have the experience for such works or we can rent it, and we can buy the technology if needed. Also there is no problem in export of produced oil, as long as we plan our gradual increase in production in coordination with OPEC. Iraq is the only country which can fill the future shortage of oil.
As a matter of fact there is no need, in my opinion, for big immediate increase in oil production with the present oil prices. Production should depend on the spending capability of Iraq, with suitable money reserve to cope with unforeseen conditions and to cover the value of our currency. Export of (3) MBD would give (88) B$ annually, & (5) MBD export would give (146) B$, (assuming price of oil as 80$ per barrel), and these amount are quite adequate for all required needs. Foreign investment should be encouraged in the downstream industries like refineries and petrochemical plants.
There would be a need for oil law later when safe and stable, political and social, matured conditions are prevailing. There would be a need for oil law to suit the new internal political condition, since we have now a federal state, which needs reorganization in the oil industry structure. It should be reorganized to emphasis central planning and decentralized application of the plans. Foreign sharing should be clearly prohibited, and approval of contracts should be under control of the federal parliament and government, since it concern all the Iraqis and not a certain region. A law that includes above mentioned conditions will help in avoiding chaos in the oil industry; otherwise it may even cause international problems, like oil price collapse which will harm Iraq. We should now act fast to pass a law that re –establish Iraqi National Oil Company INOC immediately.
Kurdistan Regional Government KRG acted on their own. Their parliament passed their own oil and gas law, and they signed good number of contracts, nearly all of them are PSAs. Their interpretation of the Constitution that they could do that , while ours , and lot of other Iraqis and members of parliament , have exactly the opposite interpretation , and consider that KRG oil law and all oil contracts signed by them are unconstitutional and illegal .
The Iraqi constitution was prepared and passed in a rush manner and under a lot of pressure to satisfy different factions requirements. This resulted a constitution that contain a lot of contradicting articles, specially what concern oil and gas. If we try to take it as a whole, and study it thoroughly to solve the contradictions then, as I think, we will reach the same conclusion mentioned above , i.e. PSAs are not allowed , and there should be central planning in expansion including signing new production contracts, production and export . If we do not reach this conclusion and agree with KRG one , then we may see in future several oil laws , and tens of oil production contracts signed with foreign companies by Iraqi regions and governorates , ending into chaos and possible collapse of the Iraqi oil industry with all its consequences on world oil market . There are several articles in the constitution that reach clearly the same conclusions that we reached , for example article ( 27 ) states that public properties are “sacrosanct “ and the duty of every Iraqi is to product it . Oil and gas are definitely the most valuable public property. Article (111) states that “oil and gas are owned by the people of Iraq in all the regions and governorates “, which means that no region or governorate can act independently and without the approval of the federal parliament and government, also no foreigner can have a share in Iraqi oil &gas. We all know that with PSAs, the foreign companies consider their share as part of their assets to raise their financial position. In any case we can proceed with this argument furthermore, but this is not the place.
In conclusion, we can say that by passing the law, in the way it is drafted and without taking our objections, mentioned above, into consideration, then there will be further increase the instability of Iraq, and there will be great chaos not affecting Iraq only, but it will cover all future world oil market. There will be always huge Iraqi public objection, causing the oil law to be very unstable, and will certainly be rejected and refused in the very near future. All this will harm Iraqi people severely.
Fouad Alamir
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