Iraq Country Analysis Brief

According to the Oil and Gas Journal, Iraq contains 115 billion barrels of proven oil reserves, the third largest in the world (behind Saudi Arabia and Canada), concentrated overwhelmingly (65 percent or more) in southern Iraq. Estimates of Iraq's oil reserves and resources vary widely, however, given that only about 10 percent of the country has been explored. Some analysts (the Baker Institute, Center for Global Energy Studies, the Federation of American Scientists, etc.) believe, for instance, that deep oil-bearing formations located mainly in the vast Western Desert region could yield large additional oil resources (possibly another 100 billion barrels or more), but have not been explored. Other analysts, such as the U.S. Geological Survey, are not as optimistic, with median estimates for additional oil reserves closer to 45 billion barrels. In August 2004, Iraqi Oil Minister Ghadban stated that Iraq had "unconfirmed or potential reserves" of 214 billion barrels. In early May 2005, Ibraihim Bahr al-Uloum was named to replace Ghadban, stating that his main goals were to reduce corruption in the oil sector, to improve fuel availability, to reduce attacks on oil infrastructure, and to re-establish an Iraqi National Oil Company (INOC) by the end of 2005 (this did not happen).

 

Iraqi oil reserves vary widely in quality, with API gravities in the 22o (heavy) to 35o (medium-light) range. Iraq's main export crudes come from the country's two largest active fields: Rumaila and Kirkuk. The southern Rumaila field, which extends a short distance into Kuwaiti territory, has around 660 wells and produces three streams: Basra Light (normally 34o API); Basra Medium (normally 30o API, 2.6 percent sulfur); and Basra Heavy (normally 22o-24o API, 3.4 percent sulfur). Basra Blend normally averages around 32o API, 1.95 percent sulfur, but reportedly has become heavier and more sour recently at around 31.5 o API and 2.7 percent-2.8 percent sulfur content.

 

The northern Kirkuk field, first discovered in 1927, forms the basis for northern Iraqi oil production. Kirkuk, with an estimated 8.7 billion barrels of remaining reserves, normally produces 35o API, 1.97 percent sulfur crude, although the API gravity and sulfur content both reportedly deteriorated sharply in the months just preceding the war. Kirkuk's gravity, for instance, had declined to around 32o-33o API, while sulfur content had risen above 2 percent.

 

Declining crude oil qualities and increased "water cut" (damaging intrustion of water into oil reservoirs) were likely the result of overpumping. Production from Kirkuk reached as high as 680,000 bbl/d, well above the field's estimated optimal production rate of 250,000 bbl/d, as Iraq attempted to sell as much oil as possible in the months leading up to the March/April 2003 war. In addition, some analysts believe that poor reservoir management practices during the Saddam Hussein years --including reinjection of excess fuel oil (as much as 1.5 billion barrels by one estimate), refinery residue, and gas-stripped oil -- may have seriously, even permanently, damaged Kirkuk. Among other problems, fuel oil reinjection has increased oil viscosity at Kirkuk, making it more difficult and expensive to get the oil out of the ground. In order to better understand the state of the Kirkuk reservoir, a contract was signed in early 2005 for Exploration Consultants Ltd. and Shell to carry out an integrated study on Kirkuk, with work scheduled to be completed by early 2006. This will mark the first such study in three decades for Kirkuk, and is significant in that it will use the latest technology. A separate study of Rumaila will also be conducted at the same time.

 

Besides Kirkuk, other fields in northern Iraq include Bay Hassan, Jambur, Khabbaz, Ajil (formerly "Saddam"), and Ain Zalah-Butmah-Safaia. An estimated 60 percent of Northern Oil Company's (NOC) facilities in northern and central Iraq were damaged during the Gulf War. 

 

Another major Iraqi oil field is the 11-billion barrel East Baghdad field, which came online in April 1989. Prior to the war, this centrally-located field currently produced around 50,000 bbl/d of heavy, 23o API oil as well as 30 million cubic feet per day (Mmcf/d) of associated natural gas.

 

 

Production

 

Historically, Iraqi production peaked in December 1979 at 3.7 million bbl/d, and then in July 1990, just prior to its invasion of Kuwait, at 3.5 million bbl/d. From 1991, when production crashed due to war, Iraqi oil output increased slowly, to 600,000 bbl/d in 1996. With Iraq's acceptance in late 1996 of U.N. Resolution 986, which allowed limited Iraqi oil exports in exchange for food and other supplies ("oil-for-food"), the country's oil output began increasing more rapidly, to 1.2 million bbl/d in 1997, 2.2 million bbl/d in 1998, and around 2.5 million bbl/d during 1999-2001. Iraqi monthly oil output increased in the last few months of 2002 and into early 2003, peaking at around 2.58 million bbl/d in January 2003, just before the war.

 

As of December 2005, Iraqi production (net of reinjection) was averaging around 1.9 million bbl/d, with "gross" production (including reinjection, water cut, and "unaccounted for" oil due in part to problems with metering) of about 2.1 million bbl/d. Most analysts believe that there will be no major additions to Iraqi production capacity for at least 2-3 years, with Shell’s Vice President recently stating that any auction of Iraq’s oilfields was unlikely before 2007.

 

According to Tariq Shafiq, a founding Vice President of the Iraq National Oil Company (INOC), Iraq's oil development and production costs are among the lowest in the world, ranging from as low as $750 million for each additional million bbl/d day in Kirkuk, to $1.6 billion per million bbl/d near Rumaila, and as high as $3 billion per million bbl/d for smaller fields in the northwestern part of the country. In contrast, Cambridge Energy Research Associates (CERA) estimates an average cost for Iraqi oil development of $3.5 billion per million bbl/d for the country as a whole, which is higher than Tariq Shafiq's estimates, but still relatively low by world standards. Either way, Iraq is considered a highly attractive oil prospect, with only 17 of 80 discovered fields having been developed, and few deep wells compared to its neighbors. Overall, only about 2,300 wells reportedly have been drilled in Iraq (of which about 1,600 are actually producing oil).

 

Throughout most of the 1990s, Iraq did not generally have access to the latest, state-of-the-art oil industry technology (3D seismic, directional or deep drilling, gas injection, etc.), sufficient spare parts, and investment. Instead, Iraq reportedly utilized sub-standard engineering techniques (i.e., overpumping), obsolete technology, and systems in various states of decay in order to sustain production. In the long run, reversal of all these practices and utilization of the most modern techniques, combined with development of both discovered fields as well as new ones, could result in Iraq's oil output increasing by several million barrels per day.

 

In spite of the fact that little damage was done to Iraq's oil fields during the war itself, looting and sabotage after the war ended was highly destructive, accounting for perhaps 80 percent of total damage. Starting in mid-May 2003, the U.S. Army Corps of Engineers -- which had the lead in restoring Iraq's oil output to pre-war levels -- began a major effort to ramp up production in the country. On April 22, 2003, the first oil production since the start of the war began at the Rumaila field, with the restart of an important gas/oil separation plant (GOSP). As of November 2005 Iraq's Qarmat Ali water injection facility reportedly was operating at only 70 percent of capacity, holding back production from Rumaila and other southern oil fields.

 

Prior to the recent war, oil industry experts generally assessed Iraq's sustainable production capacity at no higher than about 2.8-3.0 million bbl/d, with net export potential of around 2.3-2.5 million bbl/d (including smuggled oil). Approximately 2 million bbl/d of Iraq's production pre-war capacity came from southern oil fields and 1 million bbl/d from northern oil fields, with the breakdown roughly as follows:

 

Southern Iraq	Northern/Central Iraq
South Rumaila (0.8 million bbl/d)	Kirkuk (around 550,000-700,000 bbl/d)
North Rumaila (0.5 million bbl/d)	Bay Hassan (100,000-150,000 bbl/d)
West Qurnah (250,000 bbl/d)	Jambur (75,000-100,000 bbl/d)
Az Zubair (200,000-240,000 bbl/d)	Khabbaz (30,000 bbl/d)
Misan/Buzurgan (100,000 bbl/d)	Ajil (25,000 bbl/d)
Majnoon (50,000 bbl/d)	East Baghdad (20,000 bbl/d)
Jabal Fauqi (50,000 bbl/d)	'Ayn Zalah/Batmah (17,000-20,000 bbl/d)
Abu Ghurab (40,000 bbl/d)
Luhais (30,000-50,000 bbl/d)

 

One major challenge in maintaining, let alone increasing, oil production capacity, was Iraq's battle with water cut, especially in the south. In 2000, Saybolt International had reported that Iraq’s Northern Oil Company (NOC) and Southern Oil Company (SOC) were able to increase their oil production through use of short-term techniques not generally considered acceptable in the oil industry (i.e., injection of refined oil products into crude reservoirs). The Saybolt report now appears to have been largely accurate. In addition, a U.N. report in June 2001 said that Iraqi oil production capacity would fall sharply unless technical and infrastructure problems were addressed. Others have pointed to the need for water injection in order to maintain pressure and to avoid reservoir damage in the southern fields. U.N. oil experts have estimated that some reservoirs in southern Iraq have been so badly managed that their ultimate recovery rates might be only 15 percent-25 percent, well below the 35 percent-60 percent usually seen in the oil industry.

 

Iraq's southern oil industry was decimated in the 1990/1991 Gulf War, with production capacity falling to 75,000 bbl/d in mid-1991. That war resulted in destruction of gathering centers and compression/degassing stations at Rumaila, storage facilities, the 1.6-million bbl/d (nameplate capacity) Mina al-Bakr/Basra export terminal, and pumping stations along the 1.4-million bbl/d (pre-war capacity) Iraqi Strategic (North-South) Pipeline. Seven other sizable fields remain damaged or partially mothballed. These include Zubair, Luhais, Suba, Buzurgan, Abu Ghirab, and Fauqi. Generally speaking, oilfield development plans were put on hold following Iraq's invasion of Kuwait, with Iraqi efforts focused on maintaining production at existing fields.

 

In October 2005, the SOC re-issued a tender for drilling in southern oil fields. Reportedly, SOC offered improved payment and other terms. Included in the tender was the chance to drill 20 wells in the Mishrif formation of the West Qurna fields (see below). In other news, in September 2005, the US Project and Contracting Office cancelled cancelled part of a contract with Halliburton to refurbish 60 wells in southern Iraq. The contract was then awarded to SOC.

 

Exports

 

 

Under optimal conditions, and including routes through both Syria and Saudi Arabia that are now closed or being utilized for other purposes, Iraq's oil export infrastructure could handle throughput of more than 6 million bbl/d (2.8 via the Gulf, 1.65 via Saudi Arabia, 1.6 via Turkey, and perhaps 300,000 bbl/d or so via Jordan and Syria). However, Iraq's export facilities (pipelines, ports, pumping stations, etc.) were seriously disrupted by the Iran-Iraq War (1980-1988), the 1990/1991 Gulf War, the most recent war in March/April 2003, and periodic looting and sabotage since then. Currently, Iraq's export capacity is theoretically as high as 2.5 million bbl/d (around 2.0 via the Gulf and 0.3-0.5 via Turkey), but actually net exports are averaging around 1.4 million bbl/d. During the first 8 months of 2005, about 600,000 bbl/d of Iraq’s oil exports were going to North America, about 235,000 bbl/d to OECD Europe, and the rest mainly to Asia.

 

Between April 2003 and late October 2005, there were an estimated 282 attacks on Iraqi energy infrastructure, including the country's 4,350-mile-long pipeline system and 11,000-mile-long power grid. In response to these attacks, which have cost Iraq billions of dollars in lost oil export revenues and repair costs, the U.S. military set up Task Force Shield to guard Iraq's energy infrastructure, particularly the Kirkuk-Ceyhan oil pipeline. In August 2003, a South African security company, Erinys International, won a $40 million contract to train 6,500 armed guard to protect Iraqi oil wells, pipelines, refineries, and power plants, mostly in southern Iraq. Until late 2004, when the Iraqi Oil Ministry took charge of security at oil facilities, Erinys operated as part of a $100 million joint contract with approximately 14,000 guards (mainly Iraqi nationals). In support of Erinys, Florida-based AirScan Inc. provides aerial surveillance of Iraqi pipelines. Under Saddam Hussein, Iraqi pipelines were guarded in part by local tribes, and in part by two army divisions.

 

The 600-mile, Kirkuk-Ceyhan (Turkey) dual pipeline is Iraq's largest crude oil export line. The 40-inch line has a fully-operational capacity of 1.1 million bbl/d, but reportedly could handle only around 900,000 bbl/d pre-war. The second, parallel, 46-inch line has an optimal capacity of 500,000 bbl/d and was designed to carry Basra Regular exports. Combined, the two parallel lines have an optimal capacity of around 1.6 million bbl/d. Unfortunately, Kirkuk-Ceyhan has been a main target for sabotage since June 2003, and is open only sporadically. Capacity on the line is believed to be as high as 800,000 bbl/d, with significant repairs still required. Among other problems, the line was damaged by a bridge ("Al Fatha," located near Baiji) that collapsed on it after being bombed by U.S. planes during the war, requiring major repairs, including the drilling of a new tunnel under the Tigris River (reportedly, that work was complete by late 2005). In addition, the IT-1 pumping station on the Kirkuk-Ceyhan line was damaged by looters, but reportedly is operable manually. The IT-2 pumping station on the same line reportedly was looted and destroyed.

 

Between 2001 and March 2003, Iraq and Syria utilized the 50-year-old, 32-inch Banias oil pipeline in violation of U.N. sanctions. The Banias line, from Iraq's northern Kirkuk oil fields to Syria's Mediterranean port of Banias (and Tripoli, Lebanon), reportedly was being used to transport as much as 200,000 bbl/d of Iraqi oil, mainly from southern Iraq, to Syrian refineries at Homs and Banias. The oil was sold at a significant price discount and freed up additional Syrian oil for export. Iraq and Syria also had talked of building a new, parallel pipeline as a replacement for the Banias line. In March 2003, flows on the pipeline were halted, although the U.S. Defense Department denied that its forces had targeted the line. In early March 2004, it was reported (by Dow Jones) that the Iraq-Syria pipeline was ready for use at 250,000 bbl/d.

 

During the Iran-Iraq War, Iraq also built a pipeline through Saudi Arabia (called IPSA) to the Red Sea port of Mu'ajiz, just north of Yanbu. IPSA has a design capacity of 1.65 million bbl/d, but was closed after Iraq invaded Kuwait in August 1990. In June 2001, Saudi Arabia expropriated the IPSA line, despite Iraqi protests. In June 2003, Thamir Ghadban said that he hoped Iraq would be able to use the IPSA line again. However, the Saudis have stated that they are not willing to do this, having converted the line to carry natural gas to the Red Sea industrial city of Yanbu for domestic use.

 

In order to optimize export capabilities (i.e., to allow oil shipments to the north or south), Iraq constructed a reversible, 1.4-million bbl/d "Strategic Pipeline" in 1975. This pipeline consists of two parallel 700,000-bbl/d lines. The North-South system allows for export of northern Kirkuk crude from the Persian Gulf and for southern Rumaila crudes to be shipped through Turkey. During the 1990/1991 Gulf War, the Strategic Pipeline was disabled after the K-3 pumping station at Haditha as well as four additional southern pumping stations were destroyed. In June 2003, the NOC estimated that it would take "a long time" to repair the K-3 pumping station and resume operations on the Strategic Pipeline. The whole system also reportedly is in need of modernization.

 

In July 2005, Iran and Iraq signed an MOU on a swap agreement involving construction of a 24-mile, 350,000-bbl/d oil pipeline from Basra to the Abadan refinery in southwestern Iran. In exchange, Iran would ship refined products back to Iraq. In addition, Iran could allow Iraq to export crude through the Kharg Island terminal and to import refined products through the Iranian port of Bandar Mahshahr. One potential problem with this deal revolves around the ability of the Abadan refinery to process Basrah Light in significant volumes. Another is the fact that Iran already faces a severe shortfall in its own domestic gasoline supplies, making exports of gasoline problematic.

 

Iraqi oil sales and exports currently are being handled by the State Oil Marketing Organization (SOMO). The war and its aftermath seriously disrupted SOMO operations, but the organization has now been reconstituted and has resumed many of its operations. On June 5, 2003, SOMO issued its first oil sales tender since the war started, for 8 million barrels of Kirkuk crude stored in tanks at Ceyhan and 2 million barrels stored at Basra. On July 3, 2003, SOMO issued its second spot tender, for 8 million barrels of Basra Light. In late July 2003, SOMO signed its first long-term contracts since the war, for Basra Light oil from Iraq's southern fields. As of January 2005, however, SOMO was forced to cut long-term contract volumes by 10 percent from February to June due to operational problems throughout the system. In early June 2005, Bakkaa was replaced by Musib al-Dujaili as SOMO director.

 

Status of Oil Development Deals with Foreign Companies

 

Prior to the toppling of Iraq's Ba'athist regime, Iraq reportedly had negotiated several multi-billion dollar deals with foreign oil companies mainly from China, France, and Russia. Deutsche Bank estimated that $38 billion worth of contracts were signed on new fields -- "greenfield" development -- with potential production capacity of 4.7 million bbl/d if all the deals came to fruition (which Deutsche Bank believed was highly unlikely). Now, the legal status of these agreements is up in the air, increasing the uncertainty level for companies interested in doing business with Iraq. Besides legal/constitutional issues, companies are also looking for a relatively stable security situation, a functioning government, and other conditions to be in place before they move heavily into the country. In early June 2005, Iraq Oil Minister al-Uloum announced the formation of an inter-ministerial committee to review oil contracts signed under the Saddam Hussein government.

 

Reportedly, dozens of companies have signed MOUs (memoranda of understanding) with Iraq, mainly on EPC (engineering, procurement and construction). The MOUs generally cover the training of Iraqi staff (often for free), consulting work, and reservoir studies (also often for free). The MOUs generally are considered to be a way for oil companies to show their interest in future Iraq work, gather technical data, and to demonstrate their capabilities. In addition, the MOUs could help companies establish relationships that could be useful in the future, when Iraq is ready to start awarding major oil and gas development projects.

 

Russia, which is owed billions of dollars by Iraq for past arms deliveries, has a strong interest in Iraqi oil development. This includes a $3.7 billion, 23-year deal to rehabilitate Iraqi oilfields, particularly the 11-15 billion barrel West Qurna field (located west of Basra near the Rumaila field). West Qurna is believed to have production potential of 800,000-1 million bbl/d, but is currently producing only 180,000 bbl/d. In mid-December 2002, the Iraqi Oil Ministry had announced that it was severing its contract with the Lukoil consortium on West Qurna due to "fail[ure] to comply" with contract stipulations. Specifically, the Iraqis had cited Lukoil's failure to invest a required $200 million over three years. During the summer of 2004, Lukoil began training Iraqi oil specialists at facilities in western Siberia, an initiative reportedly aimed at saving Lukoil's West Qurna contract. In addition to Lukoil, Russia's Soyuzneftegaz reportedly has been talking to several other companies about developing the 100,000-bbl/d Rafidain field. Soyuzneftegaz was awarded the contract in January 2003.

 

In January 2005, Iraq awarded contracts to several companies (Anadarko, Dome, and Vitol) to evaluate the 2-billion-barrel Suba-Luhais in southern Iraq. In September 2005, a $200 million development contract was signed with Ireland’s Petrel, with the goal of increasing Suba-Luhais production by 100,000 bbl/d by the end of 2006. Petrel also signed a deal to conduct a technical study of the Merjan block in western Iraq.

 

In January 2005, Iraq's State Company for Oil Projects (SCOP) awarded a $150 million contract -- the first post-Saddam era upstream deal -- to Turkey's Avrasya Technology Engineering, for development of the Khurmala dome. Khurmala development is aimed at increasing production at the field from 35,000 bbl/d to 100,000 bbl/d, helping to compensate for declines in output at the mature Kirkuk field.

 

In addition to Khurmala, SCOP reportedly granted a $180 million contract to Canada's OGI Group in March 2005 to help develop the Hamrin field, located southwest of Kirkuk. Hamrin has estimated production potential of 60,000 bbl/d or higher. Work is scheduled to take 18 months to complete.

 

Another large oilfield slated for development is Majnoon, discovered by Braspetro of Brazil in 1975, and containing reserves of 11-30 billion barrels of 28o-35o API oil. Majnoon is located 30 miles north of Basra on the Iranian border. In the 1990s, French company Elf Aquitaine (now merged with Total) negotiated on a possible $4 billion deal with Iraq on development rights for Majnoon. In 1999, however, TotalFinaElf declined to sign a 23-year production sharing agreement (PSA) with Iraq on Majnoon. Following this, the field reportedly was brought onstream (under a "national effort" program begun in 1999) in late 2003 at 50,000 bbl/d. Future development on Majnoon ultimately could lead to production of 600,000 bbl/d or more at an estimated (according to Deutsche Bank) cost of $4 billion. In the short term, there is work underway to increase Majnoon production capacity to 100,000 bbl/d. Prior to the 2003 war, Majnoon reportedly had production capacity of 350,000 bbl/d.

 

In early June 2003, China's National Petroleum Company (CNPC) refuted a comment by Thamir Ghadban that CNPC's contract on the 90,000-bbl/d al-Ahdab development was now "void by mutual agreement." CNPC agreed in 1997 to spend $1.3 billion on Al-Ahdab, located in southern Iraq, but no progress was made while sanctions remained in place.

 

The 4.5-billion-barrel Halfaya field is the final large development in southern Iraq. Prior to the war, several companies (BHP, CNPC, Agip/ENI) reportedly had shown interest in Halfaya, which ultimately could yield 200,000-300,000 bbl/d in output at a possible cost of $2 billion. In January 2005, a consortium of Shell, BHP Billiton, and Tigris Petroleum signed a deal with Iraq's oil ministry to increase output from the Missan area, which included Halfayah. Smaller fields with under 2 billion barrels in reserves also have received interest from foreign oil companies. These fields included Nasiriya (Eni, Repsol), Tuba (Japan’s AOC signed an MoU on the fiel din June 2005), Ratawi (Shell, Petronas, CanOxy), Gharaf (TPAO, Japex), Amara (PetroVietnam), and Noor (Syria).

 

In May 2003, Thamir Ghadban stated that three exploration agreements for blocks in Iraq's Western Desert were still valid. These included Indonesia's Pertamina on Block 3, Russia's Stroitransgas on Block 4, and Indian's Oil and Natural Gas Corp. for Block 8. In January 2003, Stroitransgas signed a $33.5 million contract for exploration on Block 4, and in July 2003, it indicated its interest in winning post-war business in Iraq. In September 2003, Pertamina announced that it planned to begin oil and gas exploration in Block 3, investing around $24 million over the next three years. The small Irish company, Petrel Resources, also has expressed interest in exploring and developing oil resources in western Iraq. In May 2004, Pertamina suspended its exploration activities in the Western Desert region due to security concerns.

 

On December 1, 2005, the Kurdistan Regional Government announced that Norway’s DNO was drilling for oil at the Tawke well in the Kurdish region, near the Turkish border. According to Middle East Oil and Gas Monitor, the Kurds believe they were authorized to sign the deal (a Production Sharing Agreement, or PSA) without the central government’s permission “[b]ased on a disputed clause in the constitution.” This is controversial, and raises the question about ultimate control over Iraqi oil resources. In addition to DNO, the Kurds reportedly have signed separate deals with Heritage Oil (Canada), Al-Aabar Petroleum (UAE), and PetroPrime (Turkey). There are fears that Shi’ites in the South could do the same.

 

Aside from the issue of control over oil resources, the DNO deal with the Kurds was significant in that it was a PSA Reportedly, the Iraqi Oil Ministry would like to proceed with PSAs as rapidly as possible on undeveloped fields. PSAs have been controversial in other countries, with some analysts (e.g, a recent report, by a group of non-governmental organizations, called “Crude Designs – The Rip-off of Iraq’s Oil Wealth”) believing that they are too favorable to oil companies and that they give up too much control by the country’s government.

 

Oil Terminals
In the Persian Gulf, Iraq has three tanker terminals: Basra port (formerly known as Mina al-Bakr), Khor al-Amaya, and Khor az-Zubair (which mainly handles dry goods and minimal oil volumes, plus natural gas liquids and liquefied petroleum gas). Basra is Iraq's largest oil terminal, with two pipelines (48-inch and 41-inch), plus four 400,000-bbl/d capacity berths capable of handling very large crude carriers (VLCCs). Gulf War damage to Basra appears to have been repaired in large part and the terminal reportedly was handling around 1.6 million bbl/d in mid-October 2004. Basra's nameplate loading capacity is 85,000 barrels per hour (around 2 million bbl/d), which is significantly above current capacity of about 50,000 barrels per hour (around 1.2 million bbl/d), suggesting that potentially higher volumes of oil than the nameplate capacity could be shipped out of the port. On April 24, 2004, a suicide attack against Basra port damaged one tanker berth in the first such attack on Iraq's Persian Gulf export terminals since the onset of war in March 2003. On September 22, 2004, the Iraqi Oil Ministry signed a $15 million contract with Sinopec to build eight oil storage tanks, with a total capacity of 350,000 barrels, on the Faw Peninsula in southern Iraq.

 

Iraq's Khor al-Amaya terminal was heavily damaged by Iranian commandos during the Iran-Iraq War and also during Operation Desert Storm in 1991. In early March 2004, Khor al-Amaya reopened for oil exports, with initial capacity of 12,000 barrels per hour (300,000-400,000 bbl/d). Upon full completion of repairs, Iraq projects Khor al-Amaya's capacity is expected to reach 1.2 million bbl/d.

 

Refining

 

According to the Oil and Gas Journal, Iraq's refining capacity was 597,500 bbl/d as of January 1, 2005, compared to a nameplate capacity of 700,000 bbl/d. Overall, Iraq has eight refineries, none of which were damaged during the March-April 2003 war itself. The three largest refineries are the 310,000-bbl/d Baiji, 150,000-bbl/d Basra, and 110,000-bbl/d Daura plants.

 

In May 2005, two small companies - Hydrocarbon Supply Ltd. of Texas and Prokop of the Czech Republic -- signed contracts to upgrade Daura at a cost of $110 million. Capacity at the plant is to be increased to 170,000 bbl/d. Also, on April 1, 2005, Iraq also announced plans to build a new oil refinery in Basra, with a capacity of 250,000-300,000 bbl/d. Reportedly, eight companies have bid to build the refinery.

 

According to former Oil Minister Issam Chalabi, Iraqi refineries currently are operating at only 50 percent-75 percent of capacity, forcing the country to import around 200,000 bbl/d of refined products, at a cost of $200-$250 million per month. This does not include the additional cost of steep government subsidies on the consumer price of gasoline, which had been priced under 10 cents per gallon prior to December 2005 (violent demonstrations broke out in that month after steep price increases were announced). It is estimated that, overall, direct and indirect oil subsidies cost Iraq $8 billion per year. Subsidies also encourage illegal smuggling of oil out of Iraq, and exacerbate shortages within the country. In order to reduce Iraq's need for oil product imports, significant investment will be needed to perform refinery upgrades (Iraq had identified dozens of such projects prior to the war) and possibly to build new refineries.

 

In early December 2005, construction began on two new refineries – a 140,000-bbl/d facility in Karbala province and a 30,000-bbl/d plant at Diwaniya (south of Baghdad). The two plants are expected to cost around $1.5 billion and $300 million, respectively, and to be completed within three years. Iraq has also issued tenders for a 70,000-bbl/d refinery at Koya in the Kurdish region, and a 140,00-bbl/d facility at Nahrain, south of Baghdad.