New Market Report: Iraq Oil & Gas Report Q3 2013

From: Fast Market Research, Inc.
Published: Tue Jul 23 2013

Uncertainty continues to surround the outlook for Iraq's oil sector, with sizable risks to both upside and downside. Political tensions, security and infrastructure challenges, and complaints over fiscal terms will see production grow, but below the country's resource potential. The story is similar for gas, although progress on reducing flaring and the possibility of improved contract terms in planned gas licensing rounds could see more investment directed towards the sector. In the near term, the key development to watch remains the Ankara-Erbil-Baghdad relationship, with the Kurdistan Regional Government continuing to use trucks rather than the central government's pipelines to reach markets.

We highlight the following trends and developments in Iraq's oil and gas sector:

* While low lifting costs, large reserves and ease of production from large onshore fields reduces the below-ground risks associated with Iraq's upstream, unappealing licensing terms, regulatory uncertainty and ongoing security concerns continue to undermine the post-war oil industry. Baghdad's last licensing round drew just three successful bids. Without improved terms and increased international oil company (IOC) interest, Iraqi oil production will remain well below potential, in our view.
* Our forecast is for strong growth in oil output, underscoring the country's substantial hydrocarbon potential. However, significant downside risks remain. With both above- and below-ground challenges adding uncertainty to our outlook, project delays such as those at the Majnoon field, downward revisions to production targets at major fields, and the exit of key IOCs from the south suggest that while Iraq's oil production will increase over the course of our forecast period, forecasting output will remain difficult.
* The ongoing dispute between the Iraqi government in Baghdad and the Kurdistan Regional Government (KRG) in Erbil remains a threat to the development of the oil sector in the north and the south, with the central government pressing firms to choose between the two. Ongoing efforts by the KRG to develop independent export links to Turkey threaten to exacerbate regional tensions.
* With construction of a 300,000 barrel per day (b/d) pipeline under way and plans for a 500,000b/d link to Turkey on the drawing board, tensions may soon flare again even as the KRG has chosen to rely on trucks rather than the federal government-controlled Kirkuk-Ceyhan pipeline to export its crude. Indeed, the dispute over payments to oil companies operating in Kurdistan has led to the periodic cut-off of exports via Baghdad-controlled pipelines.
* The Nasiriya project will involve the development of a major upstream project and 300,000b/d refinery at an estimated cost of US$4.4bn. Investors will be offered a share in project revenues following production, and the oil ministry will begin to repay recovery costs from the project's start.

Full Report Details at

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