Iraq Oil and Gas Report Q2 2010

BMI forecasts that Iraq will account for 8.48% of Middle East (ME) regional oil demand by 2014, while providing 11.07% of supply. Regional oil use of 8.11mn barrels per day (b/d) in 2001 rose to an estimated 11.38mn b/d in 2009. It should average 11.66mn b/d in 2010 and then rise to around 12.68mn b/d by 2014. Regional oil production was 22.88mn b/d in 2001 and averaged an estimated 24.83mn b/d in 2009. It is set to rise to 27.19mn b/d by 2014. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 14.77mn b/d. This total had eased to an estimated 13.44mn b/d in 2009 and is forecast to reach 14.51mn b/d by 2014. Iraq has the greatest production growth potential, followed by Qatar.
In terms of natural gas, the region consumed an estimated 404.6bn cubic metres (bcm) in 2009, with demand of 542.1bcm targeted for 2014, representing 34.0% growth. Estimated production of 411.9bcm in 2009 should reach 655.4bcm in 2014 (+59.1%), which implies net exports rising to 113.0bcm by the end of the period. In 2009, Iraq consumed an estimated 1.24% of the region’s gas, with its market share forecast at 1.34% by 2014. It contributed 1.94% to estimated 2009 regional gas production and by 2014 could account for 3.05% of supply.
For 2009 as a whole, we have assumed an average OPEC basket price of US$60.70 per barrel (bbl), a 35.5% decline year-on-year (y-o-y). For 2010, we expect to see a significant oil price recovery to US$83.00/bbl for the OPEC basket price, gaining further ground to US$85.00 in 2011 and to US$90.00/bbl in 2012 and beyond.
In 2010, BMI is now forecasting premium unleaded gasoline prices at an average US$97.00, up from US$70.22/bbl in 2009. We are assuming an average global jet fuel price for 2010 of US$97.58/bbl, compared with US$70.63 in 2009. For gasoil, the 2010 price estimate is for an average of US$97.40/bbl, compared with US$70.50 in 2009. The FY10 naphtha price average, estimated at US$81.58/bbl compares with US$59.07 in FY09.
Iraq’s real GDP is assumed by BMI to have risen by 3.0% in 2009, compared with 10.7% growth in 2008. We are assuming average annual growth of 5.6% in 2010-2014. We expect estimated oil demand of 780,000b/d in 2009 to rise to 1.08mn b/d in 2014, depending on investment in infrastructure and the development of domestic production. International oil companies (IOCs) are signing production sharing agreements (PSAs) with the state, which should help accelerate the growth in oil output. Based on the efforts of national oil industry bodies, we are forecasting average oil production of 2.48mn b/d in 2010. December 2009 production was 2.43mn b/d, with 1.97mn b/d of exports. Further field reactivation work and the initial IOC efforts point to output of an estimated 3.01mn b/d in 2014. The government has much more ambitious targets, aiming for 0.5mn b/d annual output expansion and a long-term goal of 6.0mn b/d. However, there are major risks involving attacks on oil installations, Iraq’s OPEC entitlement and the success of new energy policy in stimulating IOC investment.
Between 2009 and 2019, we are forecasting an increase in Iraqi oil production of 76.6%, with crude volumes rising steadily to 4.30mn b/d by the end of the 10-year forecast period. Oil consumption between 2009 and 2019 is set to increase by 75.9%, with growth slowing to an assumed 5.0% per annum towards the end of the period and the country using 1.37mn b/d by 2019. Gas production is expected to climb to 37bcm by the end of the period. With 2009-2019 demand growth of 133.9%, this provides export potential rising to 25bcm by 2019. Details of the BMI 10-year forecasts can be found in the appendix to this report.
Iraq still occupies a respectable third place in BMI’s updated Upstream Business Environment Ratings, but is just two points behind the UAE. It therefore has the potential to move higher over the medium term. The country’s score benefits from exceptional oil and gas output growth potential, a substantial hydrocarbons reserves base and the region’s highest reserves-to-production ratios (RPR). Government control of the upstream industry and a high level of country-specific risk prevent Iraq from achieving a better overall score. The country is still at the bottom of the league table in BMI’s Downstream Business Environment Ratings, with few high scores and near-term progress up the rankings unlikely. It is ranked last, below Kuwait, thanks largely to country risk factors that outweigh a reasonable showing in terms of oil demand, oil and gas demand growth, and likely refining capacity expansion.