Iraqi oil production was about 2.5 mb/d before the U.S. invaded.  It dropped to about 1.4 mb/d and is now back up to just under the starting point.  Iraq’s claimed reserves of some 115 billion barrels (second only to those of Saudi Arabia) are sufficient for it to achieve their new goal of producing 6 mb/d (2.2 billion barrels per year), even if actual reserves are a good deal less than what they claim. 

It’s not clear that Iraq can achieve this new production objective in 4 - 5 years.   The primary impediment seems to be the threat of continued violence, particularly in the face of the withdrawal of U.S. troops scheduled for 2009 - 2010.  There may also be problems with its neighbors, Iran and Kuwait, who’s borders the Iraqi fields straddle.  Absent political impediments, the production goal would seem plausible enough given that Iraqi oil is fairly easy to find and extract and there is a lot of drilling capacity now available to do the job.

I’ve always said that the apparent peaking of the global oil supply at about 86 mb/d that was seen during 2006 - 2008 in the face of rising demand was only partly due to the Peak Oil concept of rapid decline rates in old fields and the eventual inability of new fields coming on stream to overcome that.  The other important constraint to growing the oil supply was above-ground issues of war and violence, primarily in Iraq and Nigeria.  I’ve always maintained that if either or both of these countries manages to turn on their oil spigots as rapidly as nature would allow, the global oil supply could grow substantially from here and Peak Oil would be pushed off for some years. 

Therefore, I think the recent movement toward full exploitation of Iraqi oil is significant.  Iraq could mitigate some of the constraints on oil production that will come about from the recent cancellation of many production projects due to the great price decline of late 2008.  Adding to the Iraqi impact on oil supply is the fact that major Saudi production projects scheduled for 2009 - 2011 may well be delayed and could be re-activated fairly quickly when more demand emerges.   Obviously the voluntary restraints of various OPEC members can also be quickly turned around.

All of this suggests to me that when global growth resumes the price of oil will have some immediate rise but it is not likely to be a robust and rapid increase to and beyond $100 for some time.  The exact time will depend on when global growth resumes.  If we are lucky and that happens in 2010, then perhaps we will see the oil price reach and exceed 2008 heights around 2014 - 2016. 

Of course, two other macro-trends will also come into play, continuing and probably increasing decline rates in old fields and the possibility of a secular reduction in demand due to production and dissemination of far more efficient cars.  Decline rates and increased efficiency are offsetting to each other, but the former is baked in while the latter is hard to quantify at this point.   In sum, it seems to me that the next few years and even possibly the next five years may not see new record oil prices unless we experience a new rapid growth rate in the global economy. 

Here is a report from the New York Times about the Iraqi oil production plans:

Iraq to Open More Oil Fields to Bidding

By CAMPBELL ROBERTSON and ABEER MOHAMMED

Published: December 31, 2008

BAGHDAD — Iraq announced on Wednesday that it would begin a second round of bids to license international oil companies to develop 11 oil and gas fields or groups of fields.

Iraq’s oil minister, Hussain al-Shahristani, said at a news conference that he hoped that these fields could be producing 2 to 2.5 million barrels of oil a day in three or four years. The goal, he said, is to produce 6 million barrels a day in four or five years, up from the current 2.4 million.

The oil and gas fields are distributed around the country and include some that lie near the border or are shared with neighboring countries like Iran and Kuwait.

The first round of bids, announced last summer, is scheduled to be concluded in the middle of 2009. It will be for the development of six major oil fields and two gas fields.

The same 35 foreign companies that qualified to take part in the first round are involved in this one, said Ahmed al-Shammar, a deputy minister, but it is possible that more companies could be added.

Mr. Shahristani said he hoped the contracts in the second round would be signed by the end of 2009. He also said the ministry was planning to announce more licensing auctions in the future.

The ministry has come under criticism for the slow pace of Iraq’s oil production. Although the country sits on one of the largest proven oil reserves in the world, roughly 115 billion barrels, security and infrastructure problems have left them largely untapped.

Iraq is producing far below its capacity, Mr. Shahristani acknowledged at the news conference, but he said opening these fields for development was meant to address that.

“There are about 78 oil and gas fields in Iraq, but only 15 of them are under operation,” he said.

Plunging oil prices around the world have hurt Iraq’s revenues as well; Iraq’s oil is being sold for around $38 a barrel, a ministry official said, down nearly 70 percent from its high for 2008.

One of the other main events of Wednesday was to be the start of the trial of Muntader al-Zaidi, the Iraqi reporter who was arrested for throwing his shoes at President Bush during a news conference two and a half weeks ago.

But Abdulsattar al-Berikdar, a spokesman for the Supreme Judicial Council, said the trial had been postponed because Mr. Zaidi’s lawyer had filed an appeal.

In a phone interview, Dheyaa Saadi, the lawyer, said the appeal’s purpose was to reduce the charge against Mr. Zaidi so that the case could be taken outside the jurisdiction of the Central Criminal Court of Iraq, which specializes in terrorism and other serious cases. A higher court will rule on the appeal.

Though recent statistics report that there were fewer civilian deaths in Iraq in 2008 than in any other year since the 2003 invasion, violence continues to buffet the volatile provinces of Nineveh and Diyala.

Two bombs exploded Wednesday in Mosul, the capital of Nineveh, killing 4 and wounding 20, a local security official said. The target of the first was a police patrol, and the second exploded shortly afterward, as bystanders gathered.

A candidate for the coming provincial elections was killed by unidentified gunmen on a major street in Mosul, a police official said. One policeman died in a gunfight with the attackers as they escaped.

The candidate, Mowaffaq al-Hamdani, was a Sunni Arab. The elections in Nineveh are seen as crucial for the Sunnis. Many of them boycotted the last election, leaving a provincial council dominated by a Kurdish bloc.

A car bomb exploded near a public market in Sinjar, a town in Nineveh near the Syrian border, killing 3 and wounding 35. The Kurds maintain a tight control of Sinjar, which they view as belonging to Kurdistan, a situation that has raised tensions with Sunni Arabs who live in the volatile, poverty-stricken towns to the south.

In Diyala, a bomb, its target an army patrol, exploded near Khanaqin, another area that has been involved in a tense standoff between Kurds and Arabs. Two were killed in the attack, including an officer, and two others were wounded, a security official said.

Mohammed Hussein and Riyadh Mohammed contributed reporting from Baghdad, and Iraqi employees of The New York Times from Diyala and Nineveh Provinces.

A version of this article appeared in print on January 1, 2009, on page A8 of the New York edition.

Tags: peak oil investing

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