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Iraq’s policies on upstream development ‘stalled’: GlobalData

by Erika Green

Despite Iraq’s ambitions to expand its crude oil and natural gas production, the country’s policies to support upstream development appear stalled, Kallanish Energy learns from data/analytics firm GlobalData.

Iraqi oil production is gradually ramping up thanks to expansion of previously delayed projects, but the existing contracts are still unable to reach their full potential, analysts said this week, in a new report.

The country, Opec’s second-largest oil producer, is forecast to reach crude and condensate production of 6 million barrels per day (Mmbpd) in 2021. Between 2017 and 2021, the Zubair field will more than double its daily production, GlobalData noted.

However, the terms of new contracts used in the country’s fifth licensing round, seem not attractive enough to secure major investments, according to GlobalData.

“The contract model offered in the fifth licensing round shows very high levels of state take, even compared to other areas in the region,” said analyst Alessandro Bacci. “While earlier contracts also had tough terms, the existing resources of the major fields in the offer counterbalanced this, but new opportunities are now likely to be smaller fields or exploration acreage,” he noted.

Adding to the challenges in attracting foreign investment is the country’s political instability. Oil-producing provinces in Iraq continue to protest they are inadequately compensated for their oil production, with little revenue reinvested locally, while they have to pay for environmental damage.

One example is the tension between the federal government and the semi-autonomous Kurdistan Regional Government (KRG), which Bacci described as “far from being solved.”

Iraq also plans to boost its domestic natural gas production in order to use it as feedstock for power generation. Yet, the analyst points out, “policies to support gas development also appear stalled,” not offering much opportunity for growth in upcoming years.

The country’s oil ministry claims it’s keen to promote investment opportunities both upstream and downstream, while making the environment more flexible, stable and attractive to major investors.

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