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Weekly UpdatesThe Iraqi Oil Ministry's first auction for six of the country's largest and developed oilfields and two gas fields on June 30 was a disaster, as only one field was taken by a JV of BP and the state-owned China National Petroleum Corp (CNPC). About 30 other international oil companies (IOCs) made sure their bids were to be rejected - it was their polite way of declining to invest in a high-risk country where the rewards on offer were far below expectations and in the absence of a law governing the petroleum sector.
Undaunted by that fiasco, Oil Minister Hussein al-Shahristani has since advanced the date of the second auction from end-2009 to the autumn. The man behind the auction and its tough terms, Shahristani is a resource nationalist. But in the Council of Representatives (parliament), he faces more radical nationalists who say that, no matter how tough his terms, Shahristani is letting Iraq's petroleum sector be occupied by IOCs. Even within his ministry's oil companies, there are ultra-nationalists opposed to the service contracts on offer. The head of South Oil Co. (SOC) is an example of those opposed to foreign involvement in this sector, despite the fact that Iraq's petroleum industry suffers from more than three decades of under-investment.
The Kurdistan Regional Government (KRG) in Erbil and the central government in Baghdad are competing for a major natural gas pipeline to reach the EU through Turkey. But whereas the KRG believes its venture is relatively shorter and less complicated, Baghdad's project is to pipe the gas from the predominantly-Sunni province of Anbar, where the giant Akkas gas field is located, to Syria and Turkey. This is apart from crude oil exports from Kurdistan via Turkey which began in June.
The Shi'ite theocracy of Iran is trying to export natural gas to the EU through central Iraq, Syria and Turkey. But Tehran's project depends on two crucial developments: (1) a deal with the US over its nuclear ambitions and the future of the Greater Middle East (GME) - which should not be too difficult if a stand-off over a disputed June 12 re-election of President Mahmoud Ahmadi-Nejad is resolved in favour of those who want to respond positively to President Barack Obama's offer of dialogue for "mutual interests" (see news25IrnPresElctJun22-09); and (2) a radical change of policy in Iran which may put Tehran on collision course with Moscow, which is promoting two rival gas pipelines to Europe (see Part 39 in ood6IrqPetExptJun15-09).
The theocracy, however, has been bruised by the worst crisis since Iran's 1978-79 Islamic revolution, with the supremacists behind a forceful re-election of Ahmadi-Nejad beginning to seek a compromise deal with their reformist rivals. Whether or not the latter would accept such a deal, it has become clear that Iran is no longer the same. What is not clear yet is whether Iran still can lead an axis of anti-US/anti-Israel forces in the GME. It is stuck with having to choose confrontation or dialogue with US President Obama, while Israel is flexing its nuclear muscles (see news2IrnIsrJuly13-09).
The Actions: Baghdad is hoping the second auction of oil and gas fields will help revive the petroleum industry. On July 4, government spokesman Ali al-Dabbagh said: "We think that the first [bidding] round did not achieve the full objectives of the Oil Ministry. At the same time, it was a good achievement especially in Rumaila oilfield[won by BP-CNPC]. With that level of production (Rumaila near Basra in the south being the largest oilfield in Iraq), we have compensated for the lesser achievement of the first round. Generally we are happy with what we achieved".
The June 30 auction, Iraq's first major competitive energy tender in decades and one of the biggest in history, stunned industry insiders because of a wide gap between the Oil Ministry and IOCs over payment terms. Shahristani brushed aside criticism that it was a flop, saying the deal reached with a BP-CNPC for Rumaila would on its own provide a bigger production boost than his ministry had been hoping for from the first round.
While plans to quickly increase Iraq's crude oil output from 2.4m b/d were dealt a blow, the Oil Ministry's rejection of more pricy deals played well among critics who opposed to such contracts. Dabbagh said: "The Iraqi government is careful not to waste oil wealth, but at the same time there is a balance between this point and Iraq's needs to develop the oil industry".
The second auction is expected to be more lucrative because the 16 oil and gas fields to be offered are undeveloped and could double crude oil production. Dabbagh said: "TheOil Ministry is trying to make use of the results of the first round so that the second round would be more effective", adding that a panel had been established to learn lessons from the first auction. He said no decision had been made on the fields which were not taken by IOCs on June 30. Oil Ministry officials have said these fields may be included in the second round, put out for bids again separately or perhaps developed by Iraq on its own once an Iraqi National Oil Co. (INOC) has been formed.
Dabbagh said the June 30 auction marked a turning point for China, eager to get a crack at the world's third largest oil reserves no matter the cost. Chinese firms were included in groups competing for all the first auction's remaining five oil and two fields which received bids. Dabbagh said: "China is decisive about entering this sectoreven if not making profit This opportunity for them in Iraq will never [occur] again in any place in the world" (see the Chinese role on following pages).
Still unclear is what the auction's results mean for Shahristani, a nuclear scientist who has staked his political future on boosting crude oil output and, thus, coming to the rescue of a government reliant on oil for over 95% of its income. There have been suggestions that Shahristani, already under pressure over low output and summoned to parliament last month to face criticism, may be pushed out of his job. Dabbagh said it was up to parliament "to decide the performance of any minister. The government will definitely feel that this is part of their job, monitoring all the activities of the ministers".
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