WHAT happens to Iraq’s oil now US forces have left the country? Iraq hopes to increase production from the present 2.7 million barrels per day to 13.5 million by 2018.
That would easily top Saudi Arabia, the world’s top petroleum exporter, which pumps about ten million bpd. Current global demand is around 89 million bpd.
Three Western majors – BP, ExxonMobil and Eni – are hard at work developing Iraq’s massive southern oil fields at Rumaila, West Qurna and Zubair. Within six years, these fields could be pumping 6.8 million bpd. That would be good news for the troubled world economy.
On Wednesday, Opec, the international oil cartel, put aside recent internal differences and agreed to limit total production to 30 million bpd. This move aims to keep oil prices above $100. Previously, Saudi Arabia was keen to moderate prices, fearing a Western recession. But the Arab Spring has forced the Saudis to head off civil unrest – which means they need all the oil revenue they can lay their hands on.
Another source of new oil and gas is post-Gadaffi Libya. Output there hit one million bpd this week. Production should return to near normal by the end of 2012. So far, the Saudis appear relaxed about the reinstatement of Libyan supplies but that could change if Western companies manage to boost local oil and gas output above historic levels. Libyan oil output reached 3.4 million bpd in the 1970s, before Gaddafi expelled foreign producers.
Curiously, the prospect of recession in Europe is not expected to curb the global thirst for oil. The latest forecast from the International Energy Agency (IEA) suggests global demand will rise by 1.3 million bpd next year on the back of imports by developing economies. In the medium term, the IEA thinks world oil needs will reach 95 million bpd by 2016 – a figure easily accommodated with extra Iraqi and Libyan supplies.
However, several things could interfere with this rosy scenario. Foremost, Iraq remains a dangerous place to do business. On Tuesday, BP had to halt production in part of its Rumaila field after a bomb blast severed pipelines.
Even more problematic is Baghdad’s willingness to do business with Western companies now America has gone. To date it has needed them to provide the capital investment to restore production. But nationalist sentiments in the coalition government led by prime minister Nouri al-Maliki could still lead to foreign majors being excluded in favour of state control. Ditto in Libya.
In addition, the central government in Baghdad is still at odds with the semi-autonomous Kurdish region over who can sign contracts with foreign oil companies. Tighter security and a friendly approach to inward investment in the Kurdish region have attracted independent oil companies such as Talisman and Heritage. Baghdad was willing to ignore this situation until new oil finds turned up.
In October, ExxonMobil became the first major to sign a deal with the Kurds. In response, Baghdad threatened to cancel the company’s 60 per cent stake in the giant West Qurna field. Both sides are trying to come to terms, with the US refereeing. But the spat indicates it could be some time before Iraq fulfils it promise of out-producing the Saudis. Which may explain Opec’s wait and see attitude.
Ratings agencies are an enigma wrapped in a puzzle
The big three ratings agencies – S&P, Moody’s and Fitch – are the whipping boys of the euro crisis, especially in France. Mind you, they can cry all the way to the bank. Last year their gross profit was $5.5 billion.
But the pressure is on. Take S&P, a subsidiary of US publishing giant McGraw-Hill. Last year S&P generated a quarter of its parent’s revenues. This has made McGraw-Hill lazy and in September shareholders forced a decision to split the company, to release value. Next day, Fitch de-rated McGraw-Hill, accusing the firm of being opaque about its plans.
Fitch, despite its New York HQ, is actually French owned, being a subsidiary of Financière Marc de Lacharrière. Owner de Lacharrière sits on the boards of Renault, L’Oreal and Canal Plus. He is also a member of the consultative committee of Banque de France. Was he consulted when Fitch yesterday downgraded seven of the world’s big banks, including BNP Paribas?