Paris, Asharq al-Awsat- Hussein al-Shahristani, the Iraqi Deputy Prime Minister for Energy, entrusted with coordinating among the Oil ministry, the electricity ministry, and the water ministry, was warmly received by the French authorities on the occasion of his visit to Paris to participate in the 12th “petroleum summit” organized by the French Institute for Petroleum and the Petro-Strategy magazine that is specialized in the fields of oil and gas. Al-Shahristani has met with French Industry Minister Eric Besson and Foreign Minister Alain Jupe. He will also meet with Economy Minister Christine Lagarde and Foreign Trade Minister Pierre Lellouche as well as officials in several major companies interested in the Iraqi oil and non-oil markets. In an exclusive interview with Asharq Al-Awsat, the Iraqi minister said that the French officials emphasized that Paris “is urging” French companies to invest in all the sectors of the Iraqi economy, particularly since such investments will enjoy “full” official backing. The text of the interview is as follows:
[Asharq Al-Awsat] What is the future agenda of the Iraqi oil sector pertaining to additional offers that you will make to world companies?
[Al-Shahristani] You know that we have signed contracts with the largest oil companies in the world in order to raise the volume of Iraqi oil production from its current rate of about 2.5 million barrels per day to reach an increase of 10 million additional barrels in the next six or seven years. We estimate that this increase will be sufficient to meet the rising need for oil in the foreseeable future. That is why – despite the fact that Iraq has many huge oil fields – my tour did not include first and second licenses. We are not planning to raise our energy production to a higher level based on our assessment of the oil market over the coming two decades. Demand for oil is expected to rise by about 20 million barrels per day to 106 million barrels per day. Meeting such a demand should come primarily from the OPEC countries. The response to such a demand should come primarily from the OPEC countries. Thus, we believe that Iraq has a major role to play in the oil market to meet its rising needs.
[Asharq Al-Awsat] Does this mean that there will be no third tour of licenses in the foreseeable future?
[Al-Shahristani] We had a third tour to develop the gas fields. There will be a fourth tour this year but it will be confined to the exploration fields by surveying the areas that have not yet been explored. Thus, the contracts that will be awarded will not be production contracts. We expect large quantities of oil and gas to be discovered because 70 percent of the previous exploratory operations discovered these two substances.
[Asharq Al-Awsat] There are discrepancies between Iraq’s official expectations and the studies published by the International Monetary Fund [IMF] that argue that there are two scenarios to Iraqi oil: The first scenario is low, expecting a production capacity of five million barrels per day by 2016. The second scenario is more optimistic and does not rule out the possibility of reaching a production capacity of 10 million barrels per day. Both these scenarios are distant from your expectations. My question to you is: Where lies the discrepancy?
[Al-Shahristani] There is a misunderstanding; we talked about 12 million barrels per day. This figure is contractual; in other words, this is what we reached with the oil companies with which we concluded contracts. They are committed to raising our production capabilities to this figure. The IMF studies, however, did not talk about production capacities but about production itself. This applies to other countries, like Saudi Arabia, whose production capacity is 12 million barrels per day but its actual production is about nine million barrels per day. What we are talking about is the contractual commitment with the oil companies to reach a production capacity of 12 million barrels per day within six or seven years. In this context, I wish also to add that Iraq’s national strategy is not to maximize production but to maximize revenues. This point is dependent on oil prices. Thus, our plan is not to flood the market with crude oil and thus threaten prices. The result will be less revenue.
[Asharq Al-Awsat] The IMF has other reservations pertaining to Iraq’s ability to export its oil. Would you describe the current situation and give us an idea about your future expectations?
[Al-Shahristani] It is true that the bottleneck of Iraqi oil is our exportation capabilities, especially from the south where the bulk of our oil is exported. At present, we are limited by this exportation capability. However, we have concluded contracts to expand our exporting abilities and to implement them well via four new floating export ports. The construction of two of these offshore ports will be completed by the end of this year and the other two ports will be completed by the middle of next year. The export capacity of each will be about 900,000 barrels per day. The government will fund three of these ports while the fourth will be funded by a loan from Japan. Naturally, these new constructions will raise our export capabilities so high that we may not have enough produced oil to export if we wish to use all our export capabilities. That is why we may suspend operations in several export facilities for maintenance and renovation as we wait for the increase in production and export capabilities.
[Asharq Al-Awsat] There is confusion related to the manner with which the central Iraqi government deals with the oil of Kurdistan and the contracts that the local government there has concluded.
[Al-Shahristani] The central government did not review and did not approve the contracts that the Kurdistan Region government concluded. The central government informed the companies concerned that they have no right to operate on Iraq’s territories without its approval.
[Asharq Al-Awsat] Does this mean that the contracts that the regional government concluded are illegal?
[Al-Shahristani] Yes, they are illegal contracts. However, we agreed with the regional government that any oil produced in Iraq regardless of its legitimacy is the property of the Iraqi people and should be handed over to the Iraqi government that will market it and receive its revenues. In return, the Iraqi government shall compensate the regional government or the oil companies for the investment costs on condition that acceptable invoices are submitted and based on recognized prices in the world market. I can affirm that we have sufficient experience in this regard. The government of the Kurdistan Region accepted this settlement and it is handing over the oil on this basis. The oil that has been handed over was 115,000 barrels last week. It is all handed over to the Iraqi Oil Marketing Company and is pumped via the export pipe on the Kirkuk-Jehan pipeline.
[Asharq Al-Awsat] In addition to oil, you are in charge of natural gas. What are your expectations for this sector?
[Al-Shahristani] I told you that we will conduct a fourth round of licensing world companies.
[Asharq Al-Awsat] Any specific date?
[Al-Shahristani] I do not have an exact date but we will announce this in the coming weeks. There are 12 big lots that will be allocated to explorations in all the Iraqi territories from the west to the east to the north and to the south. We expect these explorations to raise our gas reserves that are 112 trillion cubic feet at present. This figure is expected to increase dramatically. As for our oil reserves, the announced and audited figure is 143 billion barrels to which can be added another 30 billion barrels from the Kurdistan Region. Thus, the total will reach 173 billion barrels.
[Asharq Al-Awsat] In other words, Iraq will become the third largest oil reserve in the world.
[Al-Shahristani] Why the third?
[Asharq Al-Awsat] There is Saudi Arabia and Venezuela.
[Al-Shahristani] We are talking about the conventional oil dug from the ground, not about the heavy oils or the oil extracted from oil sands. Based on this yardstick, Iraq has the second oil reserve in the world.
[Asharq Al-Awsat] Will Iraq rejoin OPEC? Will it go back to producing oil in accordance with the quota system of this organization?
[Al-Shahristani] As you know, Iraq is a founding member of OPEC. However, we do not see the need to return to the quota system in the foreseeable future. Everybody agrees that in the past period, Iraq did not obtain the share that it deserves from oil exports. Thus other countries profited from this “in lieu” of Iraq. Thus, Iraq needs to compensate what it lost in the past years; it also needs oil revenues for reconstruction. At any rate, the subject has not yet been raised and we do not have a deadline regarding it.