The recent upheaval in Iraq has forced multiple E&P companies to evacuate oil workers and reduce expatriate staff. BP, ExxonMobil, Petronas and CNPC have all undertaken this in order to lessen the risk of possible attacks. Militants have surrounded the Baiji oil refinery and production has been halted for several days. The political uncertainty and violence in Iraq has also caused Brent to hit a nine-month high of above $115 per barrel. Will this turmoil limit Iraq’s ability to meet oil production targets?
Though some workers have been evacuated, operations are continuing in the country. The insurgency is focused in Central Iraq, whilst the majority of production and exports lie in the South. In the North, the Kurds are defending the Kirkuk oilfield. Marathon are yet to evacuate employees, Chevron are continuing operations “as normal” and Oryx Petroleum aim to ramp-up drilling activity in the North. According to BP’s Bob Dudley, the operator’s operations have so far remained unaffected by the violence in Iraq. Lukoil have tightened security at their West Qurna-2 oilfield, despite being of the view that the field is currently not under threat.
In December of last year, Iraq’s oil minister set an oil production target of 4.1 million bpd for 2014. He is still convinced that this is achievable. However, the International Energy Agency (IEA) recently revised their oil supply forecast for Iraq, as the country’s targets look to be increasingly at risk. The agency expect capacity to reach 4.54 million bpd by 2019, compared to the Iraqi government’s objective of 9 million bpd by 2020. Douglas-Westwood are in agreement with a downside case of 6 million bpd in 2020 – a conservative figure accounting for the political insecurity.
It is uncertain, at present, what will happen to Iraq’s oil production in both the short and long term, as the situation keeps changing within the country. Though the effects on E&P operations are minimal for now, if the insurgency spreads towards the South, this is likely to have negative implications for oil output.
Hannah Lewendon, Douglas-Westwood Faversham
+44 1795 594737 or Hannah.Lewendon@douglaswestwood.com