The oil industries in Iraq and the way of developing them

* The oil industries in Iraq are representing the chord of the Iraqi economic and the economic will be so weak if we didn’t develop them. To prove that, 85% percentage of the general balance of the country in 2005 depended on the financial incoming of oil exporting and this percentage increased in 2006 to be 92%. So the general balance of the country depended on the financial incoming of oil.

* The bad situation in all the oil industries knuckles lead to decreasing in the financial incomings and also create continuous crisis in the oil deriving (benzene, diesel, greases, oil, gas….etc). This leads to a situation made Iraq imported the oil deriving with great amounts arrive to 5-6 billion dollar annually, and this is a clear prove to make us raise the situation of the oil refineries comprehensively.
And to clarify this situation easily, we give you the following example about the cars fuel (benzene only):

1. Iraq’s needs of benzene= 25000000 million liters daily.
2. The current productive power in the Iraqi refineries is 10000000 million liters daily.
3. The import from outside Iraq= 15000000 million liters daily.
4. The cost of importing one liter = 0.5 dollar/liter.
5. The cost of importing one liter = 7.5 million dollar.
6. The cost of importing benzene in one year is= 2.7 billion dollar annually, if we add to it the cost of importing the other deriving (gas, greases, oil, cooking gas) the entire amount will be 5-6 billion dollar annually.

We can use this amount of money in building many oil refineries in different places or building one big oil refinery with production capacity arrives to 600000 thousands barrels daily. This is will be equal to the production of the second big refinery in the world which is LG caltex in Southern Korea, this capacity is doubled the current needs in all over Iraq. It is natural to say that this capacity will be from the capacities of the oil exporting in Iraq from different sides (explorations, production, recycling, exporting) because they are all joined together. And to give clear and summarized picture about the stages of developing the oil industries in Iraq, we mention the following things:

The stages of developing the oil industries in Iraq

Let us decide first how much is the spare oil in Iraq:

1. The explored and undertaken spare oil is 115 billion barrels.
2. 2- The unexplored spare oil is about 250 billion barrels.
3. We can say that the oil in Iraq is enough for 200 year if the spare oil was 115 billion barrels only and the production is 1.5 barrels daily.
4. It will be enough more than 155 years, If the spare oil was 115 billion barrels and the production is equal to the designing power of the current oil establishments if they work with all their qualifications, this production is about 3.5 billion barrels daily.
5. It will be enough more than 70 years, if the spare oil was 115 billion barrels and the production will be 5 billion barrels daily. This is what we had planned to but it did not achieved.
6. It will be enough more than 400 years, if the spare oil was 250 billion barrels and the production is 1.5 million barrels daily.
7. It will be enough more than 200 years, if the spare oil was 250 billion barrels and the production is 3.5 million barrels daily.
8. It will be enough more than 150 years, if the spare oil was 250 billion barrels and the production is 5 million barrels daily.

We conclude from the above items that Iraq is the last country which oil will run out in it. While there are some countries like United States of America the spare oil of it will run out within 1057 days, it means within three years if the production average will be 6 million barrels daily while it was 8 million barrels daily. The actual need of America from the oil was about 21 million barrels daily, and it was imported 14-12 million barrels daily. In order to put the right solution for the oil industry we should reviewing the developing of this industry since exploring oil:

• Oil has been discovered in Iraq in 1927 in Kirkuk when the first well was dug.
• Alrumaila field has been discovered in the south Iraq in the beginning of 1950 and the oil exports started after the oil nationalization in Iran 1951.
• Iraq flourished after this period and achieved successful programs in the fifteens in many fields in the oil industries.
• in 1961, law number 80 published and according to this law many foreign companies got the control on more than 99% from the Iraqi undiscovered areas , these companies has the excavation and exploration privilege since 1925 in Iraq.
• After 1968 revolution, the relationships between Iraq and the other foreign companies were entonic until the nationalization of oil in 1972 and the nationalization of the other oil companies in 1975.
• Iraq invest oil between 1973 and 1979 and it build and develop many institutions related to the oil industries and this resulted to the increasing of the oil back-up after discovering new and big fields such as Majnoon field , Nahar Omar , Hilfaya, west of qurna , and East Baghdad fields and others. The production of oil arrived to 3.8 million barrels daily in 1979 and the exported were 3.5 million barrels daily and this was the maximum production which Iraq arrived to in his history and this production continued till September 1980 when the Iraqi- Iranian war started which last for 8 years.
• The oil industry was affected by the war, because oil exports depend on Kirkuk line and Turkish jehan only and the production arrive to 800,000 barrels daily.
• In spite of the long period of war and the damage of many oil institutions, but the efforts were focused on repairing these institutions and oil industry began to heal and the work started in achieving many important projects which are completed during and after the war, such as:
  1. Building 3 big refineries in Bejiy complex with the capacity of 290,000 barrels daily.
  2. Laying new pipeline with turkey in order to make the export capacity 1.5 million barrels daily, this project was done in two stages in 1987.
  3. Constructing of the Iraqi- Suadian pipeline in 1990 in two stages in order to make the export capacity 1.6 million barrels daily.
  4. Building the south gas project.
  5. Building the north gas project.
  
  
• After the stopping of the war in 1988, the production averages have raised and the production became 3.2 million barrels daily till 1990.
• The oil exports stooped after the entering of the Iraqi troops to Kuwait and the production was only for the local needs of the raw oil for refining and it was about 300.000 barrels daily.
• During the second gulf war in 1991, the oil institutions were targeted with bombing and the destruction was more than what had happened in the Iraqi- Iranian war and it was about 90%.
• After the stopping of the war in March 1991, the Iraqi workers and the engineers repaired (with self efforts) what they can repair of these institutions though the imposed sanctions and in a short period within two or three months after the end of the war.
• After publishing the oil for food program in December 1996, the production and the export raised but with limited amounts till 1999. After 1999 the production ceiling increased and become as follows:

The production arrived sometimes to 2.8 million or even 3.0 million barrels daily.

• During the second gulf war in 2003, the oil institutions were not targeted directly but seven of Alrumaila oil fields were fired and damaged for unknown reasons. Also the ministries of oil’s offices were protected for a short period but after that all the documents and computers were stolen from the south and north oil companies and others. And the oil industry completely stopped during the war.
• The limited production started in June 2003.

The current situation:
After three years of the occupation we can describe the oil industry as follows:

• The reconstruction program which the United States put it did not achieve any touchable development because most of the project weren’t done in 2003.
• The Ministry of Oil did not achieve but limited success in rehabilitation and maintaining the oil institutions because of the security situation, and the lower allocations, and lacking of helping from the foreign companies which left Iraq, and the bureaucracy, and other reasons in addition to not having clear plans of the oil strategy.
• there is a program taking care of the oil storage under the ground- there is a study about Kirkuk and it will end in 2006.
• There is very limited work related to digging new wells.
• The need for rehabilitating most of the digging tolls and production requirements.
• continuing the destruction operations of the oil pipes especially in the middle and north areas, in spite of all the efforts to stop them. These operations charged the country million of dollars about 6 billions.

1. The refineries working with 65% of their capacity because there isn’t comprehensive maintenance operation and disarrangement of supplying the raw oil for these refineries.
2. The lack of fuel products lead to flourish the black market which is controlled by many groups which lead to increasing the fuel prices.
3. Increasing the oil derivations’ prices starting from 18 December 2005.
4. Iraq become the importer of benzene and gas oil and liquid gas and oil since June 2003 with charges arrive to 300 million dollar monthly. It is expected to continue importing these derivations for three other years if the efficiency of the current refineries will increase and new ones will build.
5. Absconding operations of the oil through Shatt Alarab and other areas.
6. Slowing in achieving the contracts by the Ministry of Oil.
7. Changing the qualified people and administrative and scientific qualifications and put less qualified people.
8. It seems that the oil sector did not achieve any progress in its main sections and the production is in continuous deteriorating.
9. To improve that we are listing the production averages for the three years which comes after the occupation of Iraq.

If the situation will stay as it is, the oil experts are expecting the following:

- The production will be (2-1.8) million barrels daily and the export average will be 1.5 million barrels daily and for the coming two years without any noticeable progress. It can’t be reached to the maximum power which is 3.5 million barrels daily which has been reached in the years before the occupation , it means before 2003.

- The plans that have been put before 25 years in order to develop the production and to make it 6 million barrels/ daily, could not be achieved because of the war and sanctions and they can not be achieved till 2014. It is very clear from the studies and researches which have been done in the oil industries in Iraq that the explorations and production and developing costs were the lowest costs in the world. This was because of the cost depression of the workers, and the cost of finding oil is very low and it is about 0.2 cents /barrel and the production cost is between 1000-5000 dollar/barrel. And even if we take the highest cost which is 5000 dollar for each barrel, the cost of one million barrel will be 5 billion dollar and this amount can be returned during 4 months only if we sell the barrel with 50 dollar only. The development of the oil industries in Iraq has its political and social and economic supervening especially in the current situations. So the economists and socialists and even the people should understand what is going in the Iraqi area with all its fields because the discovered area is 5 % only from the Iraqi area and this is public fortune for this generation and the coming generations also. The international economic studies confirm that each worker of the oil field in USA gives four chances for other four workers, for example the number of workers in the oil field in USA is 1.5 million workers and they are working directly and there are 6 million workers working in the other industries and activities. So we can imagine what could be happened in Iraq according to the security and economical and social level and the jobless percentage if we take care of the oil sector and the other industries which are depending on the oil products.  

The suggested recommendations and solutions:

1. Because of the big backwardness in all the oil fields, we should asked for help from the dependant foreign companies and encourage them to participate in reconstructing the oil sector. This will be done through:
   
   
   • forming qualified and homogenous government plans for the future of the Iraqi oil and finishing the bad security situation.
   • Publishing new law for oil that encourages the local and foreign companies to share in this important sector but the oil should be the country’s possession.
   • publishing the necessary laws and legislations in order to guarantee the foreign investors’ rights and the national benefits also.
     
     
2. Restructuring the Ministry of Oil and declare clear oil policy that is pointing out the basic ways of production and developing.
3. reconstructing of the national oil company and give it its important role in the exploration and production and development operations, but the administrative structure must have South Oil Company and North Oil Company. And it should put the necessary legislations to make the company do its required role.
4. Give special priority for the production and development in the big discovered fields, according to the last studies, 33 oil filed have been specified and the choice will be according to an economical and political and social overview in the governorates in which we will develop the oil field, so that no political conflict will happened.
5. Using the Iraqi experts before going to the foreign experts in order to put the technical and administrative details in putting and achieving plans’ field. This should be done in order to develop the oil industry in a strategic way.
6. Stop the routing of gas and try to find the scientific and technical ways to take the benefit from it.
7. in the current time, we can not talk about the privatizing of oil sector or the oil industry in Iraq because it is complicated subject and the political and social and religious matters will enter in this subject and it will take long efforts and time without any results.
8. We must study all the choices in order to provide the necessary money for achieving the plans of rehabilitating the oil institutions and the working staff and then to develop the discovered fields and increasing the production and exports. We are doing this in order to have good returning for Iraq and its people, so we should agree with the specialized foreign companies or the financial sides about shared contracts, and then all the paid money will be returned from the production.
9. Pay serious attention for the refineries of recycling oil and build more of them in order to encourage the different oil derivations and this should match the productions size of raw oil, so we can balance between the production and recycling and exports.
10. take care of manufacturing the mechanical and electronic systems and parts which are entering in the oil industries such as( pipes, valves, engines, joints…etc) in addition to the chemical materials which are entering in the refineries work in the private sector and Ministry of Industry and Minerals or building developed workshops.
11. Building special college of the oil industry and includes scientific sections including the exploration , development ,production ,recycling, transportation, industrial administration of the projects, and the factories of the oil industries.

* Dr. Essam Alchalabi – what happens to the Iraqi oil- oil and finance conference- London 20-21/9/2005.
* Eng. Tariq Shafeeq- choices of developing the Iraqi oil- studying the global power center CGES 15/12/2003.
* Dr Thamer Abdulhameed Alokailiy – the future of the raw oil industry under the new era- Alsabah Iraqi newspaper- February 2006.

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www.midwesternpioneer.org /center/conco.htm \how does on oil refinery   work .6/3/2006

Some interesting oil industry statistics .1997-2006 Gibson consulting 
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A.F.Alhajji, privatization at the oil industry in Iraq World oil, vol .224, No12 December2003.

Prepared by : Engineer kadhem Mijbil / Ministry of Technology and Science/2006