Does Iraq have what it takes to shake up the global energy market?
Oil production capacity growth in Iraq and Saudi Arabia hold the key to future oil market stability, but the outlook for gains in the near to intermediate term looks cloudy, according to a new study by the Baker Institute.
Political instability in a number of oil-producing countries — including Libya, Iran, Nigeria, and Venezuela — are having adverse effects on OPEC production and spare capacity. And prospects that Iraq could reach ambitious oil production targets are fading, amid political and logistical barriers and continued shortages of electricity. Infrastructure development problems, including stalled progress on water injection, pipeline construction, natural gas installations and badly needed electricity facilities, are likely to inhibit international oil companies from translating any expansion in Southern oil field production capacity this year into significant increases in Iraqi oil exports.
Meanwhile, Iraq’s political and logistical challenges come at the same time that Saudi Arabia — long seen as the “central banker” of oil markets — faces rising costs for future efforts to maintain sufficient spare capacity for the global oil system. Saudi Arabia has faced significant delays in bringing on line the Manifa oil field, slated to help the kingdom maintain its cushion of spare capacity. The kingdom has announced that it intends to increase its oil production to lower oil prices but oil traders remain unconvinced that the kingdom can move prices significantly lower in the short term. As refineries shut down for autumn maintenance turnarounds, extra Saudi exports (available when the kingdom’s own internal demand will fall again seasonally) could put markets under downward pressure, at least temporarily.
But longer term questions about Iraqi and Saudi capacity additions continue to bolster prices. The Baker Institute study finds that future investment in a new tranche of Saudi oil production capacity will be increasingly expensive because the kingdom will have to shift to areas that have more complex geology and require greater technological intervention. Meanwhile, Saudi Arabia faces competing priorities to upstream oil spending due to higher spending requirements for social services and defense in light of regional and internal challenges.
Thus, the study concludes that Iraq and Saudi Arabia may have difficulty meeting rising demand for oil in the near term. Markets agree, as oil prices have risen by around seven dollars since President Obama released oil from the SPR at the end of June.
This is pure propoganda directed by the Baker Institute which the writer most probably was ordered to write without even having seen an oil well in her life.
1. Saudi oil peaked in 2003. This is may be the main reason for the Bush invasion of Iraq in March 2003.
2. Iraq reserves were untapped since 1980. In this sense, oil in Iraqi wells were in waiting for Saudi ones to begin to decline starting 2003 – look F.W.Engdahl’s site for more on Peak Oil.
3. Iraqi PM’s recent visit to China sealed the final gap in Iraq’s search for real big investment in oil, electricity, water, agriculture, health, training and other supporting activities, and reconstruction.
4. In the few coming years China’s demand for oil would top 10.5 million bpd and no country other than Iraq could meet those demands. The equation is Reconstruction of Iraq = fulfilling China’s demand for oil.
5. China is the largest buyer of US bonds, second is Japan. Therefore the US can not object to the Iraq-China mutual agreement.
6. Deputy PM for energy, Dr. Shahristani, recently announced that Iraq would be a major energy player within the next two decades.
Ali,
Apparently you think that the Baker Institute has a “viewpoint for a reason” and this is not a straight forward reporting/study/oppinion piece. Seriously and Specifically, what viewpoint do you think they have? Thanks in advance for your reply!