Sunday 6 December 2009 (19 Dhul Hijjah 1430)
Syed Rashid Husain | Arab News
Major business awards, and especially in the third world, are rarely without political connotations. Decision making is definitely haunted by considerations bigger than simple economics. Big brother continues to watch its interests.
Energy industry is definitely no exception to this otherwise golden rule. In fact with politics and energy moving in tandem, rather glove in glove, prospects of political weight hovering over the decision making process is even greater. And in case of Iraq, where the ruling elite, having a sense of obligation toward Washington had favors to return, the prospects of such meddling certainly go up.
In September this year, while the US Vice President Joe Biden landed in Baghdad, he definitely had things other than politics too on his mind. He was on a specific mission, especially since in recent months there has been growing chorus in Washington that US companies were “entitled” to Iraqi oil because of American sacrifices. Officials in Washington conceded they were under tremendous pressure to deliver for US companies, lest the spoils of the Iraq War be divided among Chinese, Russian and European firms.
After the disappointing response in the opening Iraqi round for the US companies, Biden landed in Baghdad with a resume — to encourage Baghdad to modify its tough financial expectations for contract awards. As per some reports, he “hustled” intensely for US companies to make an entry into Iraq’s vast and rather “virgin” energy sector. Iraq’s first jab at opening its oil industry to foreign investment ended in disappointment late in June in which most companies declined to bid. Six oil and two gas fields were up for grabs then, yet only the contract for Rumaila could be sealed.
And Biden definitely carried weight, especially, in Baghdad. After all with 4,300 lives lost and $700 billion invested, Washington needed returns and that too — in the coin of choice.
Shortly after Biden’s return, the US Commerce Department hastily arranged a US-Iraq investment conference in Washington on Oct. 20-21, to provide “matchmaking” opportunities for US firms seeking to do business in Iraq. The high-profile conference featured Iraqi Prime Minister Nouri Al-Maliki and Oil Minister Hussain Al-Shahristani, along with US Secretary of State Hillary Clinton and Commerce Secretary Gary Locke. Exxon Vice President for Upstream Research Rick Vierbuchen was scheduled to speak but pulled out at short notice.
The State Department has in the meantime, also been aggressively promoting US companies and pressed Baghdad to award them contracts, sources were quoted in the press as saying. Consequently the US companies which initially backed out of the June rounds, revised their original bids and entered backroom negotiations.
Two weeks later Baghdad awarded West Qurna-1, Iraq’s most sought-after field in part because it is believed to have at least 8.6 billion barrels of oil, to Exxon, making it the first US firm to win a contract in Iraq’s energy sector since it was nationalized almost 40 years ago. The oil majors signed deals at much the same terms they rejected over the summer. On the other hand, a consortium of Eni, an Italian oil company, Occidental and Korea Gas too signed a preliminary agreement to develop the Zubayr field, with an estimated 4.1 billion barrels of oil.
Eyebrows were raised on these awards. Some said, and with some confidence, these lacked the transparency of the televised licensing round in June, prompting claims they had a political agenda. Russia’s Lukoil found its loss of West Qurna-1 to Exxon particularly hard to swallow since it offered a higher production rate for the same price. US companies are now also expected to compete aggressively in Iraq’s upcoming second bidding round, offering development rights to 10 other Iraqi oil fields at a public auction in Baghdad on Dec. 11.
Exxon, with minority partner Royal Dutch Shell, is expected to go all out for West Qurna Phase 2 and possibly other fields. Chevron is partnered with Total and viewed as serious player for Majnoon, another highly prized second-round field. ConocoPhillips will pin its hopes on partner Lukoil as the Russian firm chases Exxon for West Qurna-2.
However, one thing remains certain. Despite the fact that the companies have pledged to invest billions, few believe much of that will actually be accomplished until the elections are over and relative peace is attained in the strife torn country.
Baghdad believes production from the three fields alone could vault Iraq’s output to 7 million barrels a day from the current 2.5 million barrels a day over the next six/seven years. Indeed Iraq has enormous potential. Its reserves stand at some 115 billion barrels, the third largest in the world. Three fields alone — Rumaila, Zubair, and West Qurna — could triple Iraqi production from the current level of 2.5 million barrels per day in less than a decade.
And much of Iraq remains relatively unexplored, so there’s always the possibility of finding more huge fields. “If Iraq and the international oil companies are able to bring these projects on,” says PFC’s Kirsch, “it certainly would eliminate concerns that global production is going to peak any time soon.”
While all this is taking place, the peak oil pundits continue to harp their tune, unaffected. With global oil frontiers continuing to grow and grow, this seems another blow to their wiles, indeed. Will they be ready to pay heed to the emerging realities of the industry?
Source: http://arabnews.com/?page=6§ion=0&article=129168&d=6&m=12&y=2009&pix=business.jpg&category=Business
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