Staniford On Iraqi Oil  

Stuart Staniford has followed up his recent post on Iraqi oil with a spate of follow up posts. First up, a look at the role water plays in increasing production - The Water Constraint In Iraq.

I emailed a few people with links to yesterday's Iraq post. One person who responded (and gave me permission to post his response) was Matt Simmons, who wrote:

At last fall’s Oil and Money conference, the EIG advisory board discussed BP’s just announced service contract. It was the opinion of both Sadad al-Husseini and Issham Chalabi, former Iraq Oil Minister, that the likelihood of these companies ramping up these oil targets is remote at best and if they happen, it will be like Cantarell, doomed for over production and subsequent rapid collapse. A big problem never addressed is the lack of quality water from the shrinking Iraq rivers to due water injection for creating artificial reservoir pressure.

Hope this helps shed some truth into these great hypes.

The other points I'll respond to at some future time, but the water issue I hadn't thought about at all, and seemed quite interesting and important. Matt is alluding to the fact that it's common practice to inject water into oilfields to help drive the oil through the rock to the producing wells, and this water has to come from somewhere.

So this morning I'd like to present a few back-of-the-envelope calculations of how much water might be involved. First, it's helpful to have a picture of the geography in question. Therefore, here's a map which I'm borrowing from the Library at the University of Texas. It shows the major oilfields in question, as well as the Tigris and Euphrates, Iraq's major rivers, and the access to the Persian Gulf. You can click for a larger version. It's worth noting in passing how many oilfields were not in the table of contracts yesterday.

As you can see, the Southern fields are fairly close to both rivers, as well as the Persian gulf, but water to be injected into the northern fields would most conveniently come from the Tigris.

The al-Shahrastani plan in Iraq raises a number of interesting questions. I think there are generally two directions that scepticism could go in. One is scepticism over the reserves and/or plateaus - is there really enough oil in Iraq and in the auctioned fields specifically, to produce 12mbd at any point in the future?
The second set of questions is around the timing. Is it really realistic that this can be done in six or seven years as the oil minister is claiming?

To me, the second set of questions seems the more urgent to answer. While the exact amount of oil in Iraq is highly debatable, there's not much doubt that there's a heck of a lot of it.

One way to think about the timing issues is that each of these field contracts is basically a huge megaproject. What al-Shahrastani is proposing, and what Big Oil is signing up to deliver, is a huge set of megaprojects, conducted in parallel, in a country that was a war zone until fairly recently. The potential for chaos is considerable. The potential for some folks to make an awful lot of money is also considerable.


Consider, for each field, the following things are necessary:

* Drilling of the oil wells and injector wells
* Pipelines to bring injection water from somewhere.
* A water treatment plant to make sure nothing in the injected water will clog the pores in the reservoir rocks and to process any water produced from the field.
* A GOSP facility to separate out the water, oil, and gas brought to the surface
* Pipelines to take the oil from the field somewhere
* A share in export facilities of some kind

Until all these are present, oil production cannot go too much above the scale it is currently at. So if the al-Shahrastani plan really goes ahead according to the current schedule, we are about to see a sizeable fraction of the world's oil and gas engineering capabilities, of all kinds, moved to Iraq, as the global oil industry spends over a hundred billion dollars there. By comparison, the GDP of Iraq in 2008 was, on a purchasing power parity basis, 105$b according to the IMF. It seems to me that the best guide to how long these things will take is the set of megaprojects recently conducted in Saudi Arabia. These projects represent similar operating conditions (flat deserts in the Middle East) in neighboring countries. Saudi Aramco is a technically competent operation, as are the big western oil companies that will be developing the Iraqi fields. The projects were generally conducted in a hurry with a desire to restore/enhance Saudi oil production capacity as quickly as possible. The major differences were,

* Saudi Arabia started with a lot more oil production infrastructure than Iraq has.
* Saudi Aramco and the Saudi oil ministry had more experience than the Iraqi oil ministry has.
* Saudi Arabia has had no political instability that would affect oilfield development.
* The Saudi projects were all smaller than the largest Iraqi megaprojects.

So Saudi megaprojects probably represent a best case estimate for what could be achieved in Iraq.