Wednesday, January 6, 2010

How Long Do Mega-mega-projects Take?

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.

Therefore, here's a table summarizing the timeline of the recent Saudi megaprojects:


Project
Plateau
Award
Completion
Links
AFK
0.5mbd
3/2005
9/2008
1, 2
Khurais
1.2mbd
6/2006
6/2009
1, 2
Nuayyim
0.1mbd
10/2006
5/2009
1, 2, 3
Shaybah Ph II
0.25mbd
4/2006
6/2009
1, 2


You can see that generally these projects take about three years from contract award to completion.

So I think we can divide any potential increase in Iraqi production into two phases. The first phase, for ballpark three years, will have to rely largely on existing infrastructure, and presumably will be limited to some value below the historical high of about 3.5mbd. After three years or so, entirely new infrastructure projects could start to come on line, and production might potentially exceed that value.

5 comments:

Eric Hacker said...

Everything about operating in Iraq is going to be more difficult than operating in Saudi Arabia. From finding safe food and water for the workers to getting high speed links back to corporate HQ.

Hypothetically, if you were a Silicon Valley tech firm and needed to get some IT security equipment to a new ops center for one of these sites, how much longer would it take to deploy to Iraq vs Saudi Arabia?

kjmclark said...

It would help at this point to do that big picture post you mentioned back in December. If I put things together correctly, we are expecting 1mbpd/yr of increase from the non-OECD world and stagnant demand from OECD for the near future. On the supply side, production is recovering at around 3-4mbpd. In three years, some additional supply starts coming from Iraq, with large increases after that, probably something like 1mbpd/yr.

It's looking like giving Saddam the boot really might have kicked the can down the road a decade. Of course, that would also mean bullet dodged / "peak oil debunked" again for many more years.

Stuart Staniford said...

Kjm - I'm still planning on doing that post, but the more I looked into the Iraqi thing, the more it became clear that it was the central uncertainty and so I decided I had to understand it better first.

Stuart Staniford said...

Eric - completely agreed.

longphee said...

The numbers you quote above are for the execution portion of the project only & are slightly misleading for an Iraqi context. In order to determine the true time it takes to complete a project of this size & complexity you need to add the time for project evaluation & FEED bidding and completion.

For the Khurais project the FEED contract was awarded in mid 2005 and bidding probably started in late 2004 or early 2005. So the total length of the project with FEED added was 4.5 to 5 years.

In addition to the above, there is always an assessment & evaluation phase to start a project of this size which would be done by internal Aramco resources and take 1-2 years to complete. With this added the true length of a project like this is actually 6 years or longer.

For the Iraqi projects the IOCs will minimize the evaluation phase but the project lengths will still be in the range of at least 5 years to complete.