Thursday, January 14, 2010

Uncertainty Range for Iraqi Production

In thinking about how to synthesize all the key drivers of oil production/demand, it seems like the period between now and 2017 is of particular interest - the contracted-for plateau for the new contracts in Iraq is seven years out, and they are being signed over the next few months.  Furthermore, if the meteoric rise in the Chinese car fleet were to continue, then it would reach the size of the US fleet somewhere around 2017.

So it seems of interest to try to construct uncertainty envelopes of some of the key variables and then try to fit them together into a range of reasonable overall scenarios.

Probably the largest uncertainty in the evolution of the global economy over that timeframe is the uncertainty about Iraqi oil production.  In the graph above (click for a larger version), I give my subjective guesstimate of the 90% confidence interval, with a "Low Projection" for if things go very badly from the perspective of Iraqi oil production, and a "High Projection" if things go very well.

The reasoning behind the "High Projection" is as follows: the country in the past produced a maximum of 3.5mbd and likely doesn't have much more capacity to produce and distribute/export the oil than that.  The giant megaprojects in Iraq required for the al-Shahristani plan would take three years if they were in Saudi Arabia, so let's allow four as the best case in Iraq, given it's a much more difficult environment to operate in than Saudi Arabia, which has far more infrastructure and has been stable for a long time.  So then the idea is that things continued to get fixed over the next couple of years up until the 3.5mbd level has been reached.  Production plateaus out there for a while, until all the various elements of the al-Sharistani plan start to come together, and all projects hit their plateau together at the start of 2017.  For lack of basis for making a more complex plan, I just linearly interpolated between these various constraints.

Hopefully, the reader will agree that it's hard to imagine things going much better than that.

For the low projection, the assumption set is that the elections in March result in renewed civil war, that the US leaves despite the renewed unrest, and the country descends into increasing fighting, with only a small amount of oil exported intermittently.  Obviously, the smooth estimates in my "Low Projection" above are just a general indication of what this might look like.  In reality, in this scenario, oil production would be very noisy month to month, but it's not likely there would be none, as the combatants would need to sell some to fund the war.  I don't think this scenario is all that likely - in particular I doubt it would be politically feasible for the Obama administration to leave if the country were descending into chaos, and there's a limit to how chaotic things can get as long as there's a heavily armed US military force in the country.  So that scenario forms my lower bound on Iraqi oil production.

In between these two scenarios, lie all the possibilities like it taking much longer than seven years to get the Iraqi fields to plateau, given the difficulties of managing such a large set of projects all happening in the country at the same time, or that some of the IOC's have overbid on plateau, given the incentives to do so, such that the eventual total is less than 12mbd until further fields have been brought on line, or that a new government decides it's imprudent to produce the oil at relatively high depletion rates by Middle East standards and decides to go slower.  Somewhere in that range is the most likely scenario, which is hard to project with much precision at this time.


Per said...

The is a good possibility that Kurdistan in a few years could produce 1 mbpd or more.
Today Gulf Keystone raised OIP for Shaikan structure to up to 7.4 billion barrels:
And there are a much more oil to be found i Kurdistan.

Then there are more fields in Iraq than the 12 mbpd contracted fields that will produce oil (Kirkuk etc).

So 13 mbpd or more are at least possible from my point of view.

Stuart Staniford said...

I think Kirkuk would be required just to get up to 12 - the currently contracted fields only add up to 11.2. But you are right that is exclusive of Kurdistan, and that could potentially make the plateau higher.

Probably doesn't make too much difference in the near term reasoning, however, as the same limitations on the export infrastructure apply.

Stuart Staniford said...

Your link is pretty intriguing, especially this part:

The Shaikhan-1 well has discovered a significant resource of oil and gas in the Cretaceous Sarmord, Jurassic Barsarin, Sargelu, Alan, Mus, Butmah, Baluti and Triasic Kurre Chine formations. The company said the discovery greatly reduced geologic risks in the company’s Sheikh Adi, Akri Bijeel and the Ber Bahr blocks, proving hydrocarbon source and migration in the area.


At the end of November, Gulf Keystone reported that Shaikan-1 had reached total depth of 2,950 meters in the Triassic Zone, and had tested approximately 10,000 barrels of oil equivalent per day from that zone, which exceeded even the most optimistic prognosis held at the start of drilling. Gulf Keystone stated that the test data collected in the first test indicated that the first Triassic zone could have flowed at up to 14,000 boepd, while the previous test results from the Jurassic zone indicated production of 7,000 bopd. The company said at the time that production rates of about 24,000 boepd from the well were entirely realistic.

I'm still working on fully verifying this, so take this with a big grain of evaporite, but my current understanding is that in Southern Iraq, all or almost all production is from the cretaceous strata, and only six wells have been drilled into the jurassic. However, the geological history of southern Iraq in the jurassic is quite similar to that of Saudi Arabia, where Ghawar, Khurais, Abqaiq etc predominantly produce from the jurassic Arab D strata.

Kevin Kane said...


This is a very nice analysis. I replied to your comment on Energy R-squared.

The relationship in my article between the KRG and the rest of Iraq's oil production perhaps does not reflect your assumptions, or you miscalculated the origin of my assumptions.

You are focusing on distribution of resources--although the Kurds will likely take Kirkuk since the population is mostly Kurdish and the Iraqi Central Government is too weak and fractured to stop them--while I assume that an autonomous KRG could potentially create problems for Arab-Iraq's stability and investment environment--lower expected relative production to KRG territory--particularly since the Central Government will be without Talibani's leadership since he is a Kurd in the event of a KRG run for independence.

I did my best to separate the outcome that I would like see--the best for the world and Iraq--from the outcome that I think will happen.I do not mix my personal idealism with my personal analysis of world events.

Stuart Staniford said...

Kevin - I do agree that stability is a material risk to Iraqi oil production, and the situation with Kurdistan is a material risk to Iraqi stability. It just wasn't clear to me that your article was talking about stability issues wrt Kurdistan, versus oil production in Kurdistan.

Kevin Kane said...

That's my fault. Understanding that this issue is heating up, I opted to omit certain explanations. I was contacted by an Iraqi newspaper today over this.