IRAQ is preparing to halve its official oil production target, forcing companies including BP and Shell to renegotiate their contracts.(Hat tip to Datamunger for the link.) However, Reuters asked Hussain al-Shahristani, currently deputy Prime Minister of Iraq, and he firmly denied it:
The country's Oil Ministry, with backing from the Prime Minister Nouri al-Maliki, will set a new target to produce between 6.5 million and 7 million barrels per day by 2017, down from original plans to pump 12 million barrels, according to industry insiders.
Iraq, which is a member of the OPEC cartel that pumps 40 per cent of the world's oil, produces about 2.68 million barrels a day, barely higher than under Saddam Hussein.
It had been hoped that with a huge injection of foreign investment, it would be able to challenge Saudi Arabia as the world's biggest oil exporter this decade.
Confirmation it has scrapped the old target will add to fears that global supply will be unable to keep pace with demand in coming years.
It is understood that government negotiations to change the long-term service agreements signed by companies in the past two years based on the old production target will begin soon.
Iraq does not plan to lower its 12 million barrel per day oil output capacity goal or to redo contracts with oil firms over their plateau targets, Deputy Prime Minister for energy Hussain al-Shahristani said on Sunday.Dr al-Shahristani was the oil minister in the last administration, and was the architect of the original contract auctions.
"Absolutely not. There is no intention at all to renegotiate the contracts," Shahristani told Reuters at the launch of a power plant project outside the city of Kerbala.
Shahristani's comment followed market speculation that Iraq might have to officially slash its longstanding production capacity target of 12 million bpd and renegotiate contracts with international oil companies to reduce their individual output targets.
"We are contracted for announced production capacity of around 12 million barrels per day," he said. "But how much we will produce, really, this depends on the international market situation and the market demand."
I'm not sure what to make of this. Are there really rumblings of this kind within the oil ministry? Or are some other parties trying to talk the price of oil back up after last week's fall?
Update: I emailed Reba Husari, editor of Iraq Oil Forum, and a journalist who's very plugged into Iraqi oil circles. I asked "Do you have any insight into this Wall St Journal article claiming that the Round 1 and 2 contract will be scaled back to 6mbd rather than 12mbd?", and she responded:
Hi Stuart,So it sounds like there might be a kernel of truth to these rumors, but they are exaggerated.
Halving the production target is nonsense. No one is talking about that.
There are internal discussions on whether it makes more sense to increase
the plateau periods for the giant fields, which would require reducing the
original plateau agreed. That makes sense, both in terms of the "health" of
the fields, and responding to market requirements. But each field is
different and the same rule cannot apply to all. At this stage it's all
internal and no one has approached the IOCs with anything concrete.