Iraq is Returning to its Pre-War Self

The US invasion of Iraq and subsequent Iraq War cut Iraqi oil production down to 1.9 million barrels per day in 2006. Now that the war is over and some stability has been restored, crude output is up to 3.4 million barrels of crude a day. Roughly 74%, or 2.6 million barrels, of that crude is exported each day, and in order to keep growing output, Iraq is going to expand export capacity up to 4 million bpd by the end of 2014.

Some analysts question if this is feasible due to rising levels of violence and numerous other complications, but with output quickly climbing upward and demand from China staying strong, it looks like export capacity must be raised.

Huge oilfield
One major reason why output is expected to keep rising from Iraq is due to the development of the West Qurna-1 oilfield by ExxonMobil (NYSE: XOM  ) and PetroChina (NYSE: PTR  ) . Why is this oilfield so important? Because it could be home to 43 billion barrels of recoverable resources, or in other words, enough to produce 4 million bpd for almost 30 years or 35 years at current output levels.

Shareholders of ExxonMobil and PetroChina have been spooked that the recent increase in violence may weigh heavily on oil production and future growth, but don't be alarmed. The violence has been around the center of Iraq close to Baghdad, while the West Qurna-1 field is located right at the southern border hundreds of miles away.

Pick a side when they can't agree
Keep in mind that ExxonMobil is slowly divesting this asset as it focuses on Kurdistan, but PetroChina has a huge interest in the field. China's crude demand has skyrocketed this century, and every year China has to scour the world to fulfill its demand. This keeps the value of the West Qurna-1 field high and behooves ExxonMobil shareholders.

Don't let the divestment by ExxonMobil sour your outlook on Iraq. ExxonMobil is simply moving into Kurdistan (Northern Iraq) after the Iraqi government gave ExxonMobil an ultimatum; either Kurdistan or the West Qurna Field. Tensions between Kurdistan and Iraq remain high, which is why ExxonMobil had to choose. By choosing Kurdistan, ExxonMobil is betting on the region's 45 billion barrels of crude reserves and substantial natural gas reserves. The Iraqi government declared ExxonMobil's deal with Kurdistan illegal, and ExxonMobil got fed up with Iraq's actions, which is why it's divesting Iraqi assets.

Foolish conclusion
It doesn't matter who operates the West Qurna field because PetroChina has a long history in Iraq and is capable of developing the field. What is important, is that both of these oil majors are building out the necessary infrastructure to tap into a combined 88 billion barrels of crude in Iraq.

Due to the potential of the West-Qurna and Kurdistan, Iraq could see crude output rise to 6.1 million bpd by 2020, according to the IEA. This would be an additional 2.7 million bpd in output over the course of just six years, which is why Iraq wants to boost export capacity. 

By 2014, Iraq wants to increase its export capacity to 4 million bpd, which will have to be increased to at least 5 million bpd by 2020 if the guidance IEA gave is right. This would add roughly 2.4 million bpd to global supply, most of which would go to Asia. Iraq is becoming a bigger and bigger player in the global energy market, with ExxonMobil leading the charge from the North while PetroChina boosts output from the South.

OPEC's worst nightmare is operating in its own backyard

Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

 


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2831246, ~/Articles/ArticleHandler.aspx, 10/24/2014 10:55:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement