Iraqi government plans to boost the country's oil output may prove over-optimistic, the International Energy Agency said yesterday.
The warning came as Baghdad put back its first auction of production licences by another day.
Iraq has the world's third-largest proven reserves, estimated at 115 billion barrels, but the industry is underdeveloped. The goal is to increase production to 6 million barrels per day (bpd) by 2017, from around 2.4 million bpd at the moment. But the IEA's medium-term oil market report, published yesterday, predicts that output will fall to just 2.23 million bpd in 2010, and climb only as high as 2.7 million bpd by 2014.
After years of sanctions and war, Iraq's fledgling oil industry needs foreign oil companies to provide both capital and expertise. The first auction of tenders to develop six oil fields and two gas fields – to be televised to avoid charges of corruption – was delayed by a sandstorm yesterday. And the plan to run the auction today was subsequently also put back when the government declared a public holiday to celebrate the withdrawal of US troops.
Some 32 oil companies from across the world are taking part – taking significant risks to get a foot in the door of the Iraqi market. The contracts are not the usual production-sharing deals, instead requiring the winning company to form a joint venture with the state-owned Iraqi group controlling the relevant field. The foreign company will be paid a service fee, rather than a share of revenues from the fields. Although the contracts conform to the current draft of Iraq's nascent hydrocarbon legislation, the final law may impose different conditions, and how the joint control will work on the ground remains to be seen.
Nadia Salem, from the Al Tamimi law firm advising some of the bidders, said: "The contract does lay out some principles, but the question is who will have the final say on the ground."