LOC10:48
07:48 GMT
PARIS, April 25 (KUNA) -- Iraq has become a major player and has "a central role" in the oil-exporting market and has done well to radically increase crude output in the past decade, yet it faces challenges in using its natural gas production and is deficient in providing sustainable power to its home market, International Energy Agency (IEA) said.
In a report published Thursday, the IEA, in an in-depth look at the Iraqi energy sector overall, remarked that "Iraq's oil sector has navigated well a very turbulent period in the last decade" and increased supply by around 50 percent since the last IEA report on the country was published in 2012.
Indeed, the Paris-based Agency predicted that Iraq would continue to hike production, which is expected to expand by 1.2 million barrels per day (mbpd) over the next ten years.
By the end of 2018, Iraq's crude output had reached around 4.7 mbpd and the report forecast this level would reach close to 6 mbpd in 2030, albeit a slower rate of increase than in the past decade.
If the predictions are fulfilled, Iraq would become the fourth-largest global oil producer, passing out Canada which holds that spot today.
Yet to achieve this position, Iraq must improve its water injection capacity which is currently not at the required level to boost oil output.
The IEA estimates that Iraq would need an additional three million barrels of water per day for reservoir injection if it is to maintain the 6 mbpd target in ten years time.
If Iraq manages to improve water injection, it should have no problem boosting output based on the most recent analysis of proven reserves, which were put at 150 billion barrels, up from an earlier official figure in 2010 of 143 billion barrels, according to the IEA.
The report also stressed that Iraq needs to improve its refining capacity to bring down costs of imported oil product, especially as Iraq's refinery output has grown by only 10 percent since 2000 while oil product demand has doubled over the same period.
"Iraq's refining sector is not well matched to the country's needs. Only 60 percent of the nominal 1 mbpd of refining capacity was utilised in 2018, and the product slate is weighted heavily towards heavy fuel oil. This means high dependence on imports for many of Iraq's oil product needs, at a current annual cost of some USD 2-2.5 billion," it was noted.
The renovation and refurbishment of the Baiji refinery, which was damaged in Iraq's war against so-called Islamic State, "would help remedy the most immediate pressures," the IEA advised, but also warned about the need for "hydro-treating facilities" or upgrades to avoid a preponderance of heavy oil which is less in demand globally.
In the gas sector, the report remarked that there is no shortage of natural gas in Iraq but it is not being used enough or in productive manner compared with other countries in the region.
Current efforts in gas production "will need to be accelerated" in view of the demand for gas in power generation and the relative cost of pipeline imports.
The IEA said that it expected Iraq's marketed gas production to increase to around 50 billion cubic metres (bcm) over the next ten years.
In addition, Iraqi associated gas is ethane-rich and if properly harnessed could provide a strong boost to the petrochemical sector.
"How Iraq produces and uses its gas is a bellwether for the overall process of reform and modernisation," the report underlined.
However, it pointed to serious shortfalls in electricity production and supply and it urged rapid measures to meet current and future demand for power.
"Constrained budgets and damage wrought by war mean that Iraq is not producing enough electricity to satisfy demand. Rising demand is widening this gap, with Iraq's population growing at a rate of over 1 million per year," the Agency pointed out, noting that more affluent people were resorting to "costly stop-gap" measures like neighbourhood generators.
Despite a 90 percent increase in electricity supply in the past decade, demand continues to grow faster and the situation is not sustainable given that electricity demand is set to double in the next decade or so. And the solution advised by the IEA is "the rapid initiation of network maintenance" as well as carrying out a small number of high-impact upgrades and the refurbishment of some existing power plants.
More mobile power units and proper tariff regulations would also help alleviate the shortages.
"There is huge potential to cut network losses, which are among the highest in the world: reducing these losses by half would help to improve dramatically the efficiency of grid supply, effectively increasing available capacity by one-third," the report observed.
The electricity production sector could also benefit from a policy to use more gas in efficient power plants, but Iraq should also develop its "abundant renewable potential" and hike the proportion of renewable energy sources to 30 percent of electricity supply by the end of the next decade.
Such steps would considerably reduce the energy burden and free up 9 bcm of gas for other uses by 2030 and also free up 450,000 b/d of oil which could be exported.
"Targeted efforts are necessary to achieve affordable, reliable and sustainable electricity supply," the report indicated.
Improvements in Iraq's efficiency and the development of a well-functioning energy sector are "the bedrock of a more diversified and prosperous Iraq," which will require proper return on timely investment in the upstream sector and a significantly more productive use of the nation's gas resources, in addition to major improvement in the affordability, reliability and sustainability of electricity supply.
Those goals will require the rapid implementation of water projects for the southern oil fields, particularly the "Common Seawater Supply Project", and at the same time encouraging companies to improve water reuse and recycling.
In the gas sector, Iraq was advised to fully implement programmes to reduce gas flaring "over the next two years" and get precision on ownership of produced gas and define its productive use, including ways to exploit ethane gas.
From an economic standpoint, the energy sector is an integral part of the wider Iraqi economy as oil and gas account for almost 60 percent of Gross Domestic Product (GDP), the report affirmed.
Oil and gas exports account for 99 percent of export earnings and 90 percent of State revenues, according to World Bank data.
This makes Iraq one of most dependent global countries on oil and gas production and the link between oil and gas revenues and the economy is "crucial", the IEA says.
This makes Iraq extremely vulnerable to oil price fluctuations and it has been in difficulty to meet its fiscal commitments and government budgets in the past, because of drops in oil prices, as seen in 2014, when Iraq was forced to significantly draw down its reserves to finance day-to-day operations. (end)
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