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Iraq ‘likely not held back by Opec oil quota’

London, May 14, 2011

An Opec quota will probably not constrain Iraq's oil output for some time, according to estimates by a Lukoil official, with Opec and Iraq likely to reach an agreement that will exceed the usual allowance.

Gati Al-Jebouri, chief commercial officer of Lukoil Mid-East, suggested on Friday that Iraq's Opec quota might be set at about 5-6 million barrels of oil per day (bpd), but added it was hard to say how quickly this would be reached.

Iraq currently produces about 2.6 million bpd, according to the International Energy Agency's latest monthly report.

Russian oil company Lukoil, which has a licence to operate in the West Qurna Phase II oil field with its partner Statoil, is targeting 150,000 bpd by 2013 and 400,000-500,000 bpd by 2014, Al-Jebouri added.

Taking into account Iraq's eagerness to make up for lost production and Opec's acknowledgement that Iraq is an important member of the cartel, Al-Jebouri sees the two reaching a middle ground that would exceed the usual quota allowance.

"Reserves are an important element in Opec quota setting, as the quota tends to be set at about 3 percent of Opec members' declared reserves, with the exception of Nigeria and Algeria," Al-Jebouri said at a Platts oil conference in London.

If this calculation is applied to Iraq, it would be allowed to produce about 3.5 million bpd, he said.

However, Iraq believes it should be compensated as a result of having under-produced for a number of years, to the benefit of other Opec members.

Infrastructure limits

The chairman of Opec has confirmed Iraq's importance to Opec and sees negotiations with Iraq re-entering the quota system when Iraq's production reaches 4-5 million bpd.

"We expect the bottom level has been set by Opec, while Iraq is arguing (for) 7-8 mln bpd, so no doubt they will find a balance at about 5-6 mln bpd. However I stress this is my personal opinion," said Al-Jebouri.

The question is how quickly foreign oil companies will be allowed to ramp up to 5-6 million bpd.

"I think the Ministry of Oil would not disagree too vigorously if we were to achieve that by 2014-2015. But whether that is achievable given the infrastructure is a difficult question to answer," he said.

The Iraqi government is targeting capacity of some 12 million bpd by 2017. But infrastructure limitations relating to tank farms, pipeline capacity and export terminals need to be overcome if this flow forecast is to be met.

"The Iraqi government recognises that and has put in place a programme to increase the storage capacity at terminals and construct new pipelines to meet the flows out," Al-Jebouri said.

He questioned the ability of the Iraqis to execute on this plan in the timeframe but said the ideology was there.

"I think the Iraqi government is targeting the maximum level of capacity but not necessarily the same amount of production," he said. "This means that the majority of Opec spare capacity will be controlled by Iraq, which will enable them to play a larger role in Opec and crude oil price setting." – Reuters




Tags: Oil | Opec | London | Iraq | Output | Lukoil |

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