Iraq Oil Auctions Begin as US Pullout of Cities on Track

US troops have been withdrawing at a steady pace and today is the official end of the direct US partnership with Iraq. Of course we are still heavily involved and will be for some time. In other news the Iraqi government has put up its oil fields for foreign development. A significant action and one years in the making:

Symbolically, the sale, broadcast on television, coincided with the formal handover by American forces of security arrangements in urban areas to Iraqi forces — an economic counterpoint to the striving for political military independence underpinning the Iraqi takeover of patrolling Iraq’s restive cities.

At the auction, each contender offered a sealed bid containing details of how much oil the developing company would produce and how much they expected to be paid for each barrel of oil produced.

The auction has been billed as one of huge economic importance to Iraq, whose oilfields have been closed to foreigners for decades since they were nationalized under Saddam Hussein. Iraq is seeking to boost its oil production after six years of war.

But, according to reporters watching the auction, the first round o f bidding for the vast Rumaila field — the biggest on offer — stalled when Exxon Mobil and a consortium of BP and the China National Petroleum Corp. both wanted to earn more than the government’s offer of $2 a barrel. The BP consortium wanted $3.99 a barrel and pledged to produce 2.85 million barrels a day, and Exxon said it would produce 3.1 million barrels daily at a fee of $4.8o, news reports said.

The BP consortium later lowered its price to $2 per barrel and Iraqi authorities said they would give bidders several hours to revise their offers.

Almost 8 of 10 of the top oil firms in the world were involved in the bidding, of course the hard part as the deals will have to be approved and then built from the ground up. And a lot of building is needed:

Iraq’s oil sector has suffered over the past several decades from sanctions, and it’s oil infrastructure is in need of modernization and investment. As of March 31, 2009, the United States had allocated$2.05 billion to the Iraqi oil and gas sector to begin this modernization, but ended its direct involvement as of the first quarter of 2008, and does not have any on going construction projects in the oil and gas sector. The 2009 Iraqi budget allocated $3.2 billion to the Ministry of Oil, a 50% increase from the 2008 base budget, to continue this work.

According to reports by various U.S. government agencies, multilateral institutions and other international organizations, long-term Iraq reconstruction costs could reach $100-billion or higher, of which a third will go to the oil, gas and electricity sectors. In addition, the World Bank estimates that at least $1 billion in additional revenues needs to be committed annually to the oil industry just to sustain current production. Investment by the international oil companies will be aided by the passage of the proposed Hydrocarbons Law, which governs oil contracting and regulation. The law has been under review in the Council of Ministers since October 26, 2008, but has not received final passage.

Between the wars, Saddam's rule, and sanctions only the heroic efforts of Iraqi workers kept the system running. Having been in Iraqi did witness an amazing ability to come up with quick fixes using whatever happened to be on hand. Additionally Iraq also has significant natural gas resources:

According to the Oil and Gas Journal, Iraq’s proven natural gas reserves are 112 trillion cubic feet (Tcf). An estimated 70 percent of these lie in Basra governorate in the south of Iraq. Probable Iraqi reserves have been estimated at 275-300 Tcf, and work is currently underway by several IOCs and independents to accurately update hydrocarbon reserve numbers. Iraq’s proven gas reserves are the tenth largest in the world, and two-thirds of resources are associated with oil fields including, Kirkuk, as well as the southern Nahr (Bin) Umar, Majnoon, Halfaya, Nassiriya, the Rumaila fields, West Qurna, and Zubair. Just under 20 percent of known gas reserves are non-associated; around 10 percent is salt “dome” gas. The majority of non-associated reserves are concentrated in several fields in the North including: Ajil, Bai Hassan, Jambur, Chemchemal, Kor Mor, Khashem al-Ahmar, and al-Mansuriyah.

Production
Iraqi natural gas production has risen since 2003, and has returned to levels reached during the mid-1990’s. However, its 2006 dry natural gas production of approximately 104 billion cubic feet (Bcf) per year is still far below its peak level of 215 Bcf reached in 1989. The Ministry of Oil reported that approximately 60 percent of associated natural gas production is flared due to a lack of sufficient infrastructure to utilize it for consumption and export. Significant volumes of gas are also re-injectedto enhance oil recovery efforts. In addition, the flaring of the natural gas has meant lost Liquefied Petroleum Gas (LPG) output of an estimated 4,000 tons per day, while at the same time there are LPG shortages requiring imports of 1,200 tons per day. To reduce flaring, the state-owned South Gas Company signed an agreement with Shell in September 2008to implement a 25-year project to capture flared gas and provide it for domestic use, with any surplus sent to an LNG project for export.

At the end of the day this will be an Iraqi decision made by an elected government in the heart of the Middle East which is an extraordinary accomplishment for the Iraqi people and the Coalition forces who toppled Saddam and helped build a nation.

BAGHDAD, June 30 -- This is no longer America's war.

Iraqis danced in the streets and set off fireworks Monday in impromptu celebrations of a pivotal moment in their nation's troubled history: Six years and three months after the March 2003 invasion, the United States on Tuesday is withdrawing its remaining combat troops from Iraq's cities and turning over security to Iraqi police and soldiers.

While more than 130,000 U.S. troops remain in the country, patrols by heavily armed soldiers in hulking vehicles as of Wednesday will largely disappear from Baghdad, Mosul and Iraq's other urban centers.

Its still a dangerous place and US troops are still risking their lives to ensure Iraqi freedom continues. God bless them!