Iraq Oil Begins To Flow Again As Petroleum Industry Revives

Wall Street Journal | April 23, 2003 | Chip Cummins

[Stand Watch Listen]

BAGHDAD -- U.S. and Iraqi engineers have resumed oil production in the south of the country and may relaunch output in the north this week, marking early breakthroughs in the attempt to revive Iraq's petroleum industry.

Four southern wells began producing a modest amount of Iraqi crude, according to an American general in charge of restarting Iraq's oil-production infrastructure. Iraq has two major oil producing regions: a southern region near the city of Basra and a northern region near Kirkuk. The country's southern fields produced about 60% of the country's prewar production of about 2.5 million barrels of oil a day.

Brig. Gen. Robert Crear of the Army Corps of Engineers said southern wells should soon be producing about 170,000 barrels a day, which will be used to meet domestic demand from refineries and power plants. He said his engineers are expecting to be able to ramp up to about 800,000 barrels of oil a day from southern fields in six to nine weeks.

It remains unclear when new Iraqi oil will begin flowing to export markets. France Tuesday called for an immediate suspension of economic sanctions on Iraq, moving closer to the U.S. request that they be lifted entirely when many had expected Paris to block such a move.

A compromise could open the way for foreign buyers, who have balked at taking delivery of Iraqi oil because of legal uncertainties, to begin buying again once Iraqi output hits its stride.

Technical hurdles also may await. Army and Iraqi engineers and private American contractors are just now inspecting Iraq's export facilities in the northern Persian Gulf, and they can't yet say whether they are in good enough condition to be operational. Exports are "not practical right now," Gen. Crear said.

But the resumption of even small-scale output in Iraq is important, both to provide a critical fuel source for the devastated Iraqi economy and to safeguard the health of the country's oil infrastructure. If wells stay idle too long, they can be much more difficult to restart and risk more permanent reservoir damage.

Northern wells are likely to be producing modest amounts of oil again in a "couple of days," according to Kahtan al-Anbaki, a member of a small group of senior oil-ministry officials who have been meeting regularly in Baghdad to help restore the country's petroleum operations. The new oil in the north will also be used to feed Iraqi refineries and power plants in the region, Mr. Anbaki said.

The resumption of oil production in the north appears to be largely driven by Iraqi engineers, who shuttered most operations in an orderly fashion as U.S. forces seized the massive fields.

Relaunching production is necessary for keeping Iraq's refineries and power plants running. Iraqi engineers and oil-ministry officials restarted Baghdad's main refinery in recent days, but it is operating at just 50% of capacity because of a shortage of crude oil.

Mr. Anbaki and a handful of senior technocrats at the oil ministry are meeting daily to restore refinery operations and transportation of petroleum products, both critical to restarting oil-fired power plants across Iraq. They are targeting the huge Baiji refinery, just north of Tikrit, which can process 150,000 barrels a day. Normal domestic demand from Iraq's main refineries is estimated at about 400,000 barrels a day.

Meanwhile, oil-ministry officials in Baghdad have distanced themselves from market speculation about how Iraq will be represented at a meeting this week of the Organization of Petroleum Exporting Countries. U.S. officials in charge of Iraqi reconstruction haven't disclosed their plans. Thamir Gadhban, a senior Iraqi oil official coordinating the ministry's operations in Baghdad, said the group's focus is on meeting domestic demand. "OPEC, exports, these are not priorities," he said.

Amid the political vacuum in Baghdad, Mohammed Mohsen al-Zubaidi, who has assumed the role of Baghdad mayor, has offered to send his own delegation to the OPEC meeting in Vienna, though officials there are unlikely to welcome such a move. Iraqi Gen. Jawdat al-Obeidi, Mr. Zubaidi's deputy, said he is ready to represent Iraq at the cartel this week if U.S. and OPEC officials approve.

[Grand Old Partisan]

To foil the sanctions kooks, the USG can just buy the Iraqi oil itself.

[gcruse]

There's always the strategic petroleum reserve.