A big reason for hope in Iraq: oil, and lots of it, for BP

Natural gas is flared from Iraq’s Rumaila oil field. The field, operated by a BP-led consortium, is projected one day to produce 2.85 million barrels of oil daily, which would make it the second largest oil field in the world. SHASHANK BENGALI / MCCLATCHY NEWSPAPERS

seattletimes.com | Jan 30, 2011

By Shashank Bengali

BASRA, Iraq — On a bleak stretch of desert near the Iraq-Kuwait border — half a world away from the Gulf of Mexico and last year’s nightmarish blowout — BP is riding high, rapidly developing one of the world’s richest oil fields.

The British energy giant plans to drill 3,000 new wells here over the next 10 years and build a town from scratch to house 4,000 employees. BP and Iraqi officials hope the Rumaila field soon will become the second most productive in the world — after Saudi Arabia’s Ghawar — propelling the country into competition with Saudi Arabia and its other powerful oil-producing neighbor, Iran.

Iraq sits on the world’s third-largest oil reserves, after Saudi Arabia and Venezuela, with the biggest known fields lying under the windswept sands outside Basra.

Despite aging pipelines, spotty electricity, chronic insecurity and a maze of inefficient bureaucracy, the oil sector is pressing an ambitious expansion plan that will determine Iraq’s economic future long after the last American soldiers withdraw at the end of the year.

Earlier this month, thanks largely to the gains at Rumaila, Iraqi officials said daily oil production had climbed to 2.7 million barrels, the highest level since the U.S.-led invasion nearly eight years ago. Though that’s barely a quarter of what Saudi Arabia produces, Iraq claims that within seven years it could surpass its rival by increasing production to more than 13 million barrels per day.

That would be a colossal achievement, and few expect it to happen. But after three decades of dictatorial neglect, economic sanctions and conflict that decimated Iraq’s oil sector, the increases so far are “extraordinarily encouraging,” said Jim Jeffrey, the U.S. ambassador to Baghdad.

“I can’t stress how important that is from the standpoint of Baghdad, and the politics and economics of this country, as it gets reintegrated with the rest of the world,” Jeffrey said during a recent visit to Basra, Iraq’s port on the Persian Gulf and the hub of its southern oil region.

The international oil industry views Iraq as one of the last great crude jackpots. Experts say Rumaila and the nearby West Qurna fields — where a consortium led by Texas-based Exxon Mobil is working — could reshape world markets and bring down oil prices. They also could rattle the Organization of Petroleum Exporting Countries, putting Iraq on a diplomatic collision course with fellow members of the oil cartel.

More immediately, oil could finance Iraq’s postwar recovery. Crude exports account for roughly 90 percent of government revenue, more than $190 billion from 2005 to 2009, according to U.S. government figures.

So central is oil to Basra that the province’s official seal features a derrick. At the height of the sectarian warfare that followed the invasion, however, it was one of the scariest places in Iraq, a battle zone ruled by Shiite Muslim militias such as Muqtada al-Sadr’s Mahdi Army and the Iranian-backed Vengeance of God. In 2008, Prime Minister Nouri al-Maliki deployed thousands of security forces to retake control.

Today, oil companies worry less about security than about logistics: difficulties securing visas for foreign employees, for example, and long delays in clearing heavy equipment through customs at Basra’s airport.

Still, the companies employ large private-security details and, in an unusual arrangement, BP and a few other British firms are renting some offices and bedrooms from the British consulate, housed in a bombproof building on the U.S. military base in Basra.


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