Iraq possesses huge oil reserves, but the political turmoil over the past decades of wars and economic embargo, not to mention the problem of how to allocate oil revenues among salaries, pensions, and the military, prevented extensive investment in productive projects or developing infrastructure. This is in addition to the prevalence of a culture of corruption recently, the dramatic decrease of oil production, well below the country's capacity, and the failure of the government to provide sufficient electricity, even though around $30 billion have been allocated to the ministry of electricity since 2003. The losses incurred by the country due to electric outage in recent years amounts to about $40 billion annually. To address energy issues from various aspects, which is the method used to plan and deal with these sectors worldwide, a report was recently issued under the supervision of a steering committee at the General Secretariat of the Council of Ministers of Iraq, in cooperation with the consultancy Booz & Company, about the challenges and opportunities available to the Iraqi energy sector, and the desired objectives in the short and long terms, until 2030. The study concluded that Iraq, in order to achieve maximal benefit from its wealth, must achieve several things, most importantly: reforming the local economy and increasing and diversifying investments; and reconsidering the work of state institutions and structuring them in a way that would specify their responsibilities and how to hold them accountable, while recruiting competent staff for them and including them in the governance framework. The report (which includes seven chapters, of which only a summery has so far been published) proposed an integrated investment program for the energy sector, covering the period until the end of the next decade. This requires rapid and balanced industrial development for the entire energy sector, to achieve optimum utilization. For example, Iraq produces around 1.7 billion cubic feet of gas per day, of which around 40 percent is flared, although this volume would be sufficient to cover Iraq's local consumption for electricity generation and industry. Subsequently, if this industry were to be developed quickly and gas flaring is stopped, as has happened in most other producing countries, Iraq needs to build the appropriate processing and power plants, and link these to the national electric grid to benefit from the new gas supplies rather than squandering them. The report stressed that the benefits cannot be reaped from developing the sector without building up the necessary infrastructure for all energy sectors. It underlined the need to build such infrastructure in the next three years. The estimated cost of investing in the sector is about $620 billion. The ministries concerned must collaborate creatively to achieve the desired goals. This would also require broad reforms in these ministries, reordering their priorities, and restructuring their departments. Among the proposed reforms is the use of Iraqi expertise based abroad. We will try here to focus on the oil sector only. To be sure, the Iraqi economy still relies largely on oil, with 45 percent of the GDP and 90 percent of the budget in 2010 relying on oil revenues. Iraq's oil reserves are estimated to be 143 billion barrels. Seventy five percent of these reserves are present in seven mega fields, which are: West Qurna, Rumaila, Majnoun, Kirkuk, East Baghdad, al-Zubayr and Omar River. All of these, with the exception of Kirkuk and East Baghdad, are located in the south of the country. Since surveys and exploration have not yet covered all of Iraq's territory, these reserves could be revised upwards to nearly 200 billion barrels. The report indicates that Iraq has made great strides over the past three years to increase its future productive capacity. For instance, the federal government has awarded technical service contracts to a number of international oil companies, to develop or increase production from 12 mega fields. Although forecasting future productive capacity is difficult to carry out in the early stages of these contracts, the report proposes dealing with extrapolations for the purpose of economic planning. The report points out that Iraq's strategic oil goals in the present stage is to ensure the quick development of the fields, and raise output by the end of 2014 to a minimum of 4.5 billion barrels per day in 2014. This means that the oil ministry must continuously follow up the development of five important fields (West Qurna - Phase 1 and 2, Rumaila, Zubair and Majnoun), which account for 75 percent of the planned increase in production, and expedite the seawater desalination project and expand it to be able to pump water into additional fields, and make sure the success of the desalination process is done according to standards and specifications. The ministry of oil must also quickly build pipelines for the fields and link them to main export pipelines, and ensure that this takes place in a timely manner in relation to the expected increase in the productive capacity. The report indicated that Iraq is in the process of building a network of export pipelines, which would make it possible to export 3.75 million barrels per day though the northern borders to the Mediterranean, and a pipeline through Jordan to the Red Sea to be completed by 2017, in addition to expanding export capacity to reach 6.8 million barrels per day by 2014. A secondary goal for Iraq is to work in the next three years to determine productive capacity levels for the long term. No doubt, this study is important and necessary. But the problem lies in how to implement its recommendations on time, in these dismal political conditions. So is it truly possible to reform the policies and structures of the ministries, at a time when these government institutions have failed to provide even the most basic services to the citizenry? Furthermore, the oil companies operating in Iraq often complain about bureaucratic hurdles, which delay the implementation of their projects. Moreover, if we examine the report's summary, we will find that the data used does not cover the Kurdistan Region, although officials there were interviewed to obtain information. Finally, we did not read in the summary anything about the impact of the rapid and massive increase in productivity on global markets and prices. To be sure, competing with major producing countries will not be easy and will not come without a price. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
