Posted on 02/29/2004 8:10:08 PM PST by Pikamax
March 1, 2004 A Revival for Iraq's Oil Industry as Output Nears Prewar Levels By NEELA BANERJEE
AGHDAD, Iraq, Feb. 29 — Iraq's oil industry has undergone a remarkable turnaround and is now producing and exporting almost as much crude oil as it did before the war, according to officials with the American-led occupation and the Iraqi oil ministry.
A month before the April 1 deadline set by Iraq and American officials for restoring the industry to prewar levels, the country is producing 2.3 million to 2.5 million barrels a day, compared with 2.8 million barrels a day before the war.
With additional production increases expected, oil exports this year could add $14 billion to Iraq's threadbare budget, compared with a little more than $5 billion last year, said a senior official with the Coalition Provisional Authority, the occupation government.
The official, Robert McKee, 57, a retired Houston oil executive who has been the leading American figure in the drive to restore Iraq's oil fields, said, "We're well ahead of the targets that we set in the aftermath of the war."
(Excerpt) Read more at nytimes.com ...
"We feel pretty good about it," Mr. McKee said, "but we have a lot of challenges left."
Iraq owns the third-largest oil reserves in the world, after Saudi Arabia and Canada, and its economy is almost solely reliant on revenue from oil exports. That revenue could help finance Iraq's economic revival, Iraqi and occupation officials say, in turn strengthening the country's political stability as it moves to sovereignty during the next four months. The revival of the oil sector is a result of the $1 billion in repairs undertaken by the Americans and Iraqis as well as some dogged ingenuity by the Iraqis in keeping their badly damaged industry running.
Major challenges still loom, the Iraqi and coalition officials said, especially as the Americans turn over control to the Iraqis ahead of the June 30 date for the transfer of sovereignty to a provisional Iraqi government. By then, the American military will hand protection of Iraq's pipelines and pumping stations to the oil ministry, which will have to manage a police force of 14,000 that is likely to be tested if political instability rises.
After the transfer of power, Iraqi officials and their American advisers must fashion a modern industry from one starved of investment by Saddam Hussein's government and further diminished by the looting of billions of dollars from oil sales under United Nations sanctions after the Persian Gulf war in 1991.
Political tensions that have been underscored lately by Iraq's tortured progress to sovereignty seem to have prompted coalition officials in recent days to highlight what they regard as the accomplishments of the occupation.
The American military commander, Lt. Gen. Ricardo S. Sanchez, said last week that attacks on coalition soldiers had been cut by half in the last three months, even as attacks on Iraqis had increased.
General Sanchez predicted that the 110,000 American troops that are to remain after the transfer of sovereignty will be able to counter efforts to destabilize the country.
The top American civil administrator of Iraq, L. Paul Bremer III, appeared on Iraqi television on Friday to announce that electricity generation, a major source of discontent for this country of 25 million, had been restored to prewar levels and was expected to rise rapidly as summer approaches.
On Sunday, coalition officials turned the spotlight on the oil industry, where problems have often seemed emblematic of the wider deterioration of conditions in Iraq under the American occupation. In December, Iraqis fumed as they waited in lines for gasoline at stations across the country, a problem that American officials now say had more to do with a lack of electricity to pump oil through pipelines and operate gas stations than with a shortage of supplies.
Americans give much of the credit for the restoration of the oil industry to the Iraqis, saying that the removal of a corrupt elite who led the industry under Mr. Hussein left a work force of 35,000 well-trained highly qualified Iraqis.
But American financing has been crucial: the United States has so far spent $1 billion rebuilding the industry and another $1 billion on importing gasoline and other fuels.
Another $1 billion is expected to be spent this year, Mr. McKee said, mainly on restoration and upgrading of oil fields and refurbishing of refineries.
A year ago, as the American invasion neared, the Iraqi oil industry was at a virtual standstill. Exports had halted, and the government stopped pumping oil when the war began. Then, the ransacking of the oil fields and persistent sabotage by insurgents that followed frustrated early efforts to restore the industry. But by June, production was increasing, especially in the vast southern fields around Basra, which are the source of Iraq's exports.
Iraq now ships about 1.7 million to 1.8 million barrels a day, in contrast to the 2 million to 2.3 million barrels it exported before the war.
The opening of a second offshore oil terminal in the south could soon increase exports by a few hundred thousand barrels a day, Shamkhi al-Faraj, the head of the state oil exporting agency told Reuters in Dubai.
In the north, exports have been stymied by attacks on the pipeline leading to an export terminal in Turkey. But the Northern Oil Company recently tested the pipeline and shipped a few million barrels of oil to Turkey.
Attacks on the pipeline dropped to 8 in January and February from 47 in the last three months of 2003, according to coalition officials — a sign, they said, of the success of a new Iraqi oil police trained under an American contract.
International oil executives once considered the Iraqi oil industry among the best in the world: well-equipped, generally above board in its business practices with highly competent professionals, many of them foreign-educated.
All that began to change with Mr. Hussein's seizure of power in 1979. After Iraq went to war with Iran in 1980, investment in the oil sector gradually dried up. The conflicts that followed further damaged ports, pumping stations and tank farms, which were never fully refurbished. Under United Nations sanctions and the corruption of the old government, the industry was deprived of badly needed equipment.
What American experts discovered on arriving here was an industry frozen in the 1960's. An American oil expert said that one measure of the inefficiencies that must be addressed is the performance of Iraqi refineries. They can only convert about 50 percent of the crude oil they process into marketable fuel and lubricants; refineries in the United States convert 75 percent to 80 percent.
American officials said it would take five years at a minimum for the industry to reach a reasonable level of efficiency and 10 to 15 years for Iraq to have a modern industry, at a cost that could reach $30 billion.
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