LUKoil, which won big at Iraq’s weekend oil auctions, expects a “revolution” in world oil markets when enough crude to add 20 percent to global supply starts to flow from the country’s supergiant fields.
LUKoil shareholder Leonid Fedun said Monday that he expected a fivefold rise in Iraqi production to cap oil price growth, while also deterring investors from pursuing more difficult and costly projects.
“A top manager at a leading Western firm said the modern history of the oil business will be split into the pre-Iraq and post-Iraq periods. I agree,” Fedun said in an interview.
Iraq has deals on the table to raise oil capacity to 12 million barrels per day from its current 2.5 million bpd, a level that would eclipse Russia and leave the country behind only Saudi Arabia. LUKoil, frustrated by the loss of a Saddam Hussein-era contract, finally realized its ambition of developing Iraqi oil when its partnership with Statoil won the rights to develop the West Qurna-2 field.
“Investment will be in the billions of dollars. The project is colossal,” said Fedun, a vice president of
LUKoil whom Forbes magazine this year ranked Russia’s eighth-richest businessman.
The LUKoil-led consortium proposed a remuneration fee of $1.15 per barrel and output of 1.8 million barrels per day at West Qurna-2, an eventual target roughly equal to the entire output of LUKoil’s fields in Russia.
The deal, which gives LUKoil access to 12.9 billion barrels in oil reserves, was more than a service contract, Fedun said. “It’s a hybrid between a service contract and a production sharing agreement,” he said. “There is a remuneration fee and we could potentially book a portion of the reserves, although we don’t yet know how much.
“As soon as the contract comes into force, we will move quickly toward its realization. Within three to four years, we will launch the first phase, and then the second.”
Fedun said the ministry’s target of 12 million bpd was realistic and that, as the plans are realized, the effects on the market would be widespread.
“World oil supplies will rise by a minimum 20 percent, and demand won’t increase at the same rate over the same period. This raises questions over the long-term oil price,” he said.
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