Iraq has forecast the average price of its crude oil at $50/b in 2021, 23.4% higher than that which was proposed in the 2020 budget, as OPEC’s second largest producer plans for energy reforms over the next few years, according to a government white paper seen by S&P Global Platts.
Iraq’s oil revenues are also forecast to rise 23.4% to Dinars 71.86 trillion ($60 billion) in 2021 from an estimated Dinars 58.22 trillion in 2020, the document showed.
The country’s estimate for its oil price and revenue differ from that of the International Monetary Fund, the white paper showed. The IMF has forecast Iraqi crude price at $39.50/b in 2021 compared with $36.30/b in 2020, based on the latest Iraqi discussions with the fund.
OPEC’s second largest oil producer is struggling to pay government salaries and pensions, which are expected to account for over 120% of oil income in 2020, due to the oil price rout and lower exports as a result of Iraq’s commitments to the OPEC+ agreement. Its economy is projected to contract 12.1% in 2020 due to the COVID-19 pandemic and lower oil prices, according to the IMF’s latest estimates.
Roadmap for reforms
The white paper, which was approved by the government at its weekly meeting on Oct. 13, is expected to be presented to parliament for approval. The government has yet to finalize the 2020 budget due to differences with parliament over borrowings to finance the deficit.
“It is a roadmap for reforms over the next three to five years,” Ali Allawi, Iraq’s deputy prime minister and finance minister said in a press conference after the cabinet meeting. Allawi added that there will be dangerous repercussions if reforms are not carried out.
The white paper has also proposed a number of reforms for Iraq’s oil, gas and electricity sectors.
It recommends Iraq boost its oil production after the end of its commitments to the OPEC+ agreement. The current OPEC+ pact, which started in May with a historic 9.7 million b/d collective cut, is due to expire in April 2022.
Iraq has been a constant laggard in sticking to its OPEC+ quota for most of this year as it struggles with its finances.
It lowered its crude oil output in August to 3.578 million b/d, according to figures from state marketer SOMO, but remained above the 3.404 million b/d it had pledged to hold production at under the OPEC+ supply accord during that month. It has pledged to make up for its overproduction in May through July by implementing compensation cuts up to December.
The OPEC+ alliance has received plans from quota busters, including Iraq, to implement extra reductions until the end of 2020. Of the 2.375 million b/d of so-called “compensation cuts”, the largest volume will come from Iraq. The OPEC producer’s 698,000 b/d of catch-up cuts will be divided into 203,000 b/d in September and 165,000 b/d in October, November and December, according to an internal document seen by S&P Global Platts.
The white paper also proposes that Iraq increase exploration activity to boost its oil reserves and future production.
It also proposes reviewing current and future contractual policies with international oil companies that serve the country’s interest and in line with developments in the global oil market.
The paper also suggests promulgating or amending laws, including legislation for investment in refineries, and the creation of a national oil company.
It proposed forming a national gas company and adopting a strategy that tackles gas flaring and develops gas fields to stop imports of the commodity.
Iraq is under increasing pressure from the US to halt gas and electricity imports from Iran, which are needed to plug power shortages that in the past had led to deadly protests. Since 2018, Iraq has been receiving waivers to continue to import Iranian energy, which is subject to US sanctions.
Iraq is the world’s second worst nation after Russia when it comes to flaring gas, having burned some 18 billion cubic meters, or 632 Bcf, in 2019, according to a World Bank study published on July 21.
The white paper also proposes allowing international energy companies to invest in the country’s gas sector and suggests building gas facilities at certain fields, including Ar Ratawi, Maysan and Nasiriya.
Iraq could as well adopt alternative sources of energy, mainly solar power, and even consider nuclear power as an option in the future, the document showed.