The changing political situations in the Middle East are focusing attention on possibly significant increases in energy production, but countries that could produce that energy still face significant hurdles, according to a panel of Middle East experts speaking Tuesday at the IHS CERAWeek conference in Houston.
Iraq and Iran could significantly increase oil exports but each faces challenges, panelists said. Israel's recently discovered offshore natural gas resources are already transforming its energy situation and could advance Middle East peace initiatives, but it must still deal with existing tensions in the area.
"Iraqi oil exports are potentially huge," said Raad Alkadiri, managing director of energy insight at IHS.
Iraqi officials think the country could export as much as 6 million to 8 million b/d by 2020, but Alkadiri said 4.5 million b/d would be at the high end of expectations. Exports were 3.5 million b/d in February.
But Iraq has an entire generation that lacks international experience because the country, under Saddam Hussein, stopped sending its best and brightest abroad to be educated, he said.
Iraqi politics is still so divisive that it's difficult for technocrats to make seemingly simple decisions regarding its energy resources, Alkadiri said.
Iraq still lacks the necessary infrastructure to export on a regular basis, said Carlos Pascual, special envoy for international energy affairs at the US State Department.
While the country has pipelines that can move oil to export points, it lacks storage, Pascual said. As a result, if a storm shuts an export point, oil production must be scaled back because there is nowhere to store the oil. Bad weather did just that from September through December last year.
Financing is another issue for Iraq, he said. The first round of investment in Iraqi oil fields cost $4 billion to $5 billion but the next round would cost $40 billion to $50 billion. Those are huge investments in a country where oil companies are limited in the amount of money they can make.
SANCTIONS AGAINST IRAN A KEY VARIABLE
If current negotiations regarding Iran's nuclear program are successful, it could add 1 million to 1.3 million b/d of exports to the global market in six months, Pascual said. It has been exporting about 1 million b/d recently, down from 2.4 million b/d two years ago and 2.5 million b/d historically.
Even if the nuclear negotiations are successful, it remains to be seen how quickly export sanctions could be lifted, said Bijan Khajepour, managing partner of Atieh International.
On the positive side, Iran is changing its attitude when negotiating with foreign oil companies, Khajepour said. In the past, Iranian officials viewed such negotiations as win-lose situations if international oil companies would be making money. Now Iranian officials are willing to view negotiations as win-win situations, profitable for all parties.
Negotiations on Iran's nuclear program reached an interim agreement, which was implemented last month. Now they are working on a comprehensive agreement, which could be signed this year, Khajepour said.
Even if the comprehensive agreement is signed, it could take quite a while to implement it, Pascual said. Elections are coming in both the US and Iran and politics in either country could affect implementation. If the agreement causes political difficulties in the US, Iran could react unfavorably.
If an agreement is reached and the US does not sign it, sanctions might not be as successful as current sanctions because other countries might not be as willing to cooperate as in the past, he added.
GAS DISCOVERIES MAY CAUSE COMPLICATIONS
Turning to natural gas, Pascual said recent discoveries of resources offshore Israel and Cyprus could be a positive development in driving Middle East peace initiatives. Israel has already reached an agreement to sell some of its gas to an industrial company in Lebanon.
Now that the Tamar field is producing, Israel is 70% energy sufficient, he said. And the much larger Levithian field is due to come online in 2017, giving Israel enough supply to look at exports to other Middle East countries.
Natural gas has also been discovered offshore Cyprus, but much work remains to be done to determine the size of that resource, he said.
Turkey is already very interested in Israeli gas via pipeline, but that pipeline would have to run through Cypriot waters, he said.
A pipeline running to Turkey through Cypriot waters would raise the issue of the Greek-Turkish dispute over possession of Cyprus.
The large gas discoveries offshore Israel also create the opportunity to export the gas as LNG, Pascual said. Gas could be liquefied using a floating liquefaction plant or an onshore plant, although an onshore plant could create securities issues in Israel. Gas could also go by pipeline to Cyprus to be liquefied along with Cypriot gas.
