[I was expecting we'd hear this admission within months of Bush's conquest of Iraq.]
http://news.yahoo.co...erves&printer=1Oil Experts See Long-Term Risks to Iraq Reserves
Sat Nov 29, 2:35 PM ET Add Top Stories - The New York Times to My Yahoo!
By JEFF GERTH The New York Times
As the Bush administration spends hundreds of millions of dollars to repair the pipes and pumps above ground that carry Iraq (news - web sites)'s oil, it has not addressed serious problems with Iraq's underground oil reservoirs, which American and Iraqi experts say could severely limit the amount of oil those fields produce.
In northern Iraq, the large but aging Kirkuk field suffers from too much water seeping into its oil deposits, the experts say, and similar problems are evident in the sprawling oil fields in southern Iraq.
Experts familiar with Iraqi's oil industry have said that years of poor management have damaged the fields, and some warn that the current drive to rapidly return the fields to prewar capacity runs the risk of reducing their productivity in the long run.
"We are losing a lot of oil," said Issam al-Chalabi, Iraq's former oil minister. He said it "is the consensus of all the petroleum engineers" involved in the Iraqi industry that maximizing oil production may be detrimental to the reservoirs.
A 2000 United Nations (news - web sites) report on the Kirkuk field said "the possibility of irreversible damage to the reservoir of this supergiant field is now imminent."
American officials acknowledge the underground problems, but figuring out how to address them is a quandary for the United States. The Bush administration and the Iraqis are banking on oil revenues to help pay for Iraq's reconstruction, and American officials say that aggressively managing the reservoirs is crucial to keeping oil and revenue flowing. But so far, American officials have steered clear of delving below ground, partly, they say, out of fear of adding to suspicion in the Arab world that the United States invaded Iraq to control its oil.
The above ground versus below ground debate also raises the question of whether the American-led reconstruction effort is intended just to repair damage from the war or to improve conditions beyond what they were before the invasion.
When Wayne Kelley, a Texas oil engineer, and other experts asked about attending to Iraq's oil reservoirs during a government conference for contractors in July, Army Corps of Engineers officials said their mission was restoring war-damaged facilities, not "redeveloping the oil fields," according to a transcript of the meeting.
But in a recent interview, Rob McKee, a former top executive with ConocoPhillips who took over last month as senior oil adviser for the Coalition Provisional Authority in Baghdad, said that while some might overstate the underground problems, he believed that the reservoirs did demand attention. "It's bad," Mr. McKee said in a telephone interview, "but it will not be catastrophic and especially overnight." Still, he said, it is crucial to collect data, and do engineering on the problem.
Wendy Hall, a spokeswoman for Halliburton, the Houston oil services and engineering company managing the Iraqi oil-repair job, said Iraq's present production levels and the administration's future oil goals "cannot be sustained without reservoir maintenance."
Thamir Ghadhban, a senior adviser to the Iraqi oil minister, Ibrahim Bahr al-Ulum, disputed this view and predicted that production would return to prewar capacity of three million barrels a day by the end of 2004; currently production is at slightly more than two million barrels a day. At the same time, he said in an interview, "we should do much more than we have in the past" to maintain the reservoirs. "We definitely have to put more money into it and bring in consultants," he said.
The Army Corps of Engineers has already set aside $1.7 billion for maintaining Iraq's oil supply, and the money has been split between paying for imported fuel and fixing the Iraqi pipes, pumps and transfer stations, officials say. Approximately $2 billion has been approved for oil infrastructure repairs next year, including about $40 million to begin the study of the reservoirs. But managing the reservoirs could be a long and expensive process involving complicated computer simulation and changes in extraction techniques.
This work is particularly important, oil experts say, because while Iraq sits on one of the world's largest deposits, most of its oil is being drawn from two older fields, Rumaila in the south and Kirkuk in the north.
The complications in Iraq are common in aging fields, whose management is a delicate balance of geology, physics and economics. Petroleum engineers often compare oil reservoirs to a bottle of soda, which has a high level of energy when full but loses energy as it is depleted. Engineers use a variety of methods to maintain the pressure needed to bring the oil to the surface, including injection of gas or water into the fields.
Pumping oil too quickly can upset the balance, leading to more gas and water migrating into the wells and ultimately making extraction of oil uneconomical. Oil experts said Saddam Hussein (news - web sites) demanded high production, but United Nations economic sanctions precluded Iraq from acquiring the sophisticated computer modeling equipment and technology required to properly manage older reservoirs. As a result, despite the ingenuity of Iraqi engineers, the fields have suffered.
Oil experts working for the United Nations found that some reservoirs in the southern part of Iraq "may only have ultimate recoveries of between 15 percent and 25 percent of the total oil" in the field, as compared to an industry norm of 35 percent to 60 percent.
Before the United States-led invasion, the Iraqis sought outside help in managing its reservoirs. "Kirkuk was of particular concern and particular urgency," said Maury Vasilev, senior vice president of PetroAlliance Services, a Russian oil-field company that held discussions last year with the Iraqi Oil Ministry. He said that because of the water content in the wells "there was a question of how much oil they could recover."
More recent estimates of Kirkuk's condition are also bleak. Fadhil Chalabi, a former top Iraqi oil executive now based in London, said Kirkuk's anticipated recovery rate had dropped to 15 percent from 30 percent. An American oil executive said Iraqi engineers had recently told him they were now expecting recovery rates of 9 percent in Kirkuk and 12 percent in Rumaila without more advanced technology.
Iraq's problems were well known to the United States before the war. The Energy Infrastructure Planning Group, set up by senior administration officials in September 2002 to plan for the oil industry in the event of war, learned that Iraq was reinjecting crude oil to maintain pressure in the Kirkuk field.
"Iraqis acknowledged it was a poor practice," said one administration expert involved with the group, and as the main war wound down the Iraqis " were unequivocal that that practice had to stop and right away."
But it did not. The amount of oil being reinjected is now 150,000 to 250,000 barrels a day, down from as much as 400,000 barrels a day last summer, said Mr. McKee, but he added that he had never encountered such a practice in his lengthy career in the oil industry.
The reinjection of oil was a clear sign of trouble in the underground reservoirs, but the energy planning task force decided not to address them, partly for political reasons, according to participants in the process.
"We didn't want to give fuel to the fire of debate that was saying the U.S. was just doing this to steal the oil," one administration official said.
Task force participants said there was another potential political factor. The group had secretly decided, without soliciting bids, that the contract for fixing Iraq's oil infrastructure would go to Kellogg, Brown & Root, a unit of Halliburton, which had an existing Pentagon (news - web sites) contract related to war planning. Halliburton was previously run by Vice President Dick Cheney (news - web sites).
"Everyone realized the selection of KBR was going to look bad," said one task force member.
K.B.R. and others made a case that reservoir management was necessary and the occupation authority asked Congress for the $40 million now set aside for reservoir management. But Ms. Hall, the Halliburton spokeswoman, said this month that those underground tasks had been "pulled and are not being funded" even though reservoir maintenance is critical to even present production.
Mr. McKee, however, said the financing was not canceled, but just "pushed back for a short while."
There is not yet a firm price tag of modernizing Iraq's oil industry, but it is clear it will be enormous.
Edward C. Chow, a former Chevron executive who is now a visiting scholar with the Carnegie Endowment for International Peace, estimates it will cost $20 billion to restore Iraqi production to prewar levels, an amount that is more than double the administration's plan for oil reconstruction needs over the next four years.
Mr. McKee said he believed that Iraq could get back to the prewar production capacity of three million barrels a day under current budgets. But even he is cautious.
"How sustainable that would be is a question," he said. "I think it would depend a lot on how long they could nurse their old infrastructure along without it cratering."
