Why Did Shell Wave Off in Iraq?
07 May 2004
The Financial Times reported yesterday that Royal Dutch/Shell has investigated the possibility of participating in an Iraqi oil project but decided not to proceed, at least for now.
Shell apparently bought a tender for work in the Khurmala field near Kirkuk this year. This purchase gave it access to technical data about the field, which is believed to contain reserves of at least 1.5 billion barrels.
Iraq has huge potential attractions for Shell, which is desperate to boost its proved reserves after having to cut them by more than 20 per cent this year in a series of embarrassing disclosures.
So why wave off?
According to the US EIA, Iraq’s State Company for Oil Projects (SCOP) issued this tender in January for the development of the Khurmala dome, which is part of the Kirkuk complex, to compensate for the decline in the mature Kirkuk field.
Declining to comment on the specific project, Shell said: “We would welcome the opportunity to help Iraq build its energy industry once the security situation allows and once an internationally recognised Iraqi government is established.”
Security concerns certainly could be a plausible reason to walk away from a source that, at least as advertised, could significantly assist Shell in replenishing those paper barrels that vaporized earlier this year. It could be a sound risk management decision, opting to try to return at a potentially higher price when the country presumably will have stabilized. (Or perhaps Shell, renowned for its strategic planning through scenarios, is worrying about the possibility that the country won’t stabilize, and that they’d be out their investment.)
The other possibility could be that Shell took a look at the technical data and decided that the field was not worth it. In other words -- it wouldn’t produce commensurate with the investment. Shell -- all oil companies -- have walked away from prospective fields in the past.
If that turns out to be the case, that would be more than a bit troubling. In January, the Petroleum Review listed the potential Khurmala dome development as one of the few 100,000 bpd mega-projects that could come onstream in the future.
That article, by the way, is a good read, especially if you are tracking the debate over when global oil production might peak. Although bullish about production for the next several years, PR is not as clear about what comes after:
If we look beyond 2007, however, the outlook becomes rather more problematic. Only three mega projects are so far known for 2007 and a further three for 2008. For 2009 and 2010 only the later stages of existing projects are currently known about. Consequently, the volumes of new production for this period are well below likely requirements. [Emphasis mine]
Whatever the reason for Shell’s decision, that action just reinforces the potentially tenuous nature of some of the reserves upon which the world is counting. Whether the field lies undeveloped because of war or because of a geotech decision, oil counted in the forecast numbers still isn’t flowing. The Middle East, West Africa, Venezuela -- all are major sources for oil that becomes increasingly important, and all are volatile.
The sooner we respond with aggressive moves to reduce our dependence on oil, through conservation, through alternative fuels, through fuel efficiency, through work on renewable energy, the better off we will be.
Oh yes. And today, the price of oil topped $40/barrel for the first time in 13 years.
good news for petrel then!definetly worth the risk.
Posted by: ferg morrissey | 16 August 2004 at 01:16 PM