21 April 1998
(Experts say Iraq's oil industry is in "lamentable" state) (750) By Judy Aita USIA United Nations Correspondent United Nations -- Saying "the oil industry of Iraq is in a lamentable state," oil experts sent to Iraq by the United Nations to evaluate its capacity to pump oil have reported that Iraq cannot pump enough oil to meet the levels the Security Council has authorized to purchase humanitarian goods. According to the group of experts, "should the current average price of $10.50 per barrel for Iraq crude oil remain unchanged, based on the existing export capacity of 1.6 million barrels per day, revenues only in the amount of $3,000 million could be achieved during a 180-day period, starting in June 1998, provided the spare parts required are ordered immediately." In February, the Security Council increased the amount of oil Iraq was allowed to export in order to buy humanitarian supplies to $5,256 million from $2,000 million. Iraq had informed the U.N. that it has no objection to increasing revenues but the poor state of its oil industry combined with the low oil prices made it impossible for its oil industry to meet the quota. Oil prices have dropped from $18 a barrel to about $10.50 a barrel for Iraqi crude. To receive the money allotted by the council an average oil price would have to be $16.90 per barrel. Baghdad said that even assuming that spare parts were available and repairs were made, it would only be able to produce between $3,500 and $4,000 million of oil. The United Nations team of oil experts visited Iraq from March 12 to 22 to determine whether Iraq was capable of producing the increased amount of oil in the 180-day time limit. As a result of the report, Secretary General Kofi Annan has recommended the Security Council allow Iraq to import $300 million of the equipment needed to increase oil production. He said Iraq would probably only be able to export $4,000 million of oil in the 180-day period. Annan also suggested the council allow the U.N. oil overseers to approve the spare parts contracts after the sanctions committee has reviewed the list of parts in order to speed up the process. The Security Council is currently reviewing the secretary general's request. In its report, the group of experts said Iraq's developed oil fields "have had their productivity seriously reduced, some irreparably, during the last two decades." "The oil processing and treatment facilities, refineries and storage terminals in the country have been severely damaged and continue to deteriorate. This deterioration, particularly in the oil fields, will accelerate until significant action is taken to contain and relieve the problems," the report said. The experts warned that without spending money on spare parts and equipment, "a sharp increase in production ... would severely damage oil-containing rocks, and pipeline systems, and would be against accepted principles of 'good oil field husbandry.'" The transportation system and intermediary storage facilities need repair at critical points, the experts said. "Significant issues are the degradation of the 40-inch pipeline, major losses in pumping capability and reduced intermediary storage capacity in the north, with identical problems in the south." The experts estimated that if the spare parts are ordered immediately, during the 180-day period beginning in December 1998 Iraq could export 1.7 million barrels a day, generating $3,900 million based on a price of $12.50 per barrel. The condition of the working refineries in Iraq "in general is indeed poor," the experts said. "Significant pollution and environmental damage has also been noted." While Iraq's oil industry workers have the expertise and technical knowledge to gradually increase production over the next 18 months, they said, "without rapid and adequate investment in spare parts and repair of the production wells, plus the development of a number of smaller fields, the gap between the existing decline curve and the projected increments in crude oil production will grow wider each month that financing is delayed." The experts also said it is not possible to accurately verify production figures "as the oil industry in Iraq has no functioning internal monitoring system in operation. Wellhead production is not measured, movement between terminals is only estimated or based on non-calibrated meters and/or storage tanks, and the whole operation is operating close to collapse," they said.