Iraq strives to return to big oil output growth

By Peg Mackey and Alex Lawler

LONDON (Reuters) - Iraq's oil industry is poised for a second year of only modest growth in 2014, starting off slowly as extensive work at a major port curbs exports and red tape and violence prompt some oil firms to delay projects.

After decades of wars and sanctions, oil output from OPEC's second-biggest producer began a swift revival in 2010 after Big Oil signed deals to tap its southern oilfields. Work by the likes of BP (LSE:BP.) and Exxon Mobil (XOM) boosted output by 600,000 barrels per day (bpd) to top 3 million bpd in 2012.

But infrastructure and security problems, on top of a row between Baghdad and the Kurdistan region, have slowed progress this year. Output has struggled to exceed 3 million on a sustained basis, compared with its end-2013 target of 3.5 million bpd.

Russia's Gazprom Neft (SIBN.MM) on Tuesday postponed the start of production at the Badra oilfield to next year, citing delays by Iraq in approving tenders, customs clearance, failures by contractors to deliver work on time and concerns over security of employees and property.

So far in November, Iraq has exported 2.1 million bpd from its southern terminals and about 300,000 bpd of Kirkuk crude from the north, according to shipping data and industry sources. That is up 150,000 bpd from October.

But that growth is likely to slow through the first quarter of 2014 as port work caps exports from the southern oilfields at 2.3 million bpd - a decades-high rate reached in August.

"Given these lasting export constraints, it will be next to impossible to grow production (in the near term)," said a senior Western oil executive who declined to be identified.

"There is certainly no short-term upside in export infrastructure," another senior oil industry source said.

Iraqi oil officials could not be reached for immediate comment on the outlook for production and exports.

Officials have said they expect a return to growth in 2014, with an increase of 500,000 bpd pushing up average production to 3.5 million bpd, allowing for exports of 2.9 million bpd.

RAMP-UP?

Traders of Iraqi crude also saw little sign of much export growth in the next few months, not least because weather-related delays tend to pile up in the first quarter.

"They keep saying they expect a huge ramp-up," said one. "But I think 2014 will be like 2013, maybe a little better."

When completed by mid-2014, the port expansion in southern Iraq will provide offshore export capacity of 4 million bpd. Much of the work was completed last month.

Still, one of four jetties at the Basra Oil Terminal is expected to be continuously out of action until the end of 2013, reducing capacity. The final stage of work - the connection of two single-point moorings to the loading terminal - could stretch through March, industry sources said.

The delays at the port pushed southern exports down to 1.8 million bpd in September, the lowest in 19 months, but shipments rose in October and are on target to edge higher in November.

Maintenance aside, a lack of storage remains a bottleneck in the south. Storage capacity has been expanded to nearly 7 million barrels, which is still far too low, industry sources say.

When Basra Light exports are halted or sharply reduced, oilfield production must be cut back too. That happened earlier this month, when bad weather briefly shut in the BP-operated Rumaila oilfield and others.

Rumaila pumps about 1.4 million bpd, more than a third of Iraq's total output. It was the scene of violent protests last week when angry mobs attacked foreign employees of Schlumberger (SLB.N) and Baker Hughes (BHI.N) at their neighboring camps.

Iraqi officials have said calm is being restored and that the situation at Rumaila is now safe enough for the service companies to get back to work.

For next year, officials expect big output increases from the southern oilfields including Majnoon, led by Royal Dutch Shell (RDSA.L), which started up last month after delays.

The field is now pumping more than 200,000 bpd, industry sources said, although it's unclear how much more it will be able to ramp up immediately given the port maintenance and the lack of storage.

(editing by Jane Baird)