Russia's Lukoil opens giant Iraq oil field, adding to crude glut

Iraq's West Qurna-2 oilfield to transform oil markets as Baghdad targets daily output of 4m barrels this year

Iraq is emerging as a global force as more oil production comes onstream

By Andrew Critchlow

4:58PM GMT 29 Mar 2014

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Russia's Lukoil has opened a giant untapped oil field in Iraq that will play a major part in driving up production to new highs in the Middle Eastern country and potentially force down the price of crude.

Spigots in the West Qurna-2 field, Iraq’s second-biggest, were opened officially over the weekend in a move that will release 120,000 barrels per day of crude oil onto international markets. The field in Southern Iraq near Basra will eventually pump out 1.2m barrels-per-day (bpd) of oil.

Iraq’s oil minister Abdul Kareem Luaibi has said that West Qurna-2 will enable the country to hit its target of pumping 4m bpd by the end of the year. Already the second-largest producer in the Organisation of Petroleum Exporting Countries (Opec) after Saudi Arabia according to Reuters, Iraq pumped 3.5m bpd last month.

However, the sharp rise in Iraq’s oil production is likely to spark tensions within Opec, which controls the world oil market. Baghdad currently operates outside the cartel’s quota system, which helps to maintain oil prices above $100 per barrel, the figure seen by most of its members including Saudi Arabia as vital for their economies to function.

The resurgence of Iraq’s oil production comes amid hopes that neighbouring Iran will soon boost production if sanctions are lifted. Hussain al-Shahristani, Iraq’s Deputy Prime Minister for Energy, said earlier this year that Baghdad and Tehran were cooperating on petroleum strategy in a move that has challenged Saudi’s dominance of the 12-member group.

Iraq plans to almost triple its oil production capacity by 2020 to 9m bpd, which if achieved could flood world markets with crude. Although demand for fossil fuels continues to rise globally the development of shale oil and gas resources in the US has raised the chances of prices falling amid a glut of new supply.

However, gains in Iraqi production are offset by ongoing political problems in Libya, which have disrupted exports from the North African country in addition to slow progress in lifting sanctions on Iran.

The official opening of West Qurna-2 will also see Lukoil , which owns a 75pc stake in the field, become a major international player in the industry outside Russia. British oil giants BP and Royal Dutch Shell are also poised to benefit from Iraq's ambitious production plans. Both companies are already managing two huge oil fields in southern Iraq which are vital if Baghdad is to achieve its goal.

The field is “strategically important” said Lukoil’s chief executive Vagit Alekperov.

Lukoil has pressed ahead with its overseas operations despite the threat of sanctions being imposed on Russian companies by the US and the European Union over the Kremlin's land grab in Crimea.