Iraq will forgo OPEC summit-- U.S. oil adviser says nation's oil problems too pressing

June 3, 2003, 7:42AM Houston Chronicle Washington Bureau

WASHINGTON -- Iraq will skip next week's OPEC meeting and concentrate on reducing gasoline lines and getting oil exports flowing again, the U.S. adviser to the country's oil industry said Monday.

Philip Carroll, the former head of Houston's Shell Oil Co., said in an interview from Baghdad that the Organization of the Petroleum Exporting Countries conference coming up in Doha, Qatar, is viewed as "a nonissue at the moment."

With Iraq still importing petroleum products to meet domestic needs, the country's newly reconstituted oil ministry doesn't plan to send even an observer to the June 11 meeting.

"It will be, of course, something the ministry will have to think about for the next meeting later this year," Carroll said, adding that decisions about Iraq's participation in OPEC are being made by Iraqis, not U.S. authorities.

Many analysts believe Iraq doesn't need to become embroiled in the debate over OPEC production levels.

"Iraq has much more immediate concerns than worrying about OPEC," said Raad Alkadiri with Washington-based PFC energy.

Iraq could take more interest in September, when OPEC is likely to meet again.

By then, the country could be exporting more than a million barrels a day.

"I would think Iraq would at least be an observer but probably a participant," noted John Lichtblau, chairman of the New York-based Petroleum Industry Research Foundation.

Deputy oil ministers from the OPEC countries are slated to gather in Vienna, Austria, this week in preparation for the Doha session.

The cartel had long been expected to use the coming meeting to cut back production ceilings.

But with oil prices topping $30 a barrel, crude stocks remaining low and member states including Venezuela and Nigeria still struggling to meet their existing quotas, OPEC is under far less pressure to take such difficult action now.

Carroll and other U.S. officials are trying to steer clear of the debate over whether the new Iraq should remain in OPEC.

They say a new government should make that call. In fact, that's a decision a new administration could put off for years.

Iraq has not been subject to OPEC's production limits since the United Nations imposed sanctions on Saddam Hussein's government after the 1990 invasion of Kuwait.

Prior to the Persian Gulf War, Iraq was producing about 3 million barrels a day.

If new leadership in Baghdad opts to stay within the OPEC fold, that government could argue it should not be bound by any production limits until it again reaches 3 million barrels a day.

Iraq's oil fields currently are producing between 600,000 and 800,000 barrels a day, Carroll said.

That's only a fraction of the 2.5 million barrels a day Iraq was pumping before the war, but it's enough to meet the country's domestic demand of about 400,000 barrels a day.

Iraq, which boasts the third-largest oil reserves in the world, is unable to export any of those extra barrels right now because the country's storage capacity is full.

As a result, about 300,000 barrels a day of Iraq's current production is being reinjected into the ground.

Iraq is expected to resume crude exports within the next two weeks, ending a three-month interruption and providing a strong psychological boost to a nation that has suffered through war, deprivation and lawlessness.

An oil tanker will begin loading crude from Iraq's northern Kirkuk field at the Turkish port city of Ceyhan by late next week, Carroll said.

That means 1 million barrels of Iraqi crude could be steaming toward world markets by June 15.

Iraq won't need to boost domestic production immediately in order to crank up crude exports.

The nation has 8 million barrels of crude sitting in storage in Ceyhan, Lichtblau said.

But while the export business is ramping up, fuel shortages within the country remain a worry.

That's because while production may be high enough to meet domestic consumption, distribution bottlenecks remain.

Liquefied petroleum gas, for example, which the Iraqis use for cooking, is still in short supply.

And "the gasoline lines are considerably down, but they're still too long for my purposes," with the lines in Baghdad a particular problem, Carroll said.

To help ease the shortages, the U.S. Army Corps of Engineers, together with prime contractor Houston-based Halliburton Co. and the Iraqi oil ministry, is scrambling to repair natural gas processing facilities in the south and to double production from a refinery near Basra, Iraq's second-largest city.

The Iraqis have complained bitterly about how slowly the occupying forces have gotten the country's oil sector up and running again.

U.S. officials point to the widespread looting that has damaged much of the country's infrastructure.

But organizational delays have taken their toll as well. The Bush administration's plan calls for, initially, seven and eventually nine members to be appointed to Carroll's advisory panel, with Iraqi citizens comprising a majority.

Only three members have been appointed to date: Carroll, Thamer al-Ghadhban, a former planning director for the oil ministry who is now serving as its interim chief executive officer, and Fadhil Othman, a longtime executive with Iraq's State Oil Marketing Organization, known as Somo.

Carroll said he hopes to have the panel members in place by the end of the month.

Iraqis, however, remember how Saddam's regime restored basic services fairly quickly after the Persian Gulf War

"No matter how fair the comparison is, the U.S. is coming up short in the minds of the Iraqis," Alkadiri said. And as Baghdad prepared for what is likely to be a long, hot summer, explanations about institutional reforms or advisory panel organizations "aren't going to cut the mustard."