Speech

Foreign Office Minister for Energy addresses Iraq Petroleum Conference

Foreign Office Minister Lord Howell said that Iraq's natural resources have the potential to help tackle the world's energy challenge when he spoke at the Iraq Petroleum Conference.

Ladies and Gentlemen

I am delighted to be back at the Iraq petroleum conference addressing such a distinguished audience, and I would like to thank Dr. Alirio Parra and CWC Group for the opportunity to be here today.

Rising energy prices and the Arab Spring have raised important questions across the Middle East and presented challenges for the world. Today I would like to share with you some thoughts about Iraq’s potential to help meet these challenges through leadership in the Middle East, and how it can be a game-changer in energy markets. I foresee this and similar conferences playing a part in developing this potential and in catalysing investment and decisions about investment in Iraq.

The geopolitical challenge

At the end of May I visited a number of Gulf States, where oil prices and energy security were high on the agenda. In a region which contains the planet’s largest oil reserves, the Arab Spring in a variety of forms has become interlinked with energy issues.

Few could deny the legitimacy of a people seeking freedom - seeking a voice to steer their future. But few could have predicted the pace of change we have seen brought by the so-called Arab Spring. At a time of fast-moving events, it must also be a time for wise reflection on how best to meet the aspirations of the Arab people. There are no simple answers. Those who offer simple answers are misleading us,as there are many ways for nations to achieve and maintain legitimacy, through their own pattern of participation and consent.

But governments that use violence to try and extinguish the legitimate aspirations of their peoples are destined to fail. The lasting answer to the challenges and instabilities of the Arab Spring is through reform, not repression. We have no doubt about that at all.

Iraq’s geopolitical potential

History has taught us that for nations to truly flourish and prosper, freedom is an essential ingredient. Since the fall of Saddam Hussein, Iraq is walking this path of freedom, and has taken important steps towards democracy, which gives us all great hope. I believe democracy in Iraq is beginning to succeed, and though the journey may well be difficult, Iraq can lead by example and show others in the region, from Tehran to Tripoli, that democracy and reform will harbour prosperity. There is still much to do. Work must continue to embed independent and accountable institutions in Iraq, that deliver transparent governance, basic services for citizens and a framework for a prosperous economy to flourish. Corruption must be tackled to enhance investor confidence and the Rule of Law must be a cornerstone of government. These are the necessities for the high investment we all want to see.

It is also important Iraq establishes itself sufficiently on the international stage, playing an active and positive role in the region. Foreign Policy, as I know from my experience at the FCO, is rarely a smooth road, but Iraq has already taken important steps: it holds the presidency of the Arab League; the government is helping support democratic movements across the region. It is also incumbent on the wider international community, to work with Iraq and the great nations of the Arab world to meet the new challenges of the Arab Spring, as well as the old challenges of the region, including the need to move forward towards a just resolution of the Palestinian conflict, with a Jewish and Palestinian state, living side-by-side in peace and security, as part of the Middle East Peace Process.

The energy challenge

But of course Iraq’s potential is not just political. With an estimated oil reserve of nearly 143 billion barrels, Iraq has the potential to be a game-changer helping the world meet its energy challenge in a balanced way. The challenge is in ensuring secure and affordable energy against the competing pressures of growing energy demand - mainly from emerging economies and the great rising powers of Asia - and increasing production constraints. In a global economy dependent on oil, rising prices affect us all as families and businesses see their incomes squeezed, and we are experiencing that very much here in the UK. Every major oil high has been followed by a global recession - this is bad for producer and consumer states alike. Against a backdrop of dangerous climate change and the transition to a low carbon economy the energy challenge we face is complex.

Measures to moderate demand are crucial. Within Europe we are taking bold and ambitious action: the EU seeks a 20% increase in energy efficiency by 2020. In the emerging powers efficiency is improving, indeed energy intensity - the amount of energy per unit of GDP - has fallen 30% in non-OECD countries since 1990. So there are positive developments on that side as well.

But the energy challenge cannot be met through demand-side measures alone. The historic trend is clear: whilst energy intensity falls, total energy demand still rises. Whilst the US has reduced energy intensity 50% since the 1970’s, its total energy consumption has risen. Therefore, increased supply, from traditional and sustainable sources, is absolutely vital to a balanced energy transformation.

Iraq’s energy potential

Iraq has the world’s third largest proven oil reserves. Iraq is the only country, besides Saudi Arabia, with the potential to massively increase conventional oil production. It currently produces nearly 3 million barrels per day and the government has ambitious plans to increase production to 12 million barrels over the next decade. Harnessing this huge potential is crucial to Iraq’s economic development and stability, and crucial for global energy security as well. We should all look forward to a time when Iraq is a significant influencing force for stability in the world’s oil markets.

Besides oil, Iraq also has the 12th largest proven gas reserves in the world, with some estimations citing nearly 200 trillion cubic feet in Northern Iraq alone. Heritage’s discovery of 8 trillion cubic feet in Miran West-2, demonstrates the game-changing potential Iraq has in gas, with sufficient resources to satisfy both domestic needs and to take advantage of export opportunities, including export to Europe. As we continue to move to a low carbon economy, natural gas will become increasingly prominent in the world’s energy mix and we shall need more gas to back up renewable installations such as windfarms, and the importance of Iraq’s gas reserves will rise further. Gas will remain an important fuel, particularly in electricity generation. In the UK we need to ask why when gas is plentiful, energy prices are formidably high.

Tragically, terrorism and sectarian violence once held Iraq back from developing these resources: in 2006, nearly 100 civilians died in bombing and violent attacks every day. However, in 2011, the Iraqi Health Ministry report that this figure has now fallen to less than 5. This is still tragic, but is a sharp contrast to five years ago. Thanks to the bravery and courage of the Iraqi Security Forces, the security situation in Iraq has drastically improved. From Concerned Local Citizens in Anbar, to the actions of the Maliki Government, the Iraqi people’s resolve to liberate themselves from the scourge of terror, has yielded a new Iraq. However, we must never forget Churchill’s military maxim that “there are two kinds of success - initial and enduring”. Iraq must ensure that its security success is of the enduring kind.

The success of the 2009 licensing rounds has demonstrated that a secure Iraq is an attractive place to invest. A package of hydrocarbons laws, which resolve revenue sharing between Baghdad and the regions, is the next vital step. It would enhance investor confidence and help diffuse regional tension, by legally establishing the mechanism for Regions to negotiate contracts with international firms, and what level of funding from central government they are entitled to.

Important practical steps have already been made: a technical agreement permitting the exporting of oil from the Kurdistan Region of Iraq, with the revenues being received by the central government, has been agreed between the Oil Ministry and Kurdistan Regional Government. No doubt you will be hearing a lot more about this during the conference. The development of such technical agreements into full, transparent legislation will be a great step forward in the development of good governance in Iraq and it will also encourage investment across the whole of Iraq.

Expanded investment must be accompanied by a commensurate expansion of Iraq’s private sector and technical expertise. Standard Chartered and HSBC are taking important steps to help develop the financial services structures in Iraq which are key to unlocking domestic capital and further investment. The British Council and the Department for International Development’s DeLPHE project have been forging links between Iraqi and British universities and I’m pleased to say that the UK has helped contribute to building skills capacity in the Oil Ministry. There is no doubt that An educated nation with a dynamic private sector will aid Iraq in unlocking its natural resource potential, improving the lives of its citizens, and helping the world meet its energy challenge long-term.

Conclusion

Ladies and gentleman. I began today by discussing the instabilities and challenges posed by the Arab Spring. But stability must not be purchased at the price of repression. A new, free, Iraq has the potential to be a beacon for democracy in the region, and by its example demonstrate that prosperity and peace, is built on the foundation of freedom.

Iraq’s economic promise is vast. Its natural resources have the potential to help tackle the world’s energy challenge: that of rising energy demand, but constrained supply.

Spiralling violence once held Iraq back from realising its potential, as we have seen within the blood stained pages of history. But through the courage and resolve of the Iraqi people, it has delivered a safer and more stable Iraq. There are still many challenges ahead: its nascent democracy needs to embed transparency and the rule of law, and it is vital that final hydrocarbons legislation is developed. But the lesson of history teaches us that the Iraqi people can meet these challenges and can reposition Iraq as one of the great nations of the region and of the world, and I have no doubt that your discussions here can help develop important solutions to some of these challenges today and to move towards a more prosperous tomorrow.

Thank you

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