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* July output at 2.8 mln bpd vs 2012 level of 2.9 mln
* Exports to drop by 500,000 bpd in Sept. due to port work
* Modest production growth expected to return in 2014
By Peg Mackey
LONDON, July 29 (Reuters) - Iraq's oil revival is stalling,and unless momentum is regained, Baghdad will report an outputdecline for 2013, its first after two years of robust gains,much to the relief of rival Gulf producers.
Swift work since 2010 at Iraq's southern oilfields by thelikes of BP, Exxon Mobil and Eni raisedoutput by 600,000 barrels per day (bpd) to 2.9 million bpd in2012, turning Iraq into the world's fastest growing exporter.
Even more impressive gains were expected this year. WhenBaghdad revealed a bold target of 3.7 million bpd at theDecember 2012 meeting of the Organization of the PetroleumExporting Countries (OPEC), Gulf delegations were worried. Awhiff of a market-share battle was in the air.
But a host of infrastructure and security problems will makeOPEC's second-biggest producer struggle to keep pace with lastyear's rates. Unless big gains are made, Iraq'soutput will fall below 2.9 million bpd.
"Iraqis will be annoyed if the government is losing billionsin (potential) oil revenues," said a senior Iraqi oil executive,requesting anonymity.
Oil provides the lion's share of Iraq's government revenuesand foreign exchange earnings.
For OPEC, however, "This is good news. It delays thechallenge from higher Iraqi production for another year," said aGulf delegate to the group, who requested anonymity. "And it'sgood for the oil market. Prices will stay above $100 and that'sacceptable for everyone."
The rise of U.S. shale oil and a slackening of demand couldforce OPEC to cut supply by up to 1 million bpd next year,analysts have said.
But slower growth from Iraq and ongoing outages from Iranand Libya will mean that big cuts from other members - mostlySaudi Arabia - are not needed.
July marks the third straight month of declines in Iraq'sproduction and exports, with output at 2.8 million bpd.
Its production is expected to return to growth next year of400,000 to 500,000 bpd, industry sources say, which would raiseits average output to around 3.3 million bpd - still far belowan official target of 4.5 million bpd.
DOWN IN THE SOUTH
While militant attacks are thwarting flows in the north,poor maintenance and technical problems are slowing progress inthe south, the main driver of Baghdad's oil expansion.
"Development in the south is passing through a very slowphase; momentum has been lost," the senior Iraqi oil executivesaid. "We hope the fourth quarter will be more energetic."
At the giant Rumaila oilfield, Iraq's biggest producer andone of its oldest, the loss of output from old wells and majorrepairs at ageing de-gassing stations - core to the productionprocess - have held the field back, Iraqi oil officials say.
Unreliability of southern export equipment andweather-related snags during the first quarter also resulted inmajor cutbacks at Rumaila, which is operated by BP along withChina National Petroleum Corp, industry sources have said.
Iraq still has insufficient storage capacity, so when BasraLight exports are halted or sharply reduced, production at theoilfields has to be cut back sharply too - in the case ofRumaila by as much as 200,000 barrels a day, they said.
Once wells are shut in, they take a long time to restart, soRumaila is still clawing back to higher rates. Production is nowrunning at about 1.35 million bpd, similar to the average for2012. The aim this year is to average 1.45 million bpd.
Iraqi oil officials still hope to see the country's overallproduction reach 3.4 million bpd by the end of thisyear. Baghdad is targeting production of 9million bpd by 2020.
Reaching that growth will require huge investment, and theinternational oil companies that signed up to tap Iraq'sreserves - the world's fifth biggest - have held back on plansto increase spending because of the lack of sufficient pipelinesand port facilities to raise exports, industry sources said.
Oil exports this year have already fallen below last year'saverage of 2.4 million bpd, with July sinking to about 2.25million bpd. Iraq's 2013 budget is based on exports of 2.9million bpd.
And shipments of southern Basra Light will fall by some500,000 bpd in September when work is carried out at the vitalsouthern oil export terminal.
