It looks like the Kurdistan region in Iraq is likely to begin exporting crude oil by pipelines in the very near future.
A new link is presently being developed to connect to the Turkish border, and it will be completed by September. That pipeline, connecting to Fishkabour near the Turkish border, will be able to carry 1 million barrels per day by 2015.
Kurdistan is a self-governed region located within Iraq. Being land-locked, it has some inconveniences it needs to deal with—such as the not-too-friendly Baghdad government, which would prefer Kurdistan did not seek out international oil contracts. In short, Baghdad expects revenue shares from sales of crude.
Baghdad also disagrees with Kurdistan regarding the outcome of owed payments to companies that have vested interests in Kurdish oil fields. Such companies include DNO International ASA and Genel Energy Plc (LSE: GENL), reports Bloomberg.
In the face of such political differences, Kurdistan is developing an indigenous oil and natural gas pipeline routed through Turkey, its neighbor.
Bloomberg cites an expert:
“If the Kurds go ahead with the exports to Turkey, it will have a big implication,” Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said in a telephone interview. “They want to develop their oil and they’ve been struggling to do that because of the problems of getting paid and the problems of having consistent exports, so they kind of see this as the only way to go ahead.”
It isn’t like Kurdistan is idling around. The region already sends 30,000 barrels per day to Turkey by truck. Where at present Kurdistan produces around 300,000 barrels, that level is set to go up to 400,000 by the end of the year. That’s because as many as six more oil fields are set to begin production by that time, and Kurdistan has already gone ahead and awarded five exploration blocks to an unnamed Turkish company.
On top of all this, Kurdistan intends to export natural gas to Turkey beginning in 2016. All this information comes via Kurdistan’s Natural Resources Minister, Ashti Hawrami, at a London conference.
Kurdish Oil Impact
Undoubtedly, this will increase strife in the region. Iraq is widely viewed as a major reserve of oil and natural gas. BP Plc (NYSE: BP) pegs Iraq as having the world’s fifth-largest reserves of crude.
To help matters out a bit, Iraq revised its own estimates just two months ago in April, going up 5 percent to 150 billion barrels. Kurdistan claims it holds 45 billion barrels on top of that. Meanwhile, Bloomberg’s analyses indicate Iraq was producing 3.15 million barrels daily as of May. Clearly, these are big reserves to be disputed.
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At present, Kurdistan’s shipments utilizing Iraq’s federal pipeline system are suspended. The question of whether those may resume depends on a lasting resolution of the political conflicts with Baghdad. The signs are that Kurdistan is choosing to sidestep Baghdad altogether by building its own pipeline routes, which does not bode well for a reconciliation between the region and the Baghdad government. Of course, Hawrami is careful to couch things in benevolent terms.
The Business Recorder quotes:
“The new export infrastructure will be a cost-effective and secure solution that will enable more of Iraq’s oil and gas to reach the international market, which will allow all the citizens of Iraq to benefit from increased revenue.”
Back in February, Genel stated it hopes to be able to begin exporting crude from Kurdish fields by next year. Once the crude is in Turkey, it will be sent to the port of Ceyhan in the south and thence around the world.
Hawrami is nothing if not ambitious, though. The pipeline being built begins with a planned capacity of 300,000 barrels a day, but Kurdistan is aiming for 1 million barrels a day by 2016 and 2 million by 2019.
With Turkey explicitly backing Kurdistan and a summit over the Baghdad/Kurdistan oil conflict only just wrapped up (inconclusively at that), it’s hard to predict the Iraqi government’s response to Kurdistan’s latest move. It’s unlikely to be a favorable one, though. However, given the amount of international attention toward exploiting Iraq’s reserves, it is clear that there will be lasting effects as a result of this development.
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