KRG begins oil experiment as pipeline reopens

KRG is exporting 100,000bpd on condition of payment by 31 August

The KRG is reopening its exports via the central government's Kirkuk pipeline, but will close the taps again if Baghdad does not pay up by the end of
The KRG is reopening its exports via the central government's Kirkuk pipeline, but will close the taps again if Baghdad does not pay up by the end of

Iraqi crude exports have restarted from Kirkuk to the Turkish port of Ceyhan, three days after sabotage attributed to a Kurdish separatist group shut off oil traffic to the north.

The pipeline, which Turkish officials estimated would take ten days to repair, is now carrying crude from the south at a rate of around 300,000 barrels a day.

The bombing took place little over two weeks after another attack, which was also attributed to the Kurdistan Workers Party (PKK).

The PKK’s activities have risen since as Syrian Kurds have sought to secure an enclave in the north east corner of Syria as civil conflict roils the country, with some support from the Kurdistan Democratic Party, which is headed by KRG President Massoud Barzani.

Attacks on the Kirkuk-Ceyhan pipeline emphasise the challenges the Kurdish regional government will face in maintaining a secure export route for its increasing oil production capacity. Turkey is the only viable route, despite Ankara’s at best ambivalent attitude to the formation of a Kurdish state within Iraqi borders.

The Kurdish region is adding a further 100,000 barrels a day under a “goodwill initiative” offered by the Kurdish regional government. Since 1 April the KRG halted all oil exports, protesting Baghdad’s refusal to pay for Kurdish shipments, contrary to the terms of a deal struck between Erbil and Baghdad in 2011.

The move - whcih will bring some relief to European refiners already shaken by the loss of Iran's similarly-graded crude -follows a string of investment announcements in the region, some in defiance of a Baghdad blacklist policy, and a stand-off over the control of the Iraq-Syria border in Kurdish territory saw already fractious relations between Erbil and Baghdad deteriorate further, whcih has now been resolved.

In a letter date 28 July to Genel Energy, DNO International and Kar Group, the companies which operate the field providing the oil, Natural Resources Minister Ashti Hawrami said he hopes the plan will “demonstrate to the doubters that the fault lies squarely with Baghdad.”

Genel and DNO will both ship 40,000 barrels a day, and Kar Group will ship 20,000 barrels a day.

The companies – which have significant receivables backlogs – first refused to ship crude, with Genel initially only prepared to pump oil from Taq Taq if the KRG indemnified the company in the event Baghdad does not pay.

The correspondence between the oil companies and the KRG is an ostensible show of transparency, co-operation and mutual respect between the government and private sector in the north, a further opportunity for the KRG to contrast its approach with the relations between oil companies and the central government, which are often vexed by constant visa and customs troubles and protracted negotiations.

The KRG will halt oil shipments again on 31 August unless Baghdad pays for the oil shipped and all outstanding oil payments due. The amount outstanding is likely to be around $2 billion.

 

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