Iraq's Oil Exports via Turkey Dwindle as Kirkuk Fields Stay Shut

https://www.bloomberg.com/news/articles/2017-10-19/iraq-s-oil-exports-via-turkey-dwindle-as-kirkuk-fields-stay-shut

Crude exports from northern Iraq fell again, and output remained curtailed in the nation’s disputed Kirkuk province. Oil Ministry engineers worked to replace computers and other critical equipment missing from fields in Kirkuk that government troops recaptured this week from Kurdish forces, according to a person with knowledge of the situation.

The Kirkuk area’s Bai Hassan and Avana oil fields were still shut, with exports stopped, the person said Thursday, asking not to be identified because the information isn’t public. The two deposits had been pumping an estimated 275,000 barrels a day before the Iraqi offensive against the Kurds. Iraq won’t be able to restore Kirkuk’s oil output to last week’s levels before Sunday because of missing equipment at the fields, Reuters reported earlier Thursday, citing an unidentified oil ministry official.

Flows by pipeline from northern Iraq to the port of Ceyhan, Turkey, fell to 196,000 barrels a day on Thursday from about 225,000 barrels the previous day and far below their normal daily level of 600,000 barrels, according to a port agent report and Bloomberg tanker tracking. Iraq’s central government piggybacks its exports from Kirkuk with Kurdish shipments through a Kurdish-operated pipeline to Turkey.

Kirkuk, home to Iraq’s oldest-producing oil field, is a flashpoint in the power struggle between the central government in Baghdad and the semi-autonomous Kurdistan Regional Government. Tensions in Kirkuk erupted into outright hostilities between the central government and the KRG on Monday following a Kurdish referendum on independence from Iraq. The KRG included Kirkuk in the Sept. 25 referendum despite competing claims to the ethnically mixed area, which lies outside the boundaries of the KRG-ruled Kurdish region.

Iraq, the second-largest producer in OPEC, pumps most of its 4.47 million barrels a day from fields in the south and ships it from the Persian Gulf port of Basra. But with Iraq supplying about 14 percent of total production from the Organization of Petroleum Exporting Countries, a recovery of curtailed exports from the north could affect crude markets. Brent crude was 71 cents lower at $57.44 a barrel on Thursday at 3:29 p.m. in London. The global benchmark closed Wednesday at the highest since Sept. 26.

Local Supplies

Iraq’s Oil Ministry deployed engineering teams at Avana and Bai Hassan after workers and guards stayed away from the fields earlier this week when government troops pushed back Kurdish peshmerga fighters from the area, an official at the central government-run North Oil Co. said Wednesday. The company will pump only enough oil from the fields to supply local needs until Iraq’s central government can reach an agreement with Kurdish authorities allowing exports from Kirkuk via the Kurdish pipeline to Turkey, he said.

As it consolidated control over Bai Hassan and Avana and other oil facilities in Kirkuk, the Oil Ministry reiterated its long-standing position that international energy companies must not sign any contracts that bypass the central government. 

“Irresponsible statements” by some officials or foreign companies regarding their intention to sign deals “with X party” inside the country are a blatant intervention in Iraq’s internal affairs and infringe on its sovereignty, the ministry said in a statement. While it didn’t identify any such officials or companies, the ministry issued the statement just a day after Russia’s Rosneft PJSC signed an agreement with the KRG to develop five oil blocks. 

Rosneft’s deal is in line with legislation and is similar to agreements that other international companies have in the Kurdish area, Mikhail Leontyev, a company spokesman, said by phone on Thursday. Russia’s state-run oil producer always abides by local law, he said.

“The government is reiterating its past statements that no one should be signing oil production deals with the Kurds,” said Jaafar Altaie, managing director of Abu Dhabi-based consultant Manaar Group, which has operations in Iraq. “I don’t think that at this stage it’s an effort to roll back any of the contracts currently in place.”

— With assistance by Anthony Dipaola