Iraq crude exports hit new record, aided by Russian operators

24 September 2018
11 September 2018, Week 36, Issue 372

Crude sales from federal Iraq hit a record high for the second consecutive month in August – as upstream increments, a period of smooth operations at the southern export facilities and OPEC’s permission to loosen the taps felicitously coincided.

The announcement from the Ministry of Oil (MoO) came at the end of a period that produced several signs of long and short-term expansionary intent from both Baghdad and the IOC operators of some of the major southern fields.

Exports from the southern terminals averaged 3.583 million bpd in August, the MoO revealed in typically timely fashion on September 1 – 40,000 bpd higher than the 3.543 million bpd loaded the previous month.

The July figure had itself exceeded a previous record set in December – when Baghdad fast-tracked the commissioning of a new single-point mooring at the Basra export terminal to compensate for the loss of access to the Kirkuk-Ceyhan crude export pipeline, controlled by the Kurdistan Regional Government (KRG).

A settlement allowing sales to resume through the pipeline from the federally managed northern fields remains pending despite periodic hints at rapprochement with Erbil. Flows have been halted since the area’s recapture by Baghdad in October.

Division of control between the federal and provincial authorities of upstream oil and its revenues is the source of an intractable conflict dating back many years.

The increase in federal sales in August was attributable partly to a month of smooth operations at the export terminals – which are prone to disruption either by technical problems at ageing facilities or by bad weather.

The hike also followed OPEC’s late-June decision to instruct members to raise collective output by 1 million bpd – albeit in theory by complying with individual ceilings set in a deal in late 2016. According to the cartel’s data, Iraq’s total production in July – including that from the KRG territory – rose by 24,100 bpd to 4.556 million bpd, compared with a quota of 4.351 million bpd.

Incentivising the ongoing and planned southern ramp-up has been a now prolonged period of higher oil prices – offering much-needed relief to Baghdad’s stretched public finances.

The average selling price of Iraqi crude rose by roughly US$1 in August to just under US$70 per barrel – a high not seen for some four years. Monthly revenues climbed commensurately to US$7.729 billion – from US$7.532 billion the previous month.

Major production increases from the main southern fields are being hindered by lack of agreement between the MoO and IOC operators on revised terms to the technical services contracts (TSCs) signed at the turn of the decade.

However, there are signs of progress on the ground – with the foreign companies as eager as Baghdad to profit from sustained higher oil prices.

One of the few to have reached a new deal is Russia’s Lukoil – the operator of Basra’s estimated 14 billion barrel West Qurna 2 field – which signed an agreement in May reducing the plateau target from 1.2 million bpd to 800,000 bpd to be achieved by an extended date of 2025. It set an interim target of 480,000 bpd by 2020.

Development activity appeared to intensify in the aftermath – with bids due to have been submitted in late July for contracts to install water-injection facilities and expand a power plant at the asset. In early August, state-owned Basra Oil Co. – which oversees the MoO’s interests in the province – announced that production testing had begun at eight wells envisaged adding around 30,000 bpd to the field’s output.

BP has yet to agree revisions to the firm’s TSC for the supergiant Rumaila field – Iraq’s biggest producer, also in Basra – but Basra Oil reported in July that a new output record has been set in 2017 of an average 1.456 million bpd, a 3.2% increase on the previous year.

On a smaller scale, Lukoil’s state counterpart Gazprom is also moving forward with development of the estimated 3 billion barrel Badra field in the southeastern Wasit province.

The operator had been reported to be close to an agreement with the MoO earlier in the year for the then-production level of around 85,000 bpd, to be regarded as a plateau for the next several years – rather than the 170,000 bpd set in the firm’s TSC.

The final deal achieved remains unclear but the company attributed output rises at Badra and at the Garmian field in the KRG-controlled territory for a rise in the firm’s worldwide production during the first half, in a results statement published in mid-August.

The Russian firm also announced the commissioning of a second line of gas-processing facilities at Badra – adding capacity of 77 mmcf (2.2 mcm) per day. Despite the deep involvement of both Gazprom and primarily compatriot Rosneft in the autonomous Kurdish oil industry, Moscow and the Russian state oil companies have managed also to maintain good relations with Baghdad.

An MoO press notice on August 30 reported a meeting between Iraqi Oil Minister Jaber al-Luaibi, Russia’s Deputy Energy Minister Pavel Sorokin and Gazprom general manager Sergey Karafav – during which “the expansion of the prospects for joint co-operation in the development of the oil and gas sector” was discussed.

Edited by

Ian Simm

Editor

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