Iraq in talks to build crude storage in China, Pakistan

Iraqi Oil Minister Ihsan Abdul Jabbar this week said that the country was in advanced discussions with Chinese NOCs to build oil storage facilities in the Middle Eastern country as it seeks to increase sales in the region.

Speaking to Reuters, Abdul Jabbar said that while the talks had reached an advanced stage with the Chinese entities, Baghdad is also “discussing plans proposed by Pakistan for building crude oil storage facilities” there. He added that there were plans to build storage capacity elsewhere in Asia to “serve Iraq’s interests in marketing its oil.” Pakistan is seen as a key growth market for Basrah crude grades.

Meanwhile, he told Shafaq News Agency that serious discussions were ongoing “with a Chinese private company and other Chinese government companies over building jointly managed oil depots.”

Currently, around 70% of Iraq’s crude exports are sold to Asian countries, with China and India accounting for a combined 90% of this figure.

The move is seen as an important step in increasing Iraq’s flexibility of supply to key Asian markets and to developing its trading capabilities, particularly as it spreads exports across its Basrah Heavy, Light and new Medium crude grades. Sources from the country’s state oil marketer SOMO were quoted by S&P Global Platts last week as saying that January exports of Basrah Medium equated to 891,000 barrels per day (bpd) in January following its launch, amounting to around 32% of the total.

Meanwhile, Basrah Light accounted for 40% (1.1mn bpd) and Basrah Heavy 28% (782,000 bpd), the sources said. Basrah Medium has an API gravity of 27-29.

Access to Asia

Storing oil in Asia has been popular among Gulf state oil firms, particularly Abu Dhabi National Oil Co. (ADNOC). The company has had an agreement to store up to 6.29mn barrels at the Kiire oil terminal in southern Japan in place since 2009. It also agreed terms with Japan’s Agency for Natural Resources and Energy to store more than 8mn barrels of ADNOC crude, expanding and extending a deal that had lapsed a year earlier.

Meanwhile, a memorandum of understanding (MoU) was signed in November 2019 with Indian Strategic Petroleum Reserves Ltd (ISPRL) to consider taking space in the new Padur cavern in the southern state of Karnataka. ISPRL completed the process of filling a 5.86mn barrel allocation at the nearby Mangalore facility during the same month.

In October 2020, the Indian Cabinet gave permission for ADNOC to export crude it has sitting in storage held by Indian Strategic Petroleum Reserves Ltd. (ISPRL). The reserve has a current crude storage capacity of 4.55mn tonnes (33.4mn barrels) and is full. Meanwhile, the commercial quantity – the volume available for marketing by ADNOC – was recently increased from 35% to 50%. India sees this as an opportunity to turn the country into a hub for re-export, while ADNOC has around 17mn barrels available for sale from strategic locations in India.